Changing IoT business models

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 wrote briefly about the issue of changing business models in this blog posting.

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. Another example would be a smart home platform as described by Christian Heinrich in his smart home blog. 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.

Figure 1: Business-to-Business model for the Internet of things sales ecosystem [Source: Analysys Mason, 2013]

Figure 1: Business-to-Business model for the Internet of Things sales ecosystem [Source: Analysys Mason, 2013]

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.

Figure 2: Business-to-consumer model for the Internet of things sales ecosystem [Source: Analysys Mason, 2013]

Figure 2: Business-to-Consumer model for the Internet of Things sales ecosystem [Source: Analysys Mason, 2013]

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.

Figure 3: Indirect distribution model for the Internet of things sales ecosystem [Source: Analysys Mason, 2013]

Figure 3: Indirect distribution model for the Internet of Things sales ecosystem [Source: Analysys Mason, 2013]

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 next month’s posting of my series here on Bosch´s IoT blog.


About the author

Steve Hilton

Steve Hilton

Steve Hilton is a co-founder and President at MachNation, the leading insight services firm researching Internet of Things (IoT) middleware and platforms. His primary areas of expertise include competitive positioning, marketing media development, cloud services, small and medium businesses and sales channels. Steve serves on Cisco’s IoT World Forum Steering Committee where he is co-chairperson of the Service Provide working group. Steve has 23 years’ experience in technology and communications marketing. Prior to founding MachNation, he built and ran the IoT/M2M and Enterprise practice areas at Analysys Mason. He has also held senior positions at Yankee Group, Lucent Technologies, TDS (Telephone and Data Systems) and Cambridge Strategic Management Group. Steve is a frequent speaker at industry and client events, and publishes articles and blogs in several respected trade journals. He holds a degree in economics from the University of Chicago and a Master’s degree in marketing from Northwestern University’s Kellogg School of Management. Steve is a guest author for the Bosch ConnectedWorld Blog.