A company must generate revenue to pay for its employees and its costs.
So a home automation company will make money by either
Two Business models:
1-Charging you a big amount for the hardware and give software for free
2-Charging you a small amount for the hardware and get subscription for its software.
Either way, it has to pay for its employees etc. Its just how you skin the cat…at the end of the day the amount of money collected over X many years will be the same. Has to be in order to pay salaries and costs!
Lets all together analyze the pros and cons of both models to see which one is better for both the company and you the user.
Model 1:
pro for business:
-seem like a quick cash hit for the company
con for business:
-Need to keep selling hardware to pay salaries for developers so that they can maintain and update the software for all existing customers (who are no longer contributing to the cost model)
-Need to calculate how many years the business has to support a customer so that they can calculate how long they will have to employ developers to service that customer who paid once.
-Business needs to make sure to lock the users in buying other devices from them vs allowing them to buy third party devices (Not aligned with what users want)
-Software is seen as a “cost center” vs “profit” center so apps/software never gets the attention they deserve in this model (Not aligned with what users want)
Pro for users:
-They pay one off
con for users
-high upfront payment (the amount is paid for the hardware also includes all the costs of software development for the next few years)
-locked in to the company because of their business model. Provider has no incentive to allow user to use third party products.
Model 2:
pro for business:
-Long term steady recurring revenue
-Revenue is matched to costs (you service who is paying you)
-Software and integration to work with everything in the marketplace becomes the “driving motivation” for the product (aligned with what the users want)
con for business:
-very slow build up of cash revenue.
-requires sizeable upfront investment until company can fund itself.
-hardware is seen as a commodity
Pro for users:
-The platform is aligned with what the user wants
-Software/Apps that addresses all their needs
-Works with everything (that is the service you are paying for! So provider has to deliver that)
-Provider who gets paid every month to service you.
-Cost of entry to Home Automation is reduced, now users can get into home automation without big upfront investment. (its like buying a home using Mortgage vs paying all upfront)
con for users
-Monthly payments (albeit very small and when calculated over lets say 5 years is still same as or less than buying the hardware one off etc)
Like I mentioned, if you calculate the numbers for both, what the user pays over 5 years is not going to be much different…but these different models create different incentive structures for the provider that either align the provider with what the user wants or mis align it. Model 1 forces providers to create a walled garden ecosystem where users are anchored to a specific product and can’t inter operate easily…we have to break this cycle! We have to give users the freedom to do anything and everything they want in home automation without the user having to get a PhD in programming!