With CES in full swing, I have been thinking more about hardware businesses that have a SaaS component for ongoing revenue and support. I have personally experienced this with a Dropcam (now part of the whole Google Home system so technically a Nest Cam) that was an initial hardware purchase($199.99) with a $9.99 non-required component to get a 7 day history of content the camera collects. This is a great example of a hardware sale that probably happened at a nominal profit (maybe loss?) that is definitely now “in the green” because of my 2+ years subscription. The simple math is that $9.99 x 24 = $239.76 which has cleared the price I paid for the device. I forgot the original source of my purchase, but there was certainly a low CaC for them.
The latest I saw today was the Norton Core which is a device from Symantec that is a home router that has a $99/year SaaS security service. In a world plagued by malware and networked devices being taken over, this is primed to prey on the fears of IoT owners. It is unclear to me how it protects those devices.
I see this as becoming the norm, as more connected devices have a support requirement that goes beyond the purchase from a shelf/ecom store. With OTA updates happening in cars, firmware updates being required, and a list of other requirements to keep connected devices up to date, it is clear that companies need this revenue stream to sustain this support. Embracing this outcome vs. shunning the inevitable “smart” everything. Just see Internet of Shit for some hilarious tweets. I take a positive approach which is; how can this business model affect small startups entering this space, and what can we learn from building businesses this way? Can hardware costs come down to $0? Can a locked in monthly SaaS fee cover the business model needs of a new startup to compete with a large hardware co? Does this introduce a new business model for crowdfunding a product? Time will tell.
Other examples include things like a FitBit which has a physical cost, then an upgrade to “pro” with a monthly subscription underneath. Loss leading hardware products have always been around but seeing a proliferation of options and scenarios brings me back to the early 2000’s where folks were giving away computers/laptops for the option of a monthly subscription fee + advertising on top of it. I have always appreciated this model — even if it resulted in some of the biggest failures of the dot com era. Anyone remember eMachines?
Good examples of this include networked cameras, wifi routers, smart watches, phones (financing or data contracts), readers/tablets, and more. What am I missing?
The biggest issue is bringing a product to market, getting initial sales, and getting folks over the penny gap of a monthly subscription. Not an easy feat, but if you can do it and have low CaC and high LTV it makes for a great blended business model of Hardware + SaaS (HaaS).
Also published on Medium.