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Total Cost of Ownership

There are clear indications that the lifetime “cost to serve” of a connected device is forcing some IoT companies, in particular those in low-cost product categories such as fitness trackers or data-intensive product categories including smart security cameras, to review their pricing or service offerings. 

 

As IoT product suppliers and their customers are beginning to realise, the true cost of ownership of connected devices and services is much more than the initial purchase cost of the in-home device. In fact, there are clear indications that the lifetime “cost to serve” of a connected device is forcing some IoT companies, in particular those in low-cost product categories such as fitness trackers or data-intensive product categories including smart security cameras, to review their pricing or service offerings. 

Total Cost of Ownership (TCO) is a critical success factor for the first wave of digital energy services which are focused mainly on helping consumers understand and optimise their energy use. The only proven route to market for high-volume adoption is a free-to-consumer model, typically funded by energy utilities. While most companies can justify the initial roll-out cost as a one-off marketing investment, they often struggle to justify the ongoing cost to serve unless it is reasonable and predictable. Too many promising projects have been cut short as a result of unbudgeted or increasing ongoing costs, and as a result haven’t delivered the improved customer engagement they set out to realise.

Companies considering digital services technologies should consider two types of ongoing costs as part of their TCO due diligence, in addition to the cost implications of factors discussed above such as System Security & Data Privacy and Logistics.

The first cost type is cloud operational cost, which can vary substantially from vendor to vendor. Suppliers that designed their platforms for cost-effective operation at scale will have carefully considered how much data needs to be sent and how this can be sent most efficiently from the in-home to the cloud, simply because data volumes directly impact the data transfer, ingestion and storage costs which form a significant part of the overall cost of operating a cloud platform. For example, sending electricity readings once every 3 seconds 24 hours per day is inefficient (each packet sent is mostly overhead with only a small payload) and unnecessary (the likelihood of a consumers wanting the see how much energy they are using in real-time at 2:00 am is very low). The more considered approach of sending real-time data only when requested for an individual device and sending it in compressed periodic batches in all other cases can reduce the data volumes sent by as much as 5000%. Other ways to reduce data volumes include using lightweight data protocols such as UDP instead of verbose alternatives such as HTTP, and compressing and packing data before transferring it from the home to the cloud. Economies of scale also play a major role in cloud operational cost, so providers that already have large numbers of devices on their platform will have a cost advantage over new entrants or competitors with less market traction.

The second type is the cost of providing customer support. Contrary to the assumptions of many companies evaluating digital energy solutions, this cost is influenced by many factors other than simply the reliability and quality of the technology. Smart in-home product design (such as including a display for showing diagnostic messages instead of just some LED status indicators which typical users won’t understand without reading a manual) means fewer support requests, which is the best way to reduce support costs.  When a support call is unavoidable, the ability for a support agent to diagnose and remedy the problem quickly is important – time is money, and the quicker the problem is solved, the better the customer experience. Leading digital energy services platforms therefore provide customer support teams with tools that aid with problem diagnosis and resolution.

About the authors

This white paper was written by Rik Temmink (Chief Data Services Officer) and Adrian van den Heever (Chief Technology Officer) of geo, the UK’s leading smart energy technology company. If you would like to explore the topics discussed in this white paper in more detail, please contact geo by phone on +44(0)1223 850 210 or by email at marketing@geotogether.com.

Download the full white paper here

Total Cost of Ownership (TCO) is a critical success factor for the first wave of digital energy services which are focused mainly on helping consumers understand and optimise their energy use.

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