IoT's Untapped Revenue Potential: Why the Promise Fell Short

Carsten Rhod Gregersen of Nabto

Expectation and reality do not always match – and this is even more pronounced when it comes to projected revenue streams. For example, says Carsten Rhod Gregersen, CEO and founder of Nabto, industry insiders and investors were certain that making money in the connected space of the Internet of Things (IoT) was not limited to physical product sales. Rather, other revenue streams would become possible after the initial product sale, including value‑added services, subscriptions, and apps.

In reality, only a small portion of users opt for premium add‑ons; most are content with basic remote control and real‑time data. What became of the promised revenue streams, and where is the industry moving?

Expectation vs reality

Early on, industry insiders were convinced that connected devices would unlock continuous value. Over‑the‑air updates meant products could evolve after purchase, and real‑time usage data allowed vendors to refine services, improve forecasting, and enhance customer support.

Subscriptions were expected to provide steady, recurring revenue, securing customer lock‑in and freeing sales teams to focus on new prospects rather than repeatedly re‑selling to existing customers.

Yet the reality diverges sharply. Affordable, ubiquitous cloud hosting has turned many IoT offerings into freemium models. Consumers, accustomed to free trials in music and news, rarely pay once they experience the service. Intense competition has compressed margins, forcing vendors to rethink revenue models.

Survival of the fittest

Only a handful of vendors have mastered subscription‑based IoT. Tracking services are a notable outlier, as they rely on costly cellular data that necessitates a subscription.

Most vendors, however, pursue alternative approaches to close the revenue gap. Some embed IoT platform costs directly into the device price. Video‑surveillance cameras illustrate this model: they are sold without subscription fees, and vendors absorb the connection costs—often via peer‑to‑peer streaming—to keep per‑camera operating expenses low, making the retail price reflect total cost.

Another strategy blends basic services into the device price while reserving premium add‑ons for subscription. The subscription tier must generate sufficient margin to offset the cost of the bundled services.

Industrial IoT (IIoT) and consumer IoT target distinct audiences. Industrial buyers are willing to pay for add‑ons that deliver measurable efficiency gains, whereas consumers remain cautious, as personal savings are often minimal.

Finding what works

Vendors’ revenue models tend to be hybrid. According to an IDC survey, 33% of IoT manufacturers earn at least half of their revenue from hardware, while 38% generate at least half from services.

When devices have multi‑year lifespans, vendors must balance price with service inclusion. Successful models embed low‑cost add‑ons to satisfy customers, a strategy that works best with connection‑centric products.

This approach is unsuitable for many IIoT solutions that depend on cloud data storage and rigorous privacy safeguards, limiting the feasibility of free‑bundled add‑ons.

Nevertheless, consumers and businesses are willing to invest. Global IoT spending is projected to reach $1.29 trillion, with B2B applications representing roughly 70% of the market. Vendors must identify a performance‑price sweet spot; while subscription revenue may remain elusive, adaptability is key.

About the author

Carsten Rhod Gregersen is the CEO and founder of Nabto, a company that delivers a peer‑to‑peer (P2P) platform for IoT devices.