strategic narrative

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?

Why Apple Is Not Building An Autonomous Car (and what it's building instead).

Barring a horrible spate of autopilot accidents the self-driving car movement is in full swing. The technology is improving at pace with Elon Musk declaring that “worldwide regulatory approval will require something on the order of 6 billion miles (10 billion km). Current fleet learning is happening at just over 3 million miles (5 million km) per day.” Every single one of the big technology and automobile players is plowing money and brainpower into being the company that ushers us into this utopian future where there will be zero vehicular accidents caused by human behind the wheel errors. Only Apple keeps denying that they are working on autonomous cars while hiring some of the best minds

But is Apple really building a car? Why would they? Why are we assuming that all that matters in this push is the actual development of the self-driving car? We forget there are a lot of aspects to the technology that is required to make that future happen. I believe Apple is building something else…

I believe Apple is building the autonomous car Operating System (OS) using the IPhone/Apple Watch as a portable telematic device: knowing where a car is, what condition it’s in and recording that information to make better decisions is something that will be required in every autonomous car. We all know our iPhones are already personal telematic devices (I hope you do). The phone tracks your location and your health (see images below).

Becoming the mobile telematic system OS is the most strategically adjacent move Apple can make. Why would a company ignore it’s most sold asset,surpassing 1Bn iPhones sold this past week, to focus on a product that is capital intensive and not it’s core competence? Why would Apple enter a space where the most talked about company in the space is one that has not sold more than 150,000 cars? Yes, the orders for the Tesla Model 3 has broken records for EVs sold but the real work will be in delivering those cars and that will be interesting to watch.

As we move into a future where fewer people will actually own cars but people will continue to buy IPhones I do not expect Apple to move away from what is working. Imagine an OS that enables any brand of autonomous car to work with the telematic system that is on the riders iPhone? Seamlessly. A standard autonomous car OS (ACOS) on your iPhone will improve routing and getting a car to you regardless of the cab/car service you choose to use — the autonomous Uber cab app will most likely only work with Uber cars — and improve customer service since you’ll get the closest available car/cab regardless of the autonomous car service provider.

Yes Apple is hiring the best automotive engineers. But it isn’t to build a car. It’s to learn from the best in the industry so that it can do to the industry exactly what it did to the music industry with iTunes. An ACOS will iTunesthe industry by

  • enabling each one of us with an iPhone to order any car or cab from any provider where you need it from your iPhone. It’s the a la carte model like the 99c single from ITunes.
  • levelling the playing field and accelerate the shared resource model where anyone with an autonomous car can rent out their own car to anyone without an intermediary and get paid through (you guessed it) Apple Pay.
  • combining with Apple HomeKit to provide a seamless convenience experience across the home and vehicle of the Apple customer unmatchable by no one else in the industry with their siloes of service.

If we accept that Apple cares about design and understands the customer then an autonomous car, with all it’s inherent business risks, is the wrong strategy.

Something else I know about Apple is that the company is too smart to continue to cede leadership in the battle for the future as being defined by Amazon (Alexa), Alphabet and Facebook (Oculus)…an ACOS for the autonomous future of the vehicle and the connected home makes too much sense for it not to happen.

It’s the only way Apple can compete in this fast approaching future...

Apple's Impending Problem? Lack of A Strategic Narrative.

No one can deny the value of a well constructed and well communicated narrative. There was a fab New York Times article about Larry Page this weekend that will continue to define how we feel about the business of Alphabet. In that article we get a sense for the strategic narrative that will define, in our minds, the next few years of business moves Alphabet makes. We rally round companies that tell compelling stories about themselves. 

Strategic narratives, stories in a business context, are a way to create a shared understanding of the past, an understanding of the work in the present and projections for the future state. We have examples of where this works; Alphabet/Google's is organizing the world's information and employees know where they fit in that future, SpaceX is working on transport to other planets for all of us and that keeps employees clear about their future aspirations. We also have examples of when a narrative is absent; Yahoo lost its narrative and its mojo because its leaders did not redefine the narrative  as the world changed around the company (and the ensuing employee exodus is inevitable).

For customers we can reverse engineer into what strategic narrative a company has when you see it take an action e.g Google becoming Alphabet (a holding company) or GE divesting its financial businesses (because it's strategic strength is industry not finance). And a lot of companies succeed even without having compelling narratives; these companies just don't become global behemoths.

But we have exceptions. The biggest company without a narrative right now is Apple. What is Apple's narrative?

See, a company narrative helps define where it's going or why it's doing what it's doing.  I strongly believe consumers buy the 'why'. When you don't know the 'why' what are you buying? Do I have a problem with Apple? Apart from Tim Cook's ill-fitting suit for his meeting with the Italian prime minister (I joke, I joke)?  There are too many Apple products in my home to suggest I have a problem with Apple. But 'why' would I buy another IPhone? Or why is my wife, and other friends, thinking it might be time to switch from Apple? These questions lie at the core of my worries about Apple.

To keep us buying IPhones the company will soon need to give us a more compelling reason why...Or else this story will turn ugly.