The Internet of Things (IoT) will offer unprecedented opportunities to businesses. Dominic Smith explores how business models need to evolve in order to reap the rewards of the IoT economy.
If the recently held Mobile World Congress
is any indication, then the Internet of Things (IoT) seems to have already permeated the mainstream. While the overriding theme last year was connected devices, this year the focus was more towards the next logical piece in the IoT puzzle – how businesses can make money from these connected devices.
With a surge of new and faster streams of data, combined with powerful predictive capabilities and smarter networks, there is no doubt that IoT will present a staggering number of business opportunities across multiple industries. In fact, McKinsey predicts that IoT has the potential to become a $11.1 trillion market
by 2025. Clearly, there is a goldmine waiting to be unearthed!
The IoT value chain
The IoT value chain is essentially composed of four key components – devices, applications, platforms and networks. If you are in the IoT business, you will operate in one or more of these areas and many businesses are pursuing successful ideas in this value chain. In fact, technology companies like Uber have already established innovative business models in line with IoT. Uber has, in effect, made its drivers and consumers smart assets and leveraged both intelligently to become the market leader in its space.
Uber is just one nascent case in point. In the future, though, when IoT adoption well and truly picks up steam, many businesses will be able to develop similar smart, data-driven business models which were hitherto unimaginable. One key aspect about IoT is that it allows you to accurately measure and therefore monetise different aspects of your business. Think about the opportunities which might be created by developing new ways to generate revenue from your business data, storage capabilities and/or shared networks. IoT will also allow businesses to use data to develop advanced products and services that address newly identified gaps in the market.
However, the IoT is a complex ecosystem which consists of many moving parts. Many service enablers will also be demanding a slicing of the pie and this means companies have to think hard about the right business model for them. There is no one-size-fits-all model and it will depend very much on where your organisation fits in the IoT value chain.
Different Needs, Different Models
Connected devices and allied services open up newer opportunities for businesses to differentiate themselves from their unconnected competition. By adding sensors and software, businesses can bring in newer functionalities to an existing product. Thanks to the inbuilt value in these products, customers will increasingly invest in connected products instead of their unconnected brethren. These product lines will also increase profits as customers sign up for related value added services.
Another fantastic model for IoT is the subscription model whereby companies can charge for their services based on a recurring subscription fee. This model is well suited to “access” based products which provide the IoT connectivity, however, usage-based charging may be more appropriate for other members of the IoT value chain. For example, a logistics application may combine elements of location information, mapping data, route optimisation and yield management, each of which may be sourced from a different supplier with commercial settlement models ranging from revenue shares to API calls.
Data also opens significant monetisation possibilities. Clearly, it is well suited to businesses which boast of many customers and are dealing with a huge volume and velocity of data, however it doesn’t have to include customer identifiable information to be of value. This is a fundamentally new model, primed for the IoT era, and even if you don't own a product or service, you can use this data to spin off revenues around it. Think about the latest ruling by US President Donald Trump
allowing ISPs to sell customer browsing history information to third parties. IoT will allow many such services to thrive on top of data.
Lastly, larger enterprises can also consider a platform or ecosystem play. Think about Apple, Google or even Amazon that can easily build a wide range of IoT products. For instance, Google can readily connect its smartphones with IoT devices like Nest, Android Auto and other components, to build a thriving platform with multiple synergies. These ecosystems are a valuable data hub, which offer huge opportunities to the parent as well as allied companies.
In order to truly make the most of IoT, it is also important to forge symbiotic partnerships with other players. With value-intensive partnerships, you can share risks, improve efficiency and accelerate your time to market. For instance, outsourcing processes such as charging and billing
to an experienced third-party, can help you to come up with innovative new pricing mechanisms. It also frees up your time to focus more on developing your core business.
The IoT industry is still finding its bearings and it's only recently that genuine use cases are emerging. There is still a lot of scope to innovate and disrupt the industry. The best thing for businesses is to be agile and able to change quickly, be it in business models, technology or strategy.
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