How IoT Can Transform HVAC Business Models

According to a recent report, the HVAC market in North America is projected to reach $58.56 billion by 2028 at a compound annual growth rate (CAGR) of 5 percent between 2021 to 2028.

The outlook for the HVAC industry is promising, to say the least.

As company leaders within the sector compete to get ahead, many are shifting their focus toward the Internet of Things to build connected solutions that add additional value to customers, contractors, distributors, and manufacturers.

In a recent webinar presented by Particle in partnership with HVAC distributor Watsco, industry leaders discussed how IoT has revolutionized the HVAC industry and helped manufacturers expand their margin. In this article, we’ll share some insights from the webinar and learn more about:

• Common challenges with the traditional HVAC business model
• The benefits of connectivity in HVAC
• How IoT will revolutionize the HVAC industry
• How to find the right IoT partner for you

Traditionally, the HVAC industry has faced challenges such as unprofitable truck rolls, unplanned downtime, reactive maintenance, and energy inefficiency.

IoT-based HVAC systems have solved or alleviated these and other challenges by giving the entire value chain more visibility into system performance. Increased insight means more system reliablity and more efficient and profitable operations.

Connected systems enabled by IoT technology is revolutionizing the HVAC business model. It's allowing companies like Watsco to become industry leaders by making it easier to create recurring revenue streams, validate new business models, reduce costs, and help contractors drive operational efficiencies.

Selecting the right IoT platform can help you get new connected HVAC solutions to market faster. In an industry where most equipment is still unconnected, you'll be able to differentiate your products, solve customer problems more effectively, and bring your business into the future.

Traditional, or unconnected, HVAC systems expose HVAC businesses to several common problems that are hard to solve without the insight that connectivity can bring.

Before we understand how connectivity can change HVAC business models for the better, it’s worth understanding where the industry is starting from. Here are a few common issues you might recognize:

Unprofitable Truck Rolls

One of the biggest challenges an HVAC contractor will face is maintaining a profit margin on every truck roll. Often, profitability is reduced when a contractor sends a senior technician to handle a task a junior one could handle. In other cases, the contractor has to send a technician just to diagnose the issue, before returning again once the correct parts have been ordered.

Unplanned Downtime

Unconnected HVAC systems can allow issues to persist for long periods of time without anyone being aware of them. Excess vibration, low pressure, excess current, etc. - all of these can eventually lead to system failures.

This downtime is rarely planned, which means your repair technicians have to get out to the system immediately, diagnose the issue with no prior insight (other than what the system owner can see), and determine if the correct parts and HVAC equipment are available to fix it.

Reactive or Time-Based Maintenance Programs

Most HVAC contractors and manufacturers offer a warranty and service plans with their systems. These often include routine maintenance at a regular interval, say, yearly.

This leaves you open to inefficiencies in your maintenance agreements with customers. With time-based maintenance, you might be sending a technician out to do a yearly checkup on a system that is still performing at a high level. Or, the system could be on the verge of breaking, but the issue couldn’t be prevented because you couldn’t track the condition between scheduled maintenance.

Energy Inefficiency

Traditional HVAC systems can, over time, become less efficient. They require more energy to provide the same output, and in many cases, can be using excess power.

This is detrimental to customers who will pay more for power. Additionally, new standards for smart commercial buildings and regulations to help combat climate change will favor HVAC manufacturers and contractors that can provide demonstrable energy savings.

Leading HVAC companies are already seeing the benefits of connected systems. In a recent webinar, we talked with Watsco CTO Mario Cruz about how his company has made IoT part of the company DNA.

As the largest distributor in the HVAC/R industry, Watsco provides IoT solutions to HVAC distributors and contractors, helping them transform customer experience through innovation.

It is now helping homeowners and HVAC contractors monitor their A/C systems 24/7 via Particle's IoT platform, which yields easy access to information, facilitates real-time decision-making and diagnoses, and creates value for customers by maximizing resource utilization and minimizing system downtime.

Let’s take a closer look at some of the benefits associated with bringing HVAC online.

Increased Insight

With IoT, HVAC manufacturers and contractors can access information about product performance, customer use, diagnostics, and so on.

Mario Cruz, CTO at Watsco, calls this the “check engine light” of the HVAC world. It lets you know if something is wrong and gives you the chance to fix it before it’s a major problem. It also lets you track usage and gain insight into how systems perform over the course of their lives.

