Of gold and shovels in the IoT
“Gold! Gold! Gold from the American River!”
With these words, Samuel Brannan began the famous California Gold Rush in 1848. Once he saw that there was gold to be found, he spread the news with his paper the California Star, and by the beginning of 1849, thousands of people were rushing to California in the hope of making fortunes. Only a handful of them were actually able to do so, and Samuel was one of them. He became the first millionaire of the Gold Rush – not by mining the gold, but by capitalizing on the needs of miners, and selling them picks, shovels, and pans.
In the modern age, IoT is a similar gold rush. A lot has been written already on IoT market potential –for instance, here, here, and here – so we will not try to hammer home the too-good-to-be-true numbers about IoT growth. These rosy predictions hold good only if the companies and policy makers get it right.
Instead, let’s go directly to a topic that’s germane to this article: What are the shovels and pickaxes in the IoT gold rush , and how can selling them be more profitable than gold mining?
Geographically speaking, these IoT gold mines are everywhere, but the developed economies hold the potential to bring forth more IoT value in economic terms. Developing economies, such as India and China, have equally good potential because of the higher number of deployments and the nature of industries and applications. They also have an advantage in that they have no old guards to replace, and are poised to learn from the experiences of the developed countries and make more prudent choices. In terms of settings, factories and cities are likely to create the most significant economic impact.
Implementing IoT solutions at these gold mines with the most profitable revenue streams is mining the IoT gold. I wouldn’t shy away from calling this “business myopia,” which can maximize profitability for at least a little while. But in the long run, companies will have to innovate their business models to survive the competition and undergo transformation, not tweaks.
Shovels and pickaxes
Designing new innovative business models and revenue streams, either on top of existing ones or even from scratch, means identifying and selling the most bankable tools to excavate the IoT gold. To understand how these tools can transform IoT business models, let’s take a quick glance at the IoT value chain first.
By its very nature, the IoT ecosystem is highly disruptive and complex. It encompasses a wide range of solutions and standards. A typical IoT value chain is different from that of traditional products, as here the product itself is part of its own value chain. Regardless, if you take Michael Porter’s value chain model and replace “activities” with “roles,” a very simplistic value chain model for the IoT emerges:
Each of the players across this value chain, including the customer, holds the key to the future of IoT. Together, they need to address issues such as interoperability, standardization, privacy, security, and most importantly, data exchange. Better cooperation among these stakeholders will lower many integration barriers and enable synergies for new and disruptive business models. This demands a fresh approach in creating and capturing value for the individuals and business, and a mindset shift.
Service-driven transformation of IoT business models
Half a century ago, Rolls-Royce, a pioneer of servitization in the manufacturing industry, introduced an innovative “Power by the Hour” business model. The idea was to charge customers per flying hour of the engine. With this model, Rolls-Royce took away the worries of repair costs and downtime from the airlines and gave them what they needed most: a functional engine and more operating time. This was in a true sense the beginning of the “as a service” business models. It is still very relevant today, especially for IoT.
In existing and upcoming deployments, “things” in IoT will generate more and more usage data to be processed and analyzed. The insights thus produced would, if decision makers use them correctly, lead to the birth of new “as a service” business models that can shift dynamics within industries. Machine manufacturers, for example, can transform an existing business model into an “as a service” model just by adding remote access to the machines or by reporting health status alerts using IoT. These enhanced capabilities using the digital services are the new shovels in the IoT.
Product as a Service
Roll-Royce’s “Power by the Hour” is a vivid example of a Product as a Service model, and GE, Pratt & Whitney, Hilti, John Deere, and other manufacturers later followed it, too. In fact, GE added new interesting dimensions to this business model in 2013 with their IoT platform Predix. In this model, the service provider (typically the manufacturer) does not actually sell the physical product, and the customers do not get to own it. Instead, a customer enters into a pay-for-use agreement with the service provider. The service provider is responsible for maintaining the efficiency of the product and design innovations, while the customer focuses on the processes more relevant to their business. This brings clear benefits for both sides: new revenue streams and improved customer satisfaction for the service provider, and more functional products and less downtime for customers. Philips’s Lighting as a Service and Michelin’s Tires as a Service are other examples of this model.
