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Changing IoT business models

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man is illustrating on a wallSource: fotolia/Sergey Nivens

Who sells, who buys and who uses an Internet of Things (IoT) solution?

Making IoT technology work is challenging. The same applies to making IoT business models work. I believe one of the most curious and exciting aspects of the Internet of Things is the proliferation of creative business models (sometimes called commercial models) we have seen across the ecosystem.

I wish it were easy to lump all the business models into neat categories. But in fact, it’s difficult to definitively categorize IoT business models. In this blog I’ll review the three most common models and present some examples. But keep in mind that there are variations for each of these models – that’s what makes our jobs more exciting!

Business model one: B2B

The Business-to-Business (B2B) model is the most classic model in IoT. As shown in Figure 1, an enterprise or group of enterprise sellers offers an IoT solution to an enterprise buyer. The buyer might be responsible for integrating the solution or there might be a system integrator or other service companies involved. The enterprise as the buyer is also the user of the solution. Some classic examples of this B2B model would be oil pipeline monitoring, some CCTV/public sector deployments and smart metering in the utility sector. The B2B business model is most similar to classic enterprise IT business models where a technology vendor sells its products to a large enterprise buyer. I expect to continue to see a large number of classic B2B IoT implementations across multiple industry sectors.

B2B model for as one of the possible IoT business models Source: Analysys Mason, 2013
Figure 1: Business-to-Business model for the Internet of Things sales ecosystem

Business model two: B2C

A strict Business-to-Consumer (B2C) model is less common in the IoT world. As shown in Figure 2, an enterprise service provider assembles an IoT solution and then sells that solution to a consumer buyer/user. This IoT model is quite uncommon because in general IoT solutions require multiple technology vendors to assemble a solution as there are hardly any vendors yet capable of creating an IoT solution themselves. This partnership requirement makes direct B2C business models fairly difficult to implement. In a certain sense, connected home electronics and connected white goods fit into this category. An enterprise is assembling a solution for sale to a consumer buyer and user, although one could also argue that these approaches are indirect distribution models (see business model #3, below). I do not expect to see a lot of true B2C business models in the IoT world until there are technology vendors capable of providing an end-to-end solution without deep partnering requirements.

B2C model as one of the possible IoT business models Source: Analysys Mason, 2013
Figure 2: Business-to-Consumer model for the Internet of Things sales ecosystem

Business model three:  B2B2C or B2B2B (indirect distribution)

The Business-to-Business-to-Consumer business model is best described as an indirect distribution approach. As shown in Figure 3, an enterprise service provider buys and assembles an IoT solution. It then re-sells the IoT solution to consumer or business users. This IoT model has become quite common because of (1) the technical complexity of many IoT solutions and (2) the unique selling skills and industry-sector contacts required to efficiently and effectively sell an IoT solution. An IoT solution is uniquely developed for a particular industry sector and application need. Having the right contacts and selling proposition is critical for success. Some examples of this indirect distribution model include classic IoT solutions like fleet management, predictive maintenance and physical security and surveillance solutions. But this model also includes some newer, innovative offerings like luggage tracking services and aviation-based cargo tracking. I expect to see a lot more of these indirect distribution business models in the IoT world. These models put specialist companies – service providers – between technology vendors and end customers. These service providers bring a unique set of skills to the IoT market.

Indirect distribution model as one of the possible IoT business models Source: Analysys Mason, 2013
Figure 3: Indirect distribution model for the Internet of Things sales ecosystem

Share your thoughts about how business or commercial models are changing in the IoT world. What examples do you have of business models that work or do not work?

You can also check-out Markus Weinberger’s posting on IoT business models. Thanks and stay connected for my next posting on the Bosch ConnectedWorld Blog.

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The right IoT business model for your Internet of Things success story.

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