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Business models and the Internet of Things

Getting off the train Source: fotolia/Pink Badger

Suitable business models will play an important role when it comes to leveraging the opportunities of the Internet of Things. But what exactly is a business model? My colleagues here at the University of St. Gallen (HSG) came up with a pretty simple definition. They call it the magic triangle. Answering the four questions gives a brief idea of how the business of a company works.

An infographic showing the St. Gallen Magic Triangle. Source: University of St. Gallen, Institute of Technology Management
The St. Gallen Magic Triangle

Most probably, the majority of successful business models in the Internet of Things (IoT) will not follow the pattern: “A vendor sells a physical item to a customer.” The IoT ties together non-physical items such as data and services to physical things and devices. Therefore, more sophisticated and maybe even new business models will play a major role. But, how to come up with a “new” or “innovative” business model? Good news: it’is not the Quest for the Holy Grail…

Again, the Business Model Innovation Lab at the University of St. Gallen provides us with a very useful tool. They analyzed some 350 cases of disruptive business models from American Express Traveler Cheques to Zara. And found 55 underlying business model patterns such as “Freemium”, for example. For a better overview a subway map has been drawn with 55 lines (Business Model Patterns) and many stations (cases). These patterns serve as a kind of building blocks for new business models. They provide external inspiration to the process of creating new ideas for a company´s business. Combining or transferring them to new industries creates new solutions.

Of course, these patterns are helpful for creating Internet of Things business models as they cover diverse industries and sectors. But, we at the Bosch IoT Lab@HSG have the feeling, that the Internet of Things has the potential to create completely new business model patterns, as did former technological developments. Many of those 55 patterns require certain preconditions. Imagine a “Licensing” model without the existence of a reasonable patent system, for example. Another well-known example is “Freemium” – distributing a basic product for free while charging for premium versions. As Chris Anderson points out in his book “free”, the freemium model only works for digital products. As in the digital world marginal cost are close to zero. Thus, the business model pattern “Freemium” requires the internet as a distribution channel for digital goods as a precondition.

We are currently analyzing the influence of IT and the internet on business models to better understand the past. At the same time we are trying to glance at the future. We are searching mechanisms enabled by IoT with potential influence on business models. This is mainly a question of a suitable level of abstraction. Being too detailed will just add confusion; if flying too high, we might miss interesting details.

Overall, I am convinced: The Internet of Things will influence business models. And we will soon be able to get an idea how this might look like.

But maybe you can help us. What is your opinion? Which aspects of the Internet of Things will have major impact on successful business models? Do you already see new business models leveraging the IoT?

More on IoT business models

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