This Is Why Your New Singing Refrigerator Should Be Free
Have you ever wanted to listen to the latest hit song while grabbing last night's leftovers out of your fridge? That's exactly what you can do with Samsung's Smart Refrigerator -- this smart fridge includes an integrated touchscreen that comes with a Pandora app.
Yeah, that's right: a musical refrigerator.
Perhaps you'd prefer a pair of smart socks. Connect your socks to your phone or tablet with an app and you can start tracking in-depth specialized data on your running and fitness patterns. Don't worry -- they're safe for machine washing.
If that doesn't tickle your toes, consider how a smart umbrella will. This Bluetooth-enabled umbrella will give you weather updates and alert you if it's accidentally left behind on the bus.
Regardless of your gadgetry preferences, the fact remains that household items are currently undergoing a "smart" revolution. Everything from frying pans and forks to light bulbs and speakers now come Bluetooth-enabled and smartphone-controlled.
These objects are referred to as the "Internet of Things," meaning a network of physical items integrated with software, microchips, sensors, and connectivity. And they're poised to become an integral part of everyday life. Your everyday life.
According to Gartner, the technology market-research firm, there will be about 21 billion IoT devices in the world by 2020. This massive market is rapidly expanding, and the proliferation of connected devices has resulted in a changing landscape for companies and consumers alike.
Advances in manufacturing capabilities and output, as well as consumers' enhanced familiarity with IoT technologies, means that prices are dropping for once-costly connected devices. In fact, there's increasing evidence supporting the theory that IoT products should be free. And here's why.
1. 'Free' doesn't actually mean free.
That's right. Maybe you managed to get your hands on a gadget without paying any upfront costs, but that doesn't mean it was truly free. The value in IoT products is not in the hardware itself, but in the not-so-tangible software web hidden within.
The first reason this is happening is that when you're using a free IoT product, you become a data collection beacon for the company providing the product. Your usage metrics, buyer behavior and customer experience can be tracked and analyzed, supplying crucial consumer specs for marketers and companies.
These stats are invaluable to companies looking to forecast the market, as they provide unparalleled insights on consumers, and companies will pay a premium for those insights. IoT products simplify the data-mining process through inherent information collection, resulting in a substantial value increase for manufacturers and an added incentive for free IoT products. You're essentially trading your consumer data for a free product.
The second reason for "free" is that IoT products come ingrained with proprietary apps, and dedicated users are a goldmine. Some analysts have estimated that Facebook's and Twitter's average users are respectively valued at $128 and $118 apiece. A steady user base can make or break a company, and offering free or heavily discounted connected goods is an excellent way to develop a large pool of customers.
2. The free hardware model already exists, and it works.
The freemium model is not exactly new. Cellphone companies have a long history of offering "free" phones to customers in exchange for registering for contracts and services. While the phone is free upfront, you end up paying your fair share through long-term agreements with costly cancellation fees. This is called loss-leader pricing, where a product is sold below market value to encourage sales of other goods and services, and it's a model that could work well with IoT products.
A low (or zero) starting investment for IoT devices ensures that consumers will be roped in to a brand at no cost on their end. Companies can then regain revenue by pushing more profitable items or services through the free hardware. The free product, for instance, could have extra features and capabilities that could only be unlocked through payment, much like free-to-play, pay-to-win game apps.
3. IoT products are becoming cheaper to produce.
It's simple economics: When production output goes up, production costs on a per-unit basis decrease. With the massive influx of IoT items available for purchase, the cost to produce these once-expensive items has declined considerably. The initial research to conceptualize and implement the template behind IoT items is complete, and they're now more accessible and affordable than ever before.
A smart LED light bulb which can be changed into any color on the light spectrum through a simple app interface retailed for $100 just a few years ago. Today, because of lowered production costs, consumers can find the same smart bulbs for under $10.
Production costs are going to continue to diminish, and the true value of IoT devices will become more and more apparent through the revenue opportunities of their software, consumer engagement and brand awareness.
4. Consumers end up spending more.
There's no better price than free, and interestingly enough, a free price tag prepares unwitting consumers to spend more in the long run. Look at Candy Crush, for example. Candy Crush is a massively popular game available as a free smartphone download. The premise is simple: You pair different kinds of candy with matching counterparts to beat each level. So, how did a free game rack up an astronomical $1.3 billion dollars of revenue in 2014?
If consumers were asked to pay just $1 upfront for the game, many would balk -- why pay a dollar when there are so many other games available for free? But once you begin to play the game, you soon notice the numerous attempts at monetization and even a quasi-pyramid scheme that's being offered to you.
Specifically, you quickly run out of "lives," so rather than wait a couple of hours for your lives to recharge, you buy five more for $1. Or you receive additional lives by sending Candy Crush invites to your Facebook friends, spamming family and friends in the process. You can also buy performance-enhancing booster packs, pay to skip levels, purchase extra moves or invest in hints.
It's through these methods that consumers hesitant to cough up a dollar for a game can end up investing substantially more over a sustained period. They're roped in with a non-existent starting cost, are impressed with the playing experience and gradually warm up to the idea of spending their own money to improve upon it.
While Candy Crush is particularly voracious in its approach, this overall model is still applicable -- in perhaps more subtle forms -- to what will keep IoT products successful and sustainable in the future.
Free hardware, understandably, seems like a somewhat radical concept. But the arguments in support of free IoT products are logical; and combining their rapid advancement in manufacturing capabilities and affordability as well as the changing market landscape makes "free" both feasible and realistic.
Indeed, the future is filled with connected products, and it's up to companies and manufacturers to innovate their profit structures in line with their products'.
Rex Chen is the founder of TikTeck, a new brand launched at CES offering consumers “Factory Technology Direct” IoT, smart home and health/wellness gadgets priced at 30-70 percent less than comparable/competitive products. For the last 10 years Chen has held an executive role in IoT product development and manufacturing businesses and is now launching TikTeck to cut out the middle man and bypass traditional retail channels to offer the same high-quality gadgets direct to consumers at a fraction of the cost.