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Capitalizing on the Internet of Things

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  • The Internet of Things is challenging existing business models and business functions. This post gives some insights into how companies can sharpen their existing business models or even develop completely new ones.

Three industrial revolutions that have brought epic changes to the world of business are steam engines, mass production, and internet technology. Today, we are in the midst of what is often called the fourth industrial revolution – the convergence of physical things with the world of the internet: The Internet of Things. Let us give you three figures that show why the IoT creates challenges both long-term and immediate. First, consider the number of IP-enabled devices such as cars, heating systems or production machines. Based on research by the analyst firm Machina Research 14 billion of those things will be connected by 2022. Second, the ITU predicts that by 2015, 75 percent of the world’s population will have internet access. And third, the omnipresent mobile revolution: according to the mobile forecast from Cisco’s Visual Networking Index, more than 3 billion smartphones and tablets will be in use globally by 2017.

Your biggest competitor: Do nothing

The internet has transformed the communications business, the media landscape, retailing, and the music industry. Digitization and new technological developments have made big, unprepared players disappear – even market leaders and long-standing companies. As consumers, we have all seen how quickly things change, and how new technologies appear that challenge well-established products, standards, and business models. Nobody carries a Walkman and cassettes these days; instead, we stream music with our smartphones.

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Managers need to envision the valuable new opportunities that become possible when the physical world is merged with the virtual world. They must create organizations and IoT-based business models that can turn these ideas into reality.
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Approximately 14 billion connected devices worldwide by the end of year 2022 [Sources: Machina Research, 2014 and Cisco VNI Mobile Forecast Highlights 2012-2017]
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The Internet of Things is often called the fourth industrial revolution
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Estimated revenue potential of all players of the IoT ecosystem by 2022 [Source: Machina Research, 2014]
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Estimated IoT-related traffic by 2022 [Source: Machina Research, 2014]
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Imagine an arena full of new competitors, all jostling for position and attempting to shape the future, and of course, trying to win over the same customer.
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Three key executive skills in the Internet of Things

Three major challenges for existing business models and business functions

For many companies, the mere prospect of remaking traditional products into smart and connected ones is daunting. But embedding them into the digital world using services-based business models is much more fundamentally challenging. The new business models impact core processes such as product management, operations, and production. Of course, it affects also sales and channel management.

1)   Product and lifecycle management:
For manufacturers in particular, the overall challenge in the IoT is securing and extending their existing hardware business: This means first IP-enabling their products and then providing new services based on these connected products. The industrially manufactured product is no longer the focus. It is rather, the web-based services that users access through the device itself or by using smartphones and tablets. The focus is also on developing solutions that enhance the quality of life instead of providing pure technology.

2)   Competition and sales channels:
Imagine an arena full of new competitors, all jostling for position and attempting to shape the future. And of course, trying to win over the same customers. Well established producers in traditional industrial fields – whether they make coffee machines, cars, air conditioners or home fitness equipment, or run big vehicle fleets or even electric utilities – are suddenly not only competing with companies like themselves. Instead, they are also confronted with players the likes of which they have never seen before.

3)   Customer interaction:
The points where customers and companies come together change. Instead of ‘meeting at the point of sales,’ it becomes a continuous interaction as long as the customer uses a product or services. When a product becomes an agent interacting with humans and providing multiple services over a lifetime, it provides a new perspective on business.

Market size and number of devices

Based on the Machina Research database, we are expecting approximately

14 billion connected devices worldwide by the end of year 2022.

These numbers are based on the assumption that a device connected directly or indirectly with the internet is a connected device.

That means a connected car is one connected device. It can itself consist of numerous connected things such as sensors, entertainment or navigation units and so on. Furthermore, the number is based on the assumption that smartphones and tablets are not connected devices. Even if smartphones and tablets are connected to the internet, they are interfaces integrating the user into the IoT ecosystem. Based on this evaluation, we assume that the highest amount of connected devices will be concentrated in four industries in 2022 – intelligent buildings, automotive, healthcare, and utilities.

Anita Bunk

I am leading the digital engagement & corporate communications team at Bosch Software Innovations and cover the Internet of Things (IoT). In the past, I was part of international technology and innovation marketing teams. What I enjoy most in my job is sharing with a greater audience the passion that engineers put in developing a high-tech product. My background is a master in communications and a diploma in political science.

Enterprises are continuously looking for ways to sharpen their existing business models or even develop completely new ones. Sooner or later, most enterprises will therefore evaluate the opportunities based on IoT technologies. The question is how to benefit from connecting devices and how to measure the return on investment (ROI), which is multidimensional. Ranging from cost savings to increased or even new revenues generated by improved customer satisfaction and brand differentiation.

To expand and intensify the relationships with existing customers is one of the main objectives for most companies. Value-added services and new business models are important methods for achieving this objective. They are also bringing fundamentally new opportunities for enterprises. IoT technologies create new ways for companies to enrich their services, gain customer insights, increase efficiency, and create differentiation opportunities. Business models based on ‘connecting things’ bring companies closer to their customers and deliver real ROI.

