The Internet of Things (IoT) is growing at a rapid pace as people connect more and more devices to the internet. The expectation according to CISCO and others is that in 2020, 50 billion devices will have joined the IoT. In this article Aly Syed, System Architect at Industry consulting for Philips Innovation Services, explains what is needed to have successful IoT business models.
IoT business models
One of the first applications of IoT is in industrial automation and servitization. In the industrial IoT context, optimization of production environments can be done through IoT – with active sensing and control. Supply chain optimization is also targeted, as through optimized production, inventories can be shrunk. Another very important aspect is self-diagnostics done by industrial equipment connected to the IoT, so that the up-time of production facilities can be increased. While first steps are made in industrial automation, consumer related IoT is following quickly.
IoT business models enable companies to pursue new opportunities. They can play a different role towards their customers as suppliers of equipment and services. At the same time, this new role confronts them with new challenges. When playing in the IoT market, companies will be faced with the following:
- A different set of stakeholders.
- Value provided by their propositions will have to be redefined.
They would be making not a single device but supplying a device in a network.
- Staff in a company will need training for connected systems.
- New organizational structures and capabilities will have to be built.
- The architecture of their devices will have to be adapted.
These 5 points related to building successful IoT business models are briefly explained below by Aly Syed, System Architect at Industry consulting for Philips Innovation Services.
1. Different stakeholders
The stakeholders that have to be considered in a product design are usually the end users, product owners, regulatory bodies, society at large, technology providers, suppliers, and sales & marketing. In the IoT business model, other stakeholders start to become important as well. These include product maintenance providers, partners who will make part of the value chain, infrastructure providers such as network, and possibly cloud service providers. Companies in an IoT business model will have to deal with even more stakeholders than in the case of standalone products.
2. Changed value proposition
With IoT devices, the value provided by a device and services is usually a complementary functionality in the complete value chain. This means that companies need to understand how their new IoT enabled devices and service propositions deliver value for their customers and stakeholders, and how they can generate good profits in an altered value chain. IoT business models can move fast, therefore, for continued competitiveness, companies will need to find and invent new applications and services at a quicker pace.
3. Staff retraining
Many companies have a legacy in making standalone devices or devices that are connected in a vertically integrated product portfolio where all aspects of a set of products are under their own control. In such situations, they often have expert capabilities in-house for realizing functionality of devices, but they struggle to add connectivity and interoperability to devices to enable E2E IoT applications. This requires building new capabilities in their organization and train their staff to reinvent their organization for these new IoT related capabilities.
4. New organization structures
With the new type of devices that play in a network, a different set of organizational structures will be needed. For example, a new type of support organizations is needed, as devices in the IoT network need to be kept up-to-date with the latest applications and security features. This requires that a part of the organization keeps itself busy with maintaining the devices and applications that are out in the field. This is in addition to the customer-help-desk organization that typically is there already for customer questions.
5. Changed architecture
The IoT and servitization paradigms bring a new connected architecture, which is different from systems of standalone devices. Companies often find that in this new paradigm, they have to deliver a set of IoT connected devices instead of single standalone devices without connectivity. This requires a fresh look at the architecture of devices to adapt them for IoT.
Architecting for IoT requires not just to understand and implement the functionality of devices. Also take into account the total application built on IoT that might use devices and services provided by other players in the market.
The life cycle management of IoT devices takes on a different meaning. As compared to standalone devices the life cycle view must consider the different stakeholders in the value chain at present and foresee their future needs as much as possible. All this requires re-thinking the architecture to choose concepts that would fit the Internet of Things paradigm.
Curious about what IoT can do for your business model?
Changing an organization in the aspects mentioned above is not easy. It is a slow and tedious process if organizations want to do this on their own. It is advisable to get a fresh outside-in look to assess your organization’s capabilities and processes. And define actions for adapting them. It is good to seek help from others who are further down the road.
“How is the IoT disrupting your current business model?”
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Aly Aamer Syed
Industry consulting, Philips Innovation Services
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