This is a series of three posts that explain the story behind iomando from different perspectives: design, business and technology. These have always been my main areas of concern as a co-founder and product owner of the company, so I thought it might be a good idea to write them down and recap some of the work we’ve done the last years.
I’ve already written extensively about iomando: product announcements, company vision, business strategy, design decisions, fundraising, you name it… But these series are not intended to cover each step we’ve made along the way. Instead, they aim to structure some of the most relevant content and then briefly elaborate on the key ideas behind each domain. Think of it as the indispensable summary you should read if you really want to understand the company.
In this article I’ll walk you through our story from a business standpoint. I'd say that the company structure and the way our business model works is quite curious, so it’s worth understanding the journey that has led us there.
Prologue - Puts together all the pieces that led to the foundation of the company.
Pivot - How we shifted our business proposition from park sharing to access control.
The Subscription Model - Why iomando operates as a SaaS.
We Were Wrong about Pricing - Why our first price structure proposition failed and how we fixed it.
Thoughts on Vision - New opportunities showed up as we explored the market, and how this helped us understand the true nature of our business.
Beyond Parkings - We did a quick video to explain our audience that iomando could also be used in all kinds of doors, not just parkings.
Focus - The challenges that focus presents when you are first to the market and the potential harm this can do to your business.
On Business Models - How our business model has become our best defensibility mechanism and what set us apart from our competitors.
Plastic for Bits - The underlying principle that enables every single feature iomando has.
Turning a Weakness Around - How we turned the pain of the installation process into something valuable for our customers.
Changing Behavior - Some of the difficulties you'll encounter bringing something new to the market.
API iomando - Introducing the license program that will allow third parties to integrate or build upon our access technology.
Metrics - How we measure success at iomando.
Hard Choices - The tensions that arose because of the conflicted interests of our vertical and horizontal strategies.
Invest - Some thoughts on raising money and our financing round.
When we founded iomando back in 2011 we were convinced that it was not possible to monetize and therefore build a sustainable business out of a product to just open doors with the smartphone. So we looked beyond and aimed for the bigger opportunity that could be build on top of our technology..
Our access control system gave us the ability to manage the private property in an elastic way, and we saw in there the underlying technology that could enable a park sharing business. Think of it as some sort of AirBnB for parkings spots. We realized that iomando could unlock and set free this supply of empty valuable spaces and become an alternative to traditional parking at a fraction of the price.
Looking back we had the stupid assumption that a mobile service to open doors was a weak foundation for a business. Despite no one was building something similar and it could potentially solve a real problem, we diminished the idea because we felt that we had to be building something with great impact (whatever that meant). And the truth is that we ended up building something that nobody wanted.
In addition, almost as a courtesy service, we also provided an access system to the parking owners. That wasn’t a strategic decision, it was simply something we thought it was nice to have, because, why not? Turned out, our customers were far more interested in the technology to open doors rather than the possibility to share their parking spots. At that point, we shifted our strategy to become a product driven company providing access systems solutions based on mobile technologies.
A few weeks later we were already shipping the version 1 of our product mainly aimed to households and small communities.
When you think of an access control system, a one shot purchase comes to mind. Although this might be true, from the very beginning, we positioned iomando as a SaaS.
Why we did that? Well, a lot has changed since then, but our mission has always remained the same: we wanted all of our customers to get the best access experience, regardless of the device they would use. That means we couldn’t just ship a product and let it be, we made a commitment for the greater good and technology was our medium, so we needed to keep its pace.
The moment we shifted from a product like keys and remotes to a software based solution, we gained a competitive advantage, that at the end, is what makes our business thrive. But we also lost control of the platform in which we were building upon.
Just think of 10 years ago. A service like iomando would not even be possible. Back then there were another kind of devices that didn't look like anything of what we have today. Now imagine 10 years from now. Nobody knows what we'll be using, and unfortunately, we don’t know either. But we know that we'll support what comes next. We are committed to offer the best experience, and that means providing new tools for whatever product emerges in the future.
Because of it, unlike a traditional key, iomando gets better with time and we wanted every customer to be on the same page, enjoying the latest version of our service. Like it or not, the only way to fulfill this vision was operating as a SaaS.
Beyond that there was a dogmatic reason why we wanted to bet on the subscription model. We strongly believed (still do) the subscription based model created a more truthful relationship between the customer and the company. Since we would be paid in a recurrent basis, we would always be under the customer evaluation. Thus subscription based revenue would force us to always deliver the best possible service.
One-shot payments might seem more appealing for some customers: “because I own the product”, “because I’m not locked in”… But we couldn’t disagree more.
Unlike subscriptions services, one shot pricing frees companies to further improvement upon existing customers, because no additional revenue is generated from them. So all the efforts are placed in acquiring new customers, not in taking care of the existing ones. On the other hand, SaaS environments incentivize companies to place the same amount of effort in retaining existing customers, generating a long term commitment while creating a healthier framework in which business is done.
Now that we are on the same page with the subscription model, let's understand what this subscription meant for the customer and other stakeholders of the company.