You can then use this valuable and easy-to-access data to make instant adjustments and inform decision-making regarding future features, services, and roadmaps.

Heightened Reliability

For HVAC contractors and manufacturers alike, maximum uptime is essential to proactively identify operational issues, and IoT technology offers stable 24/7 cellular connectivity. An IoT-based system can also spot issues remotely—even before homeowners or the manufacturer can proactively conduct maintenance. Maximum uptime is a key selling point.

More Efficient and Profitable Operations

Connected systems give you insights that make it easy to diagnose system issues remotely. Thus, you’ll be much more likely to have only profitable truck rolls, as you can ensure your technicians have the parts they need to fix an issue in one trip. Additionally, you’ll avoid sending the wrong technicians for the job.

Improved Operational Efficiency

IoT technology also enables companies to remotely control adjust product settings, thereby unlocking the potential to significantly improve equipment efficiency and performance while maximizing resource utilization.

For example, Watsco’s revolutionary IoT-enabled product Sentree is:

• Easy to install, and can be added to most residential A/C units in 10 to 15 minutes
• Able to gather and transmit real-time data regarding temperature, amperage, and air pressure, enabling leak and wear detection ahead of unplanned downtime
• Equipped with stable 24/7 cellular connectivity that doesn't rely on residential Wi-Fi networks

Check out our blog post on the top applications of IoT for HVAC to get a deeper look at key use cases.

IoT is the foundation of connected HVAC systems. It’s the system of devices and hardware, connectivity, and software that makes it possible for HVAC equipment out in the field to be monitored by everyone in the value chain.

There are multiple ways that IoT can influence your go-to-market strategy and change your HVAC business model for the better.

Recurring Revenue Streams

By connecting HVAC devices to the internet, contractors and companies can access a vast data pool that helps both parties proactively spot maintenance needs.

With the preventative maintenance capabilities offered by IoT, today’s HVAC companies can detect and address problems before customers take notice. Customers who sign up for a preventative maintenance plan will get better service and provide you a recurring stream of revenue.

Additionally, customers that care about having access to HVAC system data, such as building owners, can be sold access to dashboards that give them real-time information on their systems. These data visualizations and dashboards can be another source of recurring revenue.

New Business Models

The traditional way of selling an HVAC system is based on selling a customer a system in a one-off sale, with a warranty or service plan. Regardless, the customer owns the asset.

IoT unlocks new business models for selling high price equipment. Instead of selling the asset, you can install it for little to no cost to the customer and charge them based on usage or uptime.

This can be a compelling offer for a potential customer. They can invest in an HVAC system at lower cost, and they know you have an incentive to keep the system running because your revenue is tied to uptime. Connectivity can completely overhaul your sales strategy.

Cost Reduction

For many companies, getting the right contractor at the right job with the right tools in hand can be challenging—not to mention costly. Every truck roll costs money, and if you can’t minimize them, you could be losing a lot of money unnecessarily.

With IoT, you can use real-time data dashboards to gain a bird’s-eye view of the field, leveraging insight from IoT-equipped devices and contractors’ smartphone apps to ensure each customer is paired with the best HVAC technician for the job.

Product Differentiation

Did you know that efficiency-optimized A/C systems can reduce A/C-related electricity bills by up to 25%? In an industry as competitive as HVAC, it’s statistics like this that can differentiate IoT-enabled products from the pack.

What’s more, HVAC companies equipped with IoT technology can offer 24/7 system monitoring—compared to two isolated system checkups per year.

HVAC systems that come equipped with condition and usage dashboards can also differentiate you by giving customers more control over their spending and usage.

Manufacturers, distributors, and contractors who sell IoT-enabled systems can also tout the energy efficiency benefits of their products.

Increased Customer Loyalty

Thanks to the improved visibility afforded by IoT-enabled sensors, HVAC companies that take advantage of IoT technology can perform proactive customer service, remotely, as needed. In addition to enjoying peace of mind, your customers will enjoy reduced downtime and improved service response times, which is likely to increase their company loyalty.

"Achieving a 5% to 8% customer retention rate will generate 23% more profit," said Chris Boross, senior product manager at Particle. "And that’s exactly what contractors are looking for."

