Monetizing Your Hardware Product
It’s hard to talk about ads without a grimace. We think pop-ups, flashing banner ads, freemium apps bloated with garbage we don’t care about. Nobody likes these things. But ads are critical to the success of many modern businesses — businesses designed around the fact that people are increasingly averse to paying up front for goods and services. This paradigm is starting to affect hardware as well. And luckily, it’s not all bad. If used correctly, advertising could make your hardware company more financially sound and even improve your user experience.
The product paradigm has shifted.
It’s no longer create a widget, sell the widget, rinse and repeat. Consumers now expect a lot for free. Forking over cold hard cash has become a big barrier to entry.
This isn’t new, but now it’s mainstream. This concept has been around in certain areas for a while: newspapers and magazines have long been subsidized with ads. But it’s become especially relevant since the rise of Internet services. Yahoo and Google started offering free search; free e-mail, and a host of other free services followed by monetizing your information and using it to present targeted advertisements.
It matters for hardware
Traditionally, this paradigm of alternative monetization hasn’t applied to hardware. Hardware was dumb (like a hammer) or, in the case of early consumer electronics, self-contained (like a Walkman). There wasn’t a bigger play in mind pushing vendors to discount the product up front.
But the advent of smart, connected hardware is changing all that. Hardware products that enable a bigger software/services play are discounted (or even free!) to get users on board. Think the Square Reader. On a more consumer-facing note, Amazon is now offering inexpensive tablets and e-readers subsidized by ad revenue.
Hardware is experiencing the same business model sea change that hit software in the early 2000s. Companies are giving more away up front, and monetizing through ads and services. Think AOL vs Gmail. You don’t want to be AOL. So if you’re in the hardware business, you’ll need to adapt. In time, it may be hard to compete in the market if you’re trying turn a profit through hardware sales alone.
You’ll want to think carefully about monetizing your hardware product and company. It might be one of the business models that Ben outlines for connected devices. But it might also may be valuable to consider using advertising as a way to bring your hardware product to the market and your users at a lower price-point, while keeping you business healthy.
Monetizing hardware through ads
So how do you monetize a hardware product? We’ll simply take a page from the book of the big software companies. Gather anonymous data on your users and use it to display relevant ads (either on the product or through a web/mobile interface). Of course, it’s a little more nuanced than that. To monetize effectively for both your business and your users, you’ll want to ask yourself a few questions:
- What data are you gathering?
- What’s the context of your data?
- What’s the context of your UI?
- When you combine all three, for whom does this data provide value?
- How can you present ads in a way that provides value to your user?
Case study: Navdy
Let’s think about this in the context of a hardware startup, Navdy. Spoiler alert: Navdy has a gold mine on their hands.
People spend a lot of time driving cars — nearly 38,000 hours on average in a lifetime. And in those cars they are fairly disconnected from the world around them — including the world of advertising. It used to be you would be connected through the radio, and advertisers could approach drivers through radio ads. But the advent of the AUX port and Bluetooth in the car means people are listening to their own music/podcasts (largely ad free). The next best thing is billboards. I suppose those still work; but I can only guess that by advertising metrics (views that convert to purchases) they are incredibly weak. It’s highly untargeted. (Note: The jury’s still out, but it doesn’t look good for billboards) And sure, drivers peek at their smartphones, but that’s not a behavior to bet on or encourage.
Navdy is putting a display in the car for a safer, seamless mobile interface while driving. They’re planning to sell the device for $499. I wonder if they’ll struggle to get consumers to part with that much cash up front in this modern age. They might consider lowering the price for the hardware and monetizing through other means. And honestly, the sky is the limit for these guys if they monetize correctly. Let’s think through why.
1. What data are they gathering?
It’s a better in-car display, primarily for navigation and communication. They know a lot about your location, routes, travel times. They may even know what you’re thinking while you’re driving if they mine the texts/tweets/calls you make through their hands-free system. That’s getting highly invasive though, so we’ll table that possibility for now.
2. What’s the context of that data?
It’s real-time. You don’t just know the routes someone usually takes, but where they’re driving right now.
3. What’s the context of your UI?
Here’s where it gets interesting. Points 1 and 2 could also be attributed to smartphone or GPS navigation, but not this. Navdy is putting a transparent display in their car. They claim this lets you consume more information, more safely, while in the middle of driving. You might be skeptical, but if we take this claim at face-value, we have a game-changer on our hands. We now have a safe way to present targeted information to drivers in real time. It’s like if radio ads could be tailored to your current location, if billboards could follow you around and know things about you. This might not sound compelling to you as a driver, but for many advertisers this will be solid gold!
4. For whom does all this provide value?
We have real-time driver location and destination data combined with a safe interface for data dissemination (ads). For whom does this provide value? Anyone who wants a piece of you when you’re on the road. Restaurants of all kind (especially fast food), gas stations, local roadside fruit and vegetable stands, hotels/motels, all kinds of car repair/maintenance facilities, the list goes on and on. Did I mention this a game-changer?
5. How can we advertise in a way that provides value to users?
Now that we’ve sufficiently geeked out over this ad-serving potential, it’s time to take a step back and think User Experience. I’ve said it before and I’ll say it again — UX is the front line of your company’s battle for success. If the ads detract significantly from your users’ interface with the product’s core functionality, users are going to have a bad time. By extension, your company is going to have a bad time. So ask —
how can I advertise in a way that is relevant and valuable to my users?
For Navdy, that might mean a few things. One example — partnering with businesses to provide discounts for Navdy users. If I drive by a Chipotle, and Navdy pops up with a coupon for free double-chicken… I might stop and get some Chipotle. I’m going to be happy with Chipotle, and happy with Navdy. If that is too invasive, another option might be allowing users to “opt-in” to ads by telling Navdy their moods and needs. Navdy supports voice interface to talk to Google Now and Siri, but they could build on that. Imagine if you’re driving around and you could say…
“Navdy, I’m hungry!”
“Navdy, I’m low on gas!”
“Navdy, I could really use a car wash!”
You could combine understanding users’ needs, location, and itinerary with partnerships and promotions to create a true value-add advertising experience.
This is just one potential illustration of a concept: you’re going to have to think monetization (maybe even through ads!) to compete in the next-generation hardware market. And that’s not necessarily a bad thing. Your business will benefit and, if executed correctly, your users can benefit as well. After all, if Mad Men taught us anything, it’s that there’s nothing inherently evil about ad-men.