In this post we look at why it is important to test the value of connecting a thing. Someone or something has to pay the cost of connectivity.
One of the latest trends in technology is the hackathon and especially IoT hackathons . The winners of a hackathon often believe the path to product is easy. Especially with the availability of public clouds like AWS and Azure. Recent IoT announcements from AWS and Azure make connectivity appear even easier. This easiness perception is also true for many entrepreneurs and intrapreneurs. It is the reason that we have people talking about connected toasters.
But wait we need to stop and test the value of this connectivity. Why you say? There is a monthly cash outflow to the cloud provider for each connected device. To cover the cost of the cloud we need either a:
- Gain in operational efficiency;
- A monthly subscription fee; or
- An upfront increased cost.
Let us use AWS IoT as a case study to understand what the cash outflow for connectivity is. Suppose our device is a thing with 100 sensors attached to it. Each sensor sends a 500 byte message each second. It means that the thing will be transmitting 100 messages per second to AWS IoT. Using the $5 per million messages a month pricing model a thing costs $21.60 a month to connect to AWS IoT. That is only the cost of connectivity, any use of AWS analytics services will be on top of that.
If we assume that the thing has a three-year lifespan and that the current discount rate for capital is 5%, over the lifespan of a thing it must generate at least a $720.70 improvement in operational efficiency. Or the upfront cost of the device must be increased. We calculate the $720.70 using the net present value (NPV) of the cloud costs.
The cost of connectivity is far from free. When a user does not see value in connectivity for the thing. The upfront capital cost or the monthly operational cost will deter them from buying.
We used the NPV of the cost of connectivity as a measure for the value that connecting a thing must deliver.