How Internet of Things Changes Business Models
Internet of Things (IoT) is a network of connected things and describes an ecosystem including objects, connectivity and application/services. There various projections on the market size by 2020 that differ considerably yet all projections agree to a minimum of $1 trillion-plus.
This is a large number and driving almost every firm (even remotely related to IoT) to encash the IoT buzz.
Given the challenges in this space, the significance of IoT business models and partnerships could not be overemphasized. It is very important that the industry interacts in partnership to accomplish the market objectives.
Let’s begin with the value chain to arrive at the proper IoT business model for which would certainly need to be based on collaborations as well as the partnership.
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IoT Business Model – Value Chain
The value chain is probably one of the most integral parts of IoT business model. It specifies how the service is delivered. IoT has an extremely intricate value chain as a result of the fact it affects a large number of process.
The big opportunity likewise implies numerous stakeholders who would have to interact to deliver on the promise of IoT.
Plainly, the partnership formation is challenging when each of the entity would consider itself more vital compared to the other. In such a situation, one of the most vital question for any kind of business interested in IoT is to find its position in the value chain.
The position in the value chain would define its relevance, significance, and opportunity. The big question is who will lead the IoT or win. The player who is getting the biggest pie of the value chain needs to preferably take a lead in forging partnerships.
It is clear that the platform providers will lead the IoT as they catch as much as 50% of the value. Capturing the biggest value share would not make them an automatic choice and competing claims would proceed to fragment the IoT market.
There are 5 vital groups of players, viz., device carriers, operators, platform providers, systems integrators and application carriers.
Each of this group would have numerous firms depending upon the target industry. Each of the players brings unique strengths to advance the IoT, however, not everyone gets an equivalent ground.
They capture up to 10% of the value. With service-based IoT business models, they have the capacity to capture an additional 10-20% of the value.
Without a service model, they will take advantage of the buzz around Internet of Things, however, they will continue to be simply a vendor.
The best option for them is to participate in non-exclusive partnerships with the lead player. Many players are trying to lead into the platform and application provider domain. Yet this method risks advancing a proprietary solution.
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The operators are really essential as they provide the connectivity and have had a head start over others. It is all-natural for them to think about themselves as frontrunners.
The operators do not have it in them to lead the IoT space as they find it tough to think beyond connectivity and revenue. They still have not learned solution selling/ managed services.
Operators have to welcome the startup culture as the IoT business model is moving really swiftly. It will not wait on the internal bureaucracies.
They require a partner to head to the market and are not likely to play a leading role in any of IoT partnership/alliance.
IoT will drive higher data usage however as a result of commoditization, connectivity is at risk of becoming to be the ‘non-value’ add component of the value chain.
The risk of operators being decreased to simply the pipe to the cloud is very real.
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The platform is the heart of IoT and combines the hardware, the connectivity, service providers and the vertical applications.
IoT platform is maybe one of the most misconstrued terminologies in Internet of Things. There are different kinds of IoT platforms like the connectivity/M2M platform and hardware specific IoT platform.
It is important to develop platforms for IoT keeping the scale and requirements in mind. Not all kinds of platforms have the capacity to lead the IoT initiative.
The winning mix is a platform that provides device management, cloud-based storage, analytics, data visualization and the capacity to integrate with 3rd party systems.
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They have a big role in the industrial internet of things. Not everything is plug-and-play out of the box. Thus we require system integrators to make the specific components of IoT to interact in optimal ways for customers.
The best option for the system integrators is to determine their particular niche and enter into partnerships with large platforms players.
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They are too small a player and could not carry the partnerships by themselves. The best procurement targets by significant IoT players to capture the bigger pie of the value chain. A few industry-specific large application carriers are most likely to run independently.
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No provider has an end to end IoT solutions yet and therefore the only option is to partner or perish.
The platform providers though well placed will require the partnerships to fully realize the potential of Internet of Things.
Device manufacturers and operators would have to partner with platform providers and vice versa to guarantee that they are not overlooked of the IoT ecosystem.
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