However, the majority of successful business models in the IoT will not follow the pattern. ‘A vendor sells a physical item to a customer.’ Also, conventional Web 2.0 business models – advertising being the most outstanding – don’t have the potential to scale or work for the IoT. The IoT connects non-physical items such as data and services to physical things. This is why more sophisticated (‘evolutionary’) and maybe even completely new (‘disruptive’) business models will play a major role.

But how do you come up with these business models? Good news: it’s not the Quest for the Holy Grail. For us, an executive IoT skill set rests upon three pillars: joint innovations / ecosystems, systematic tools for business model innovation, and entrepreneurialism.

  • Developing business ecosystems comparable to a coral reef. Here, we can find diversity of species, symbiosis, and shared development
  • Systematic, tool-based business model innovation as value-added services are bringing fundamental new opportunities for enterprises
  • IoT entrepreneurs need to be ready to deal with high-speed change very much like in the start-up world and follow exploratory approaches

More on business models

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3 best practices for sharpening IoT business models

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Become an IoT business model expert

Video

Snapshots of IoT business model innovation

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  • Maria Is 7. April 2016 at 4:29

    I agree completely, the IoT will disrupt every industry. I particularly enjoyed the Success Factors section, your business ecosystems analogy is on point. I think that the IoT will prove to be the most fast-paced disruption of the past decades and this Start-Up DNA you describe seems like an accurate description of what businesses will have to strive for.
    Awesome article, I really enjoyed it!

    Reply
  • Valentine 12. October 2015 at 17:36

    Great insight into what the future holds for businesses. For entrepreneurs in the world of today, this is quite efficient and very eye-opening and good news. As a young person, I’m interested in how businesses will integrate this into their existing businesses models moving forward. This is a very informative article. Thank you Anita!, even though I’m quite late but a good read nonetheless

    Reply
  • Yang 26. January 2015 at 21:54

    dear Mrs. Bunk,
    very nice article and graphics. may I ask who is the author of the graphic start up DNA? thank you very much

    Yang

    Reply
    • Anita Bunk 27. January 2015 at 20:50

      Dear Yang, thanks for your positive feedback. Bosch Software Innovations is the creator and owner of the graphics. Anita

      Reply
  • Prabakar 12. August 2014 at 5:55

    Nice article Anita,
    I am studying final year of engineering in a field of Electronics and Instrumentation. Actually i was thinking to do a project on IoT since a month ago. Now this article stimulate my interest towards it and the info graphic is a good method to explain the things..!!
    If you know any other small projects can do with use of Iot for college students please suggest me..!
    Waiting for your reply..!!

    Reply
  • david alon 22. June 2014 at 16:56

    Great Article Anita
    As a start up IoT company, the high speed changes are part of our lives – you are absolutly right!
    A start-up need lots of support especialy in failures in order to creat the start-up nation ecosystem. That can be achieved mostly in the society @ Israel.

    BTW, We have a big event on September 2014 the DLD,
    I welcome you to join us, and let me show you arround

    Best regards

    david alon

    http://www.linkedin.com/pub/david-alon 8200/5a/280/903

    Reply
  • Michel 22. May 2014 at 17:30

    Hello Anita
    Found your article interesting. As I drive a community related to IoT on element14.com, I created a short blog post on it refering and mentioning your article.
    http://www.element14.com/community/docs/DOC-67162/l/your-biggest-competitor-with-iot-do-nothing
    Regards

    Reply
    • Anita Bunk 22. May 2014 at 17:34

      Michel, thanks – I like! Great to see communities such as element14 engaging in IoT.

      Reply
  • Stefaine Peitzker 15. May 2014 at 9:18

    Which abilities you think are most required to have in order to capitalize on the IoT?
    I would like to encourage everyone interested to start this discussion.

    Looking forward to reading the follow-up part 2 of your series, Anita!

    Reply
  • Andrew Wragg 14. May 2014 at 17:11

    Thanks for posting the blog, very interesting. I really like the, “Coral Reef” analogy! Everyone we speak to, be they established large vendors, start-ups and integrators etc, are sure of two things; they are still learning about the opportunity before them and they acknowledge that they will need to partner.
    For us, building eco-systems that work for everyone is the ket to success!
    Andrew

    Reply
    • Anita Bunk 14. May 2014 at 17:27

      Hi Andrew, glad you liked the coral reef 🙂 One of my colleagues will soon shed light on the IoT ecosystem aspect in more detail. Looking forward to your judgement and discussion on the upcoming piece.
      Anita

      Reply
  • Kumar 14. May 2014 at 15:40

    Nice article. Your articulation of the business model related aspects is wonderful. Looking forward to more insights.

    Kumar

    Reply
  • John Sandwell 14. May 2014 at 8:59

    Anita Great evaluation and insight into this game changing evolution in the market. This is just what we are seeing from our diverse customer base with some reacting quicker then others. I will stay tuned with interest to your future posts.

    Reply
    • Anita Bunk 14. May 2014 at 9:00

      Hi John, thank you! From our both experiences in the connector industry, I am curious to see how this segment will react to IoT.

      Reply
  • Mert 13. May 2014 at 16:14

    great visionary article Anita. I really enjoyed it and want to see more samples really

    Reply
    • Anita Bunk 14. May 2014 at 15:43

      Hi Mert, thanks for your feedback. We are working on more. Stay tuned 🙂

      Reply
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