Data as a Service
In Product as a Service models, it’s the use of physical products that generates the recurring revenues, but if you replace this physical product with certain valuable data and insights, widely known as IoT Data as a Service, or just IoT analytics, the model transforms into Data as a Service. In this model, a typical IoT organization acquires the IoT data, stores it, processes it, analyzes it using statistical and machine-learning algorithms, and shares the actionable insights and analytics.
In 2015, IBM acquired The Weather Company’s cloud data platform and its assets for around 2 billion dollars. When integrated with IBM Watson, the real-time weather insights can produce value more than what IBM invested. These insights are also meaningful and valuable to governments as well as the transport and logistics, insurance, energy, and other industries. From IBM’s Watson to Salesforce’s Einstein, data is the new oil metamorphosing both new and conventional businesses.
Bosch Software Innovations’ Systematic Field Data Exploration (sFDE) solution involves data collection from hardware units in a multitude of cars, and connects to various on-board components such as brakes, power steering, etc. In addition to data ingestion, sFDE can decode protocols from industry-specific binary formats into processable formats, e.g. ODX and FIBEX. It can also handle data pre-processing, data enrichment, data validation, and quality checks. OEMs and car component manufacturers can use this processed data to understand how their components are performing in the field, and product designers and engineers can gain valuable insights for improving the product.
Companies such Babolat, Hykso, Garmin, Solos, Nike, and Fitbit are driving the personalized approach to sports training many steps ahead by using IoT data. Services based on such data analytics spur new and innovative business models with recurring revenue streams in addition to just selling a physical product.
Process as a Service
The third type of business model that will see impact from IoT is Process as a Service. In this type of “as a service” model, the service provider uses IoT to transform business processes, resulting in predictive maintenance, operations optimization, better asset utilization, and higher productivity. Take for instance the Harley-Davidson Motor Company, which at some point faced many problems in production, especially in scaling operations. Just imagine a waiting period of 18 months for a premium bike! On the verge of bankruptcy, they decided to go back to the drawing board and brought together the IT and OT teams to build connected operations and gain efficiencies using IoT. In a short period of time, they not only managed to come up with new features and functionalities, but also reduced the time to market of new and customized motor bikes from 18 months to 2 weeks! Adam Davidson’s “Building a Harley Faster” is a short and fascinating read about this chapter in the company’s history.
IoT can also bring about a major overhaul in after-sales processes with the help of connected products. These allow manufacturers to monitor the processes on the customer end; they can analyze, understand, and even predict usage behavior and upsell new features or products. To give an example, a connected car or truck can transmit vital statistics to the manufacturer, and based on the condition of the parts, the manufacturer can suggest and schedule maintenance for the customer.
Anything as a Service
Thing as a Service is passé; Anything as a Service is the new vogue. This type of business model will be appearing with new opportunities in the market and the introduction of new technologies. Take Sensors as a Service, for example; the emphasis here is on providing sensor management as a service rather than sensor data collection and dissemination. Based on the utilities in an ecosystem, many other as-a-services can be derived, such as Location or Traceability as a Service.
A very innovative example comes from the IBM Watson and VISA collaboration announced at the 2017 Genius of Things summit. IBM and VISA together will provide a secure payment experience for any connected device. Imagine: if the number of IoT devices is anywhere near the estimates proposed by various analysts, we would be talking about some 20 billion devices available as potential points of sale with enhanced capabilities to personalize the shopping experience.
We can imagine new scenarios that will appear with the advent of new technologies, when it becomes easier to securely connect the products in a peer-to-peer network. Technologies such as machine learning, cognitive IoT, fog computing, and blockchain will enable newer Anything as a Service business models.
To sum it up, IoT will continue to impact and change the way companies do business . With new technologies, the network of connected devices – in other words, the Internet of Things – will improve the way products are envisioned, operated, and serviced. We will continue to witness innovations in the business models, especially as-a-service business models. Companies focusing on selling the shovels by innovating their offerings, devising new business models, inventing new markets, and creating new revenue streams, are likely to reap considerably more benefits.