Will business models drive the future of IoT?

Will business models drive the future of IoT? That’s the $11T[1] question. Designing and developing Internet of Things (IoT)-enabled products and services can be difficult, but finding the right business models to monetize IoT data is proving to be even more of a challenge.

First, drawing a parallel with the dot com boom

During the height of the dot com boom, there was unbridled optimism about how Internet technology will change the world. It was the “New Gold Rush”, and everyone wanted to get a piece of the action. But many companies didn’t survive rush for riches. The dot com bust wasn’t due to the lack of good ideas – remember Webvan, and yet today we get groceries delivered all the time. It was largely due to the lack of good business models and finding a way to make them work. In the dotcom rush to capture eyeballs, many companies forgot about profits. Without a path to make money, their road to success ended in failure. .

When you look at the Internet of Things (IoT) today, you can’t help draw a parallel with the dot com boom. There’s unprecedented optimism about the potential for IoT to transform our lives, our work, and our communities, and become an essential part of the personal and business fabric. And yet, just like the dot com boom, companies are in a rush to build cool connected products and acquire customers with free apps, cloud services, and the like.

Now, as more IoT devices arrive on the market, we are starting to hear companies ask the $11T question: How do we make money from IoT?

The gist of the conversation with customers goes something like this: “I receive revenue at the time or purchase but my connected products will be in the field for many years. I can’t absorb the cost of providing cloud services forever and I don’t want to alienate customers who are getting accustomed to the free apps and services. But this current model isn’t viable. How do I make sure my IoT business is profitable? Is it time for new business models in IoT?”

The core issue preventing data monetization in IoT

The core issue causing heartache to companies is a disconnect in the predominant business model seen today. Customers typically pay for IoT products when they buy them, but companies need to provide cloud services to power their connected products over the life of the product.

Figure 1: The disconnect between one time revenue and ongoing cloud costs

These ongoing data costs burden the effective BOM (bill of material) cost. Companies struggle to monetize IoT because they struggle to find a way to recoup these cloud costs. And these cloud costs only go up and become more unpredictable as they offer more sophisticated cloud services, their products become compatible with more IoT devices and services, and more users adopt their products. In other words, the more companies connect, the worse off the monetization problem. Charging for services that customer previously expected to be free is never an easy proposition, and yet companies need to figure out a way to solve this problem.

So how should companies address this monetization challenge? I’d love to hear your thoughts on this topic. Add to comments below or DM me.

Samsung ARTIK is addressing this issue with a unique model to monetize data shared by IoT devices – reward companies for making their devices compatible with 3rd party devices and services, and enable subscription models. We’d love to discuss how Samsung can help you address the monetization challenge.

If you plan to attend the Samsung Developer Conference this week in San Francisco, join 4 senior executives on Wed Oct 18 @ 5pm in Room #2002 for an exciting discussion on “Will business models drive the future of IoT?”.

Joining me on stage are:

  • Naveen Sastry, Partner and Co-Head IoT Practice, McKinsey & Co (management consulting leader)
  • Pete Horton, Vice President of Market Development, Legrand ($5B energy systems leader)
  • Dennis Khvostionov, Vice President of IoT Software Platforms, Acuity Brands ($3B lighting leader)
  • David Miller, Vice President of Product Management, Mattel ($4B toys leader)

[1] https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/the-internet-of-things-the-value-of-digitizing-the-physical-world