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Internet of Warranty could be the next big disruption!

“A thought struck me as I switched on my TV after a few days of hiatus… I’ve barely used the thing more than a few hrs./week on an average… yet it is Out of Warranty! …Now if only there was Internet of Warranty”

We know that Warranty periods differ vastly by Manufacturers, Product categories, type, SKUs as well as local Govt. regulations, market & competitive forces

Typically, manufacturers determine the warranty period(s) based on a combination of actual & simulated failure tests (lab, real-world, etc.) augmented with complex statistical modeling (historical, predictable, DOA, etc.)

The key shortcoming of today’s warranty terms is it’s one-size-fits-all model; i.e. doesn’t take advantage (or distinguish) of the variance between light & heavy users of the product

This variance, depending on the product type of-course, could be used as a leverage to seek alternative revenue models & optimize user experience


We already have Usage Based Insurance (UBI)… so how about Usage Based Warranty (UBW)?

Increasingly, Connected / IoT consumer products (from toothbrushes to toasters & TVs) transmit myriad of data points that are processed into monetizable insights for whoever owns it (or multiple owners)usage is one such data point (on/off, standby, etc.)

What if in this evolving IoT era, there could be an opportunity to determine product warranty based on their real-time usage?

For example, the more the device is used, the closer it could get to it’s failure threshold, therefore warranties could be custom designed, priced & offered to each individual user in real-time accordingly


Like UBIs, UBWs too have Benefits & Challenges

Some key benefits that come to mind are –

#1. Real-time Monitoring, Simulations & Warranty Personalization

Manufacturers (think: their AI back-end) would have the capability to monitor every single active device’s usage (& fail rates) in real time In turn could perform real-time statistical modeling & simulations (usage-to-date, estimated future use, predicted failure rate, etc.)  In turn could alter (read: personalize) warranty periods throughout the product’s lifecycle, down to each individual user

Connected Corners
Real-time warranty personalization concept

#2. Maximize (lucrative) Extended Warranty Revenue + Consumer Choice

In addition to traditional option (pre-purchase extended warranty @ POS); manufacturers could also offer a Variable Extended Warranty (VEW) option i.e. accurately evaluate & present the user with the option to purchase ‘extended warranty ’ at any point through the product’s lifecycle

#3. Bundling with Insurance

For Customers: Multi-device / Multi-contract discounts on UBW & UBI bundles

For Insurers: Ties the depreciation of the product on real-time usage thereby allowing for surgical precision in Insurance metric calculations (premiums, co-pay, deductibles, etc.)

#4. Partnerships / Revenue opportunities

‘Internet of Warranty’ needn’t be the sole domain of product manufacturers but also extend to 3rd party warranty providers such as Asurion, Squaretrade, etc. through many different models… one of which could be revenue share partnership type


Potential Challenges & Mitigation

1. Higher proportion of ‘light-use’ base could adversely impact VEW revenues

Mitigation – Continuous data analytics should in theory help mitigate this risk over time as manufacturers (& their AI systems) allow for better real-time predictability & pricing to preserve bottom lines

2. High infrastructure investments (Data centers, AI, Machine Learning, etc.) in collecting, analyzing & storing mountains of data points in real-time; not to mention the solution’s viability would also vary significantly by manufacture, product category & geographic region

Mitigation – As with any modern technology, the further it scales & matures over time, the further (infrastructure) costs would come down (Outsourced – IaaS, AI-aaS, ML-aaS / In-house Purchase)

3. Regulatory hurdles in introducing VEW in regions where minimum standard warranty terms are stipulated by the local government

Potential Mitigation VEW could be offered (& priced to factor in) as anextension / standalone / subsidy to standard warranty as mandated by local governments

…and more!


So…

The warranty category shares many underlying complexities with it’s insurance brethren; which itself is undergoing rapid disruption on many fronts driven by a proliferation in IoT, Gig Economy & Leasing [topic for another discussion]

Much is yet to be explored, so this post aims to merely scratch the surface & start a dialogue…

Stay tuned!