internet of things

New Business Models For IoT and IIoT.

With projections that 6.4 billion devices will be connected by the end of 2016, a 30% increase from 2015, we are fast approaching the point where every device will be connected. “Our device is connected” or “Internet of Things enabled” will no longer count as a value proposition, it will be a base expectation. With this commoditization will come a need for businesses to find new avenues for value creation and capture, new business models. The current IoT business models are borrowing from the traditional retail product or even software-as-a-service subscription models. Even, according to ZPRYME Research, incumbents in the industries that will be most affected by device connectivity expect their business models to change.

Old models

The basic business models that currently exist in the IoT and IIoT space are

Retail sales (the Nest model): Equipment or device manufacturer expends its own money or raises financing to build products which are then sold to customers. The equipment or device manufacturer only captures value during that one transaction, the expectation is that there is a positive margin between revenue and expenses and that customers will buy more of the same product or more products. See my view on its own money or raises financing to build products which are then sold to customers. The equipment or device manufacturer only captures value during that one transaction, the expectation is that there is a positive margin between revenue and expenses and that customers will buy more of the same product or more products. See my view on that here.

Product lease/Subscription (GE model): Instead of selling the machine/device, the vendor leases the product to the customer. This has been around for ages, see your Comcast cable box for example.

It’s imperative that new businesses and startups should explore new models for value creation and capture. The new business models will stem from the increased interactions afforded by IoT and IIoT (Industrial IoT) devices. There are four elements to the interactions;

 

  1. the device owner/user (a person)
  2. the connected machine or device 
  3. flow of data between the person and connected device/machine
  4. improvements to the performance of the person and connected device from the analysis of the data.

Interactions between the four elements provide more combinations of value provision and value capture.

  1. Revenue from Industrial Insights: This is one of the models GE is providing through its Predix Virtual Power plant platform. For example; a startup serving power plants or utilities (say a predictive analytics startup) does not need to rent a turbine to be able to provide failure prediction to the utility. GE, by open sourcing its virtual plant (the cloud in the image above), generates additional revenue from the data. Additional revenue is captured through the use of insights, gleaned from data gathered from the machine/device, to make a service quality promise. This promise could be in the form of machine failure prevention or real-time machine performance improvements. The customer pays at an agreed upon frequency.

2. Capturing value from human factors, analysis and machine interaction: An example will best serve here. Some business models can lie at the intersection of the 4 elements above; A technician (Element 1 in the interaction) is augmented by Artificial Intelligence (Element 2) through a smart device like the Proxxi Safety Band (Element 3) during power line maintenance (Element 4). There is a business model where a customer pays for insights drawn from the interactions. In the case of Proxxi (image below) the device keeps the technician safe by alerting him/her and the control room when unsafe conditions are detected. Call it pay-per-warning.

 

3. Revenue from personal insights: Continuing the example above, with the four interacting elements, there is a business model that is an open and collaborative application platform where a platform (say Fitbit) makes some or all of their data open source and an external party can pull anonymized data and generate insights for the community. Apple is working on this model with Aetna, a partnership announced in a press release declaring 

Aetna’s iOS-exclusive health apps (within the Apple Watch) will aim to simplify the healthcare process through a number of features, including: ..Care management and wellness, to help guide consumers through health events like a new diagnosis or prescription medication with user-driven support from nurses and people with similar conditions.

The aggregate data from the collective goes to improve the health conditions of one individual.

While the personal connected device/IoT market seems to be struggling right now, there is some value to be created and captured as the industry matures and better use cases are defined. On the other hand, the IIoT space is seeing a convergence in interest from the customers and clear use cases that provide value. 

 

We no longer have to be confined to the traditional business models because we have increased interactions between more elements. We made the mistake of copying thenewspaper design when we transferred text to the web. Let’s avoid stifling the IoT and IIoT opportunities because of our own lack of creativity. We can

What new business models do you see in the IoT/IIoT space?

The Failure of The Connected Home

There is a war going on in the connected home space. Google is trying to own your home by providing the connection layer (through Fibre) and the energy and security layer (through Nest), while Apple is butting in with Homekit built directly into IOS software. Unsurprisingly, utilities are trying to get in the game too, with acquisitions and partnerships of their own (e.g. British Gas purchasing AlertMe). The telecomms companies are also making sure they aren't left out; with Comcast partnering to sell energy to consumers and other telcos adding security and energy to their internet/cable offerings. But these partnerships, acquisitions and experiments miss the point...more on that shortly.

What is the connected home you ask? The simplest definition is the connection of devices and tools in an automated way to save labor and effort in the homeOverly simplified as it is this definition highlights two fundamental problems that the companies above are facing

  1. Adoption is low and slow: because there is a push to sell customers stuff without providing clarity on the benefits to the customer. It's hard to convince a customer that savings of $25/year on your energy can justify a $100 expense on a device. It's even more difficult to sell most people on the need for a connected smoke detector when they hardly notice their current one until the battery runs down and it starts to make that dreadful how-can-I-break-this-device sentiment inducing noise. Save less than you spent on the energy saving device does not make for a compelling marketing message..
  2. Interoperability: there are competing devices and standards, there is no Operating System (OS) for this space as of yet. The players are trying to solve this either through the Thread consortium approach or through a home hub device approach. The focus so far has been on making it easier for the provider and not the customers; my mother in law does not care about your standard because, guess what, she's not buying a standard or platform. This feels very much like the betamax vs VHS battle (if you're my age you'll remember) or Blue Ray vs HD DVD battles. Like a few other analysts, I think there won't be one winner here. There will be a few standards and platforms that cater to specific use cases.  

The two issues above are anchored by the same core keylog; what my mother in law (and the average consumer) cares about is that her home and any technology in it maintains her sense of self esteem while she stays reassured of her well being and safety, without stripping her of her sense of control. The promise of the connected home currently makes consumers feel like they are not empowered in their own home and it's to the benefit of the device seller.

Providers need to stop selling automation and cater to the feelings. 

Consumers buy the why not the what...