Sphero founders wanted to do robots. In 2010, Adam Wilson and Ian Bernstein asked investors for money to build a shop around their smart-controlled robot ball. In some cases, however, investors wanted to know what the company could offer: after they sold one robot to the customer, what happened next?
The answer was that many hardware companies turned to: a recurring revenue model that allows them to rely on customers who pay every month or year. To find out that this model is, Sphero experimented with turning the robot into a gaming machine, but later decided to go for developer tools and make robots coding toys that would appeal to schools. At this point, the team focused on education as a primary goal and with it came customers who could pay year after year.
“We created a new product that was tailored to this group [of educators], "Wilson says. "But then the business model will change a bit because once you have 30 packs [of robots], schools have a reoccurring budget, right?
The team had to find a way to make their robots the best way to spend their money every year. It made software for iOS, Android and Chrome OS that went to teachers and students through the process of using Sphero. Teachers can use the product to teach concepts such as circuit, shape, and variables. Its product meets state education standards and right now Sphero is in 40,000 schools around the world.
"We could now regain revenue in a way that made sense, rather than selling one ball to one person who knows if he buys another thing," says Wilson.
Hardware is a notoriously difficult business. Startups often close even after increasing hundreds of millions of dollars. However, some survivors find their way forward with recurring incomes in different forms. This also applies to large companies. Apple focuses on monthly services, as iPhone sales are not increasing, and many companies, such as Keurig and Nespresso, are creating gadgets that rely on pods that must be constantly purchased. Meanwhile, startups like Peloton require content subscriptions to make the most of their hardware.
Education is a unique market and Sphero has created specific products and offers that appeal to schools in particular. The team has built its own educators product that comes in a multiunit protective case and has a longer battery life. It has also developed a new way of selling products, including a plan that allows teachers to call Sphero at any time to replace the unit. The company also launched this year's program, which includes individual learning with Sphero. Ultimately, Wilson says the team will start charging more premium content, as well as lesson plans, and will share revenue with the teacher who did it.
“You can actually be a superstar teacher [who] it could be a kind of secondary living content for us in the future, ”says Wilson.
A total of 40,000 schools changed Sphere's conversation with investors and made it an attractive sale.
“It's like saying that we have 40,000 customers who will be shopping [a product] next year and every second year, so it's a big deal, ”he says. “When we first started, we laughed at many rooms. It wasn't any of those other great things, no education, we just want to be a robot ball, and you connect it to the iPhone, and that's the product. A lot of people [were like]"What is it? I do not get it. "
Recurring revenue models can strengthen hardware companies and make them more lucrative for investors and, in the case of Sphero, it actually supports it.