We run two independent business units that work together shaping the whole iomando experience:
- On one side we had a hardware device that we install next to the access.
- On the other, we had the software side: the mobile app and the management tool.
At first, we tried to blur the lines between the two, and offered a single rate in order to facilitate the understanding of the overall product. But those were diametrically opposed business, that operate under different dynamics, and despite we learned our lesson, we clearly failed.
We thought that the service would be more attractive if we sold the idea of "access experience" instead of "a piece of hardware attached to your door". The idea of paying for an action sounded like more goal oriented than paying for a piece of electronics and software.
It was an inflection point for iomando. As we were striving to regain our focus, we just started to move beyond parkings and betting on larger spaces, where our technology could have a bigger impact. All of it, in some way or another, helped us to better understand the dynamics of the market and leverage our uniqueness in order to create the structure that would set ourselves apart from our competitors. Here's how it worked.
Partnering with our Distributors
With that in mind, we designed a business model that would constitute the foundation of what iomando has become today.
We knew we had a dependency on our distributors to sell the product among small customers. It was the infantry, the entry point. But they wanted to be greatly commissioned for each sale.
That was the lever, though: because we fully blended the profit associated to the sale on the hardware side. We did it because each sale implicitly brought an installation and a hardware unit with it. This way distributors benefited from a huge markup of every hardware sale plus the installation cost.
But there was more. Because we were only producing two hardware versions we could lower the price due to our high production scale and the efficiencies we had built around them. On top of that, we could deliberately sell the device almost at a cost, because we'd be getting the revenue from the SaaS in the future, passing all the margin to the distributor. This way, our distributors were highly incentivized to sell our product, because they saw more revenue coming in from each sale.
The Beauty of our Business Model
What I just described is the low margin business running on the bottom of our structure, but we are clearly not making a living out of it. It is the SaaS we built on the top of it that drives all the profits.
Every time a distributor installs a device, the device automatically connects to the internet and ties back the customer to our backend. This is what enables the customer to make use of the cloud based service and the mobile apps. Therefore the customer is ours, and also is the possibility to deliver a great service and earn a subscription that could endure for a long time.
It’s a great business from a financial point of view, because we simultaneously run two separate units at a time that are intentionally designed to enhance each other:
- Hardware: as the devices are being produced, they are directly sold out from factory to distributors, freeing us from the operations associated with the inventory.
- Software: the subscription side is really interesting, because it is high margin, recurrent and potentially expandable with new offerings.
This double edged model, that both incentives distributors to push our hardware and forces us to keep working on having the best product, is the reason that fuels our business, what set us apart.
Enter the iomando API
Despite it required some adaptation on both the customer and distribution side, the model worked out pretty well. But in 2014 it was up for review again, because we iterated on our business strategy. We did the boldest and most ambitious move since our foundation, and we introduced the iomando API, a license program that would allow third parties to integrate or build upon our access technology.
The problem with that is we lost control over the end user. Our new customer was a third party that leveraged our tools to directly interact with the end user. While we internally ensured the quality of the experience with a program build for this purpose, the monetization strategy differed from our vertically integrated product.
That being said, we saw in there the opportunity to bring our double edged strategy to the next level. We enforced that API integrators had to use our hardware in order to operate under our technology and also install through our distribution network. It was great for them, because most of them didn't want to worry about hardware issues, and it was great for us because we saw a big boost on our hardware production.
The hardware compatibility across both vertical and horizontal channel was one of the best decisions we've ever made, because it facilitated a lot of synergies across product lines and also generated the lock-in the platform needed in order to take off and protect itself.
As an engineer, when it comes to business strategy and defensibility, I’ve always thought of technology: understand the problem better than your competitor, build an amazing product around this assumptions and wait for the customers to come.
This assumption defines an ideal scenario where the product or the technology is not constrained by any other factor. But the truth is that there are constraints all over the place. So protecting yourself only with technology might be possible to a point, specially if you own patents or any kind of intellectual property. But if you don’t, technology is still key, but it is definitely not enough.
Therefore, creating a great strategy is all about understanding what makes you unique so you can design around this assumption. At iomando we struggled identifying which was our unfair advantage, but the moment we did, we build a strategy around it that perfectly aligned the interests of each stakeholder of the company.
 It is important to understand the difference between the customer and the user. The user is the person who actually uses the app to access. She doesn't pay anything at all, because it is a customer who granted the permission. The customer is the one paying for the service, the one with the administration tools. Within an isolated household the line between a customer and a user might be blurry, but in a community, is the building manager who pays for the service, regardless if she later pass the costs along to the community.
 iomando has two types of hardware, the first module - codenamed AICD - which features an internet connection and is able to talk directly to the servers. This is the one we use when the installation has two accesses or less that are close one to another. The second module - codenamed ARCD - is a radio device that connects to AICD in places where there are more than two accesses within less than 2 km. We use ARCDs because they cost less - they don't have GSM module - and it's easier to manage all the doors fleet from just one internet connection. Anyway, both of them share a lot of components, so it's easy to optimize the supply chain around them.