For Watsco, providing IoT solutions to HVAC distributors and contractors has certainly paid off: Over 2,000 systems are already online, about 700 million data samples have been collected, and approximately 500 problems were identified within a 16-month period.

Finding the right IoT solution for HVAC can take your business model to the next level. Here are a few features you should consider when looking for a platform to partner with.

Cellular and WiFi Connectivity

WiFi can be an effective connectivity option, but it’s not always the most reliable choice for HVAC. Ultimately, systems that connect via WiFi are dependent on the customer’s WiFi being reliable.

WiFi signals can be blocked depending on where the system is location. If the customer changes their password or loses connection from their provider, you’ll lose visibility into the system.

That’s why a platform that also offers cellular connectivity is critical.

Particle is one of the few IoT platforms that offers global cellular coverage for customers and will pick the best carrier based on your geographic location to ensure you get the best reception and secure the best roaming agreements.

For example, the Watsco Alert Me product often has a backup battery that we can operate from. So long as we’re not using a home Wi-Fi connection, we can still communicate via cellular in case of a power outage.

Are you struggling to find the right connectivity option for your project? Check out our guide to cellular vs. WiFi for IoT.

An Integrated Platform

Many IoT solutions offer hardware that forces you to build your own fleet management solutions, negotiate with telecom providers, get FCC certifications, write your own software, etc.

Look for an integrated IoT platform that covers hardware, connectivity, and software for you. This will allow you to focus on solving customer problems and growing your business, not trying to make different point solutions “talk to each other.”

Integrated platforms, like Particle, solve the most common problems companies run into when trying to build their own IoT solutions, such as:

• Device management
• Security and certifications
• Hardware selection
• OTAs
• Data management
• Scalability

Over-the-Air Updates

Over time, you’ll need to upgrade and add functionality to your systems. An IoT solution shouldn’t make you go to every device manually

IoT platforms that only offer hardware or fleet management make over-the-air updates difficult. They don’t give you insight into if the device is being used, and they can fail if the connection is lost.

“Over-the-air updates were brutal for us before [Particle],” Mario said. “Every once in a while, someone would send me a warning that a device was bricked and needed to be rebooted. Nobody wants to have to call a customer and ask them to go turn their air conditioner off and back on.”

Particle provides industry-leading OTA update capabilities via our EtherFlash solution, which includes:

• Compatibility verification that automatically verifies firmware-hardware compatibility to prevent devices from bricking.
• Intelligent updates that automatically deliver updates when devices indicate they are ready to receive them
• Dynamic delivery that automatically adjusts the speed of data transfer to the capabilities of the network
• Update confirmation that will automatically fall back to the prior firmware if the update is unsuccessful

Security

One of the most common fears consumers and businesses alike have when it comes to IoT is security. No one wants to have a hacker gain control of their system or have their personal or business data compromised.

Look for a platform that offers leading IoT security features such as SOC II, GDPR, Privacy Shield, and CCPA compliance.

As Watsco Chief Technology Officer Mario Cruz put it, “One of the reasons we love Particle is that we don’t have to worry about [security] because that’s all being managed."

More specifically, all Particle devices enter end encryption between the Particle cloud service and our customers. When customers pull data from our cloud service into their own clouds, those links also encrypted. In other words, we securely apply standard network encryption to protect all end-to-end communications with encryption keys.

To minimize bugs and vulnerabilities, we perform regular software updates with as-needed fixes deployed across fleets of devices—meaning that if issues are found in the field, they can be fixed in the field.

An Easy-to-Use Development Platform

Many IoT platforms offer development platforms that allow you to code your own IoT solutions. The complexity of most of these platforms require you to hire people with considerable experience in building connected solutions, driving up the cost of your IoT project.

A good IoT partner will reduce that burden and turn problems that used to take multiple engineers to solve into more manageable ones.

Particle, for example, has done this by creating a platform that combines connectivity that just works out of the box with a Device OS that abstracts away most traditional firmware development and uses low-code/no-code principles to make development simple. Particle enables ease of use through APIs, SDKs, and lots of documentation.

The ease of implementation helped Watsco quickly validate the target market opportunity for their new connected systems.

“We found that the data could actually predict when a breakdown was coming,” Mario said. “The rest is history. We could build a business case around what we had with Particle.”

IoT and the new service models it enables will be essential for running a successful HVAC business in the future. Finding the right platform to build your solution is the first step.