Published On: Thu, Jun 15th, 2017

Internet of Things: Name of the Game Is Business Model

The technologies that are required to design and deploy an IoT project are well-known. Connectivity, analytics, cloud computing, sensors and infrastructure all play key roles in IoT projects and are all well-defined and documented. This is one reason as to why we see so many players in the IoT ecosystem, as the barriers-to-entry are not high.

Except for chip design, for example, used for air connectivity (currently having to face competing standards) and natural language processing, the R&D investments can be contained. The successful development, deployment and utilization of an IoT project depends less on technological differentiation and more on

1. Ensuring a smooth-running cooperation among of a set of partners using the right business models among themselves
2. Offering an expected set of KPIs for the customer

These two requirements establish a barrier-to-success. Per Cisco’s recent study 60% of IoT projects fail at proof of concept, mostly because of this barrier.

The IoT ecosystem dictates that vendors collaborate even if they are competitors in the same or other areas. Therefore, traditional business models are not adequate or more likely irrelevant. Naturally, the IoT customer does not care how the partners in the ecosystem handle their own businesses, but the customer prefers a single point of contact for its project. Therefore, the most efficient approach is for a lead company to assume the management of the ecosystem.

In an ecosystem of N partners, each partner has its own business model to maximize its revenue. The totality of these business models may render the project too expensive for the lead company to offer to the customer. It is easy to see how the lead company would benefit from having fewer partners.
So, what are some of the strategies to implement in a business with a low barrier to entry and raise barriers-to-success? Here are a few:

1. Employ the classic strategy of being first to market and capture as much footprint as possible with an innovative business model or product/solution offering, Cisco’s Jasper is an example. The company was first to market with its connectivity solution and have been able to capture a big share of this market worldwide.

2. Capture market share by offering one part of the solution with minimal or no cost to the customer and capture revenue on other parts, for example, offer IoT enablement platform at cost and capture analytic services with XaaS model. Some large operators (AT&T and Verizon) have adopted this strategy. The XaaS model is imperative in ensuring up-to-date feature and functionality for the customer, for example, Security-as-a-Service or Analytics-as-a-Service.

3. Help your customer achieve an optimal and efficient business model for its project. That is, show the customer how it can achieve its business KPIs based on a specific/innovative business model. Nokia claims great success in its IoT project because it helps its customers with their business models.

Of course, not every project will result in a clear ROI. The KPIs can be established if the IoT services are tangible and quantifiable. Certainly, for example, reducing pollution brings many advantages to a city but quantifying the advantages is not a straight-forward task. But it is easy to quantify the benefits of smart city lights for its energy savings.

At ACG Research, we are committed to help our customers with analyzing the business models for IoT projects. We do this for both the players in the ecosystem as well as the customer. Here is an example of  smart city IoT application(s) project process, city government:

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