Apr 9, 2013

IoT Business Models

A few weeks ago, I had the pleasure to be a stimulus speaker at a New Digital Economics event in San Francisco. I spoke about IoT Business Models during a full day session - entitled Digital Things – which was devoted to new opportunities from the ‘Internet of Things’.

Digital Things ran in parallel to sessions on Digital Commerce and Digital Entertainment so there was definite competition for conference delegates. As a measure of how seriously Silicon Valley is taking the IoT market, the Digital Things session drew by far the largest audience.

Since the IoT market is still comparatively underdeveloped in commercial terms, my presentation focused on lessons learned from the M2M market. In particular, I highlighted several insights from the business strategies that service suppliers and providers are implementing.

M2M service providers – hardware and technology vendors, mainstream and specialist service providers, integrators etc. - are employing a variety of strategies in the M2M market. A common theme to their actions is to ‘compress’ or vertically integrate along the traditionally fragmented value chain; This was previously described in my post about corporate initiatives. For example, partnerships involving two or more companies in adjoining parts of the value chain can reduce complexity and costs when implementing M2M solutions. Improved coordination along the value chain can shorten the ‘time to market’ while offering greater confidence and certainty to non-telecoms. companies that are looking to adopt M2M connectivity. And, there is greater scope for innovation as knowledge barriers start to break down.

The IoT market differs from the M2M market. IoT involves services that exploit data from multiple sensors and connected devices that may initially have been deployed for separate and unrelated purposes.

To illustrate this point, the middle image in the following exhibit shows the case of a set of services delivered in a home. These services – home automation, smart metering and assisted living – would each be deployed for a specific application purpose. The ability to combine data across services could result in a higher quality of services (through improved information integrity) as well as new service opportunities (e.g. home security, wellness monitoring).

So, which types of company and business models will prevail in the IoT market?
  • One possibility for how IoT services will develop takes the form of over the top (OTT) providers. Companies would leverage data (subject to the data being accessible) from multiple sources to create and supply new services (which carries the threat of disenfranchising existing silo providers).

  • Drawing on the concept of ‘value-chain’ compression in M2M, there will be analogous opportunities, horizontally across value chains as shown in the right-most image of the illustration above.
The challenge for companies in the ‘new’ value chain is to understand where value might be concentrated – e.g. customer interface, billing engine, customer and connected device identity management, etc. – and how this translates into potential control points to orchestrate the value chain.

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