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5 IoT-based Business Models to Leverage

The deployment of the Internet of Things (IoT) has disrupted niche organizations across multiple industries like financial services, technology, agricultural equipment etc. The organizations are shifting from traditional products to smart offerings and outcome-based deliverables.

Evolution of technology

We have progressed from reading a physical copy (paperback and hardcover) of the book to reading it on your device or on Kindle. We furthermore explored the traditional way of reading a book with the audio version of the book. We now can not only download the book and read it anywhere on our smartphones but can also just plug in the earphones and listen to it. This is defined by the progressive model by Amazon:

Amazon →Kindle →Echo →Audible

We need to evolve in a similar manner in the industrial world by thinking of the offer from the consumer’s perspective. Efficiently creating and monetizing value shared by IoT solutions will lead us to profitable outcomes.

Impact of IoT on businesses

Machina Research expands the scope of its IoT forecasts and highlights a USD 4 trillion revenue opportunity in 2025.

Business models require thinking through the consumption side of the offer (demand side). This explores the demand of the product and its usage. Your customers don’t merely purchase your product. They furthermore look for more opportunities – what they want is what your product can do for them. And hence, it is important to understand the consumer aspects of your offerings. Moreover, the business models also require thinking on the production side of the offer (supply side). This helps you better understand how the IoT product is created and delivered for a symbiotic growth.

Let’s further explore various IoT-based business models.

Product Business Model

This model enables to provide your customers with a physical IoT product and the software. You gradually can upgrade the software by notifying the customers of its cost and it will mirror the results at the consumer-end directly.

Example:

Let’s take an example of the self-driving cars. The company doesn’t have to additionally provide any product to the users; instead it can continuously improve the car by updating its onboard model and application. The firm can introduce a new feature and update its users by sending a notification. The users will just have to update the system to leverage that feature.

You can also use this model to collect data to create information service products to eventually sell with the product-service model.

Product-Service Business Model

This is a hybrid version of the traditional product business model and the newer service business models. This model enables organizations to offer a physical IoT product along with an informative model. Implementing information service to a product based on its collected data will ensure incremental revenue and provide a competitive advantage. Providing continual information to monetize the availability of the analyzed data that enhance the consumer’s process is the key of this business model.

Example:

Let’s take an example of ‘connected vehicles’. With the attached Onboard Diagnostic II chip, users will be able to know the temperature, RPM count, pressure, engine load, location of the vehicle, and fuel level. This information-based model revolves around vehicle safety, saving fuel and ultimately, reducing the maintenance cost. This information or data is the key for predictive maintenance that allows the customers to know the health of their vehicles to further avoid any mishap.

Service Business Model

This is a XAAS – Anything As A Service business model. The company rents a physical product with IoT solution and pays for it only for a period while it is running or working. The service business model is not exclusively related to software or physical products; it can also include the information products. This model allows the organizations to have a predictable and recurring revenue stream by providing their IoT services to the customers for a certain time period. However, your IoT solution must not only have value as a service, but, it must be aligned with how the customer expects to receive, consume and pay for the offering.

Example:

Let’s take an example of jet engines. The customers that don’t want to own and maintain the engines by themselves lease the IoT-based jet engines from the seller. The seller also provides maintenance by implementing predictive analytics. The customer pays for only the times where the engines were running and producing outcomes for them.

Service-Outcome Business Model

In the service-outcome business model, the seller becomes a business partner. There are two aspects of the service-outcome model. The first aspect is similar to the service model but instead of focusing on offering a single solution, there are product lines that are monetized. The other model comprises of monetizing based on the outcome or the performance of the offered solution.

The service-outcome business model has an add-on payment based on saving that incentivizes the vendor to improve its customer’s business. The add-on payment in this situation would be related to the reduction in human operating expenses.

Example:

Let’s take an example of the mining industry. Instead of providing the mining equipment, the company provides IoT solution for the equipment to their customers. And based on the data collected with the use of that IoT solution, the company can further adjust the equipment in accordance with the parameters of the better-performing ones. By adopting the service-outcome business model, both, the buyer and the seller receives an incremental value. This enables them to establish a baseline and generate a percentage of the incremental revenue or incremental savings based on phases or milestones.

Outcome Business Model

The final business model comprises of an entire IoT ecosystem. It brings together the producers (vendors) and the consumers (customers) of the IoT technology in order to monetize the solution. Instead of partnering with multiple vendors, the customer becomes part of an ecosystem that delivers the desired outcome.

This goes beyond the service-outcome business model where payment now is completely based on performance. This allows the alignment of the business models of the vendors with that of the customers.

Example:

Let’s take an example of smart farming. The outcome business model focuses on providing a bundled solution for an effective agricultural solution. Instead of providing separate solution for monitoring the moisture level of the soil, the sunlight, and the CO2 emissions, this model offers a set of solution that combines all these in a package. Separately, each of these separate product categories provides value, but when allied, dependencies are organized, creating greater value than the sum of the parts. This enhances the monetization aspect of the solution for the customers as well as the vendors as the payment will take place according to the outcome that each solution provides.

Analyzing business needs through IoT

The greatest challenge in implementing IoT isn’t technical. The key challenge lies in the business aspect. The challenges are further followed by lack of standardization and strong security. However, these are not the kind of challenges that can’t be addressed and solved by any organization. The key focus should be on using IoT technology to deliver and monetize outcomes.

Business issues may be more challenging than technology. Inculcating IoT solutions into your business practice does not mean you must change your business model too. It is equally important to align your sales and distribution goals along with implementing IoT initiatives. You can then continue on the IoT business model continuum as the time progresses.

Outcomes effectively revamp industries. They impact the business in a way that enables you to identify your competitors and partners. This reduces competitive risk and prepares you to decide when to spend the time and the resources needed to develop your IoT business and product line.

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