The Internet of Things (IoT) is opening exciting possibilities for connected devices, especially wearables. However, it is important to select the right business model to make the most of what IoT has to offer. Carola Ingegnieros examines some key IoT business frameworks that can be adopted by wearable manufacturers and allied service companies.
The introduction of IoT into businesses and society comes with a strong promise of productivity and efficiency by improving real-time decision making, solving critical problems and creating new innovative services and experiences. However, as the IoT lifecycle matures, there is much debate about how existing business models can be applied to monetise IoT products and services.
But before we jump into the IoT business frameworks, it is also important to understand that value creation is at the core of IoT technology. Not only do IoT solutions transform the nature of traditional business models, these also pave the way for compelling value propositions, such as an AI-based personal coach that delivers smart suggestions by analysing data connected to its customers.
Wearables in action, from healthcare to payments and beyond
Currently, the leading industries creating value through IoT wearable technology are sports and healthcare, and we all know about Fitbit and similar devices that aim to improve exercise and sleeping habits as well as general health. From their early days in the fitness industry, wearable IoT solutions have since evolved with advanced professional healthcare applications. Indeed, the future of wearable medical technology is exciting, especially if we consider the different areas that are being disrupted such as care for the elderly, real-time location and patient data-gathering. Just think about the great opportunity that IoT represents for research about conditions such as arthritis, depression and Parkinson’s disease.
While the healthcare industry is indeed ripe for disruption, IoT wearables find a lot of applications in other areas as well. For example, there are some big leaps being made in the wearable payment solutions field. However, innovation in this space must overcome issues of trust and security before it becomes ingrained as a regular payment method. In that sense, payment-oriented wearables will take a little time to evolve. Nevertheless, big businesses are already collaborating in this space – the partnership between Visa and Fitbit Ionic
shows us a glimpse of our connected and cashless future.
Of course, the tech giants are taking their first steps in the field as well. For example, Amazon is said to be working on a pair of “smart glasses”
that will be embedded with its Alexa virtual assistant, which can be summoned anytime, anywhere. Amazon will use this device to further its business goals of selling more products and making its users’ lives more convenient. The company is also adopting IoT technology for improving efficiency in its warehouses, having recently patented a smart wristband
that will use haptic feedback to guide the wearer to the correct stock location, speeding up the picking and packing process.
IoT Business Model Frameworks for wearable solutions
Not surprisingly, innovation cannot happen from a technological standpoint unless the value created is effectively captured, so the service-driven business model of an IoT solution provider should be built to yield recurring revenue. Having millions of users but no actual revenue, must be seen as a failure.
In an earlier blog post
, we described why business models will need to evolve to reap the rewards of the IoT economy. Drilling down a little further, let’s now examine the best business models for an IoT solution provider looking to tap into the devices layer (wearables) of the IoT value chain.
1. Product Model:
This is a basic transaction-based model in which wearables are sold depending on their features. However, it also misses a huge opportunity, as making money in IoT must not be limited to physical product sales alone. Wearable device sales should always be a combination of product and services. However, to do this, the IoT solution provider needs to proactively replace products, roll out regular updates to match lifestyle and usage, and so on.
2. Subscription Model:
The wearable device is sold ‘as-a-service’, which means that customers can subscribe with a standard recurring fee (i.e. on a weekly/monthly/yearly basis) or with fees based on Key Performance Indicators (KPIs) important to them. The subscription model is one of the most flexible business models, as it can be implemented along with other business models and meets the expectations of both the service provider and customer. It allows IoT solution providers to tailor their business model to best suit customer demand in terms of payments, assuring regular recurring revenue. On the other hand, customers can decide how to access the functionalities of the device: how many times, for how long, and so on, and then paying accordingly, resulting in better customer relationships and engagement. Of course, you need to have a robust IoT billing platform
to support your subscription service.
3. Cross-Selling Model:
In this case, the wearable device is sold at a discount or even at a loss. However, the real goal is to make customers accustomed to the wearable and then sell allied products and services (add-ons, other products, etc). One of the benefits of this model is that customers can be ‘locked in’ due to personalisation and context gained through the information collected over time and the network effects.
4. Data-Sharing Model:
This is a hybrid approach that combines the physical product sale with additional information products. Data is collected and used not only for improving the core product and creating service add-ons, but also for selling on to third parties in an anonymised form, as an extension of the core business. This business model works best when there is sufficient profile and behavioural data to demonstrate its intrinsic value in new markets.
In order to transition from a purely product-based business model to a service-centric or hybrid model will require many companies to redefine their customer value proposition, set new strategic decisions to combat competition, and reconsider organisational structure. This will require businesses to define a diverse set of applications in which IoT can be deployed to merge with relevant, real-time data sources to capture new value.
IoT and its wearable solutions offer a real opportunity to make an impact, but it requires businesses to reorient their mindsets. Organisations need to look at new ways to capture value for themselves and create value for consumers. However, at the core of the IoT frameworks listed above, lies the need to put customers first. Are companies ready for it?
(Image Credit: Shinya Suzuki on Flickr)