What is IoT?
The internet of things, or IoT, is a system of interrelated computing devices, mechanical and digital machines, objects, animals or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction.
A “thing” in the IoT can be a person with a heart monitor implant, a farm animal with a biochip transponder, an automobile that has built-in sensors to alert the driver when tire pressure is low or any other natural or man-made object that can be assigned an Internet Protocol (IP) address and is able to transfer data over a network.
Why IoT is Important for Business
Like the Internet, IoT is a technology that while allowing to improve the performance of its own business, allows to enable new forms of business, especially in the direction of servitization.
IoT provides businesses with a real-time look into how your systems really work, delivering insights into everything from the performance of machines to supply chain and logistics operations
Better monitoring and control of the overall business processes
IoT enables companies to automate processes and reduce labor costs.
Improve employee productivity
IoT cuts down on waste times and improves service delivery
- enhance machines productivity
- improving predictive maintenance
- avoiding expensive stops
Resulting in
- Process costs reduction
- Performance improvements
IoT provides real time data on how customers use the product/services providing the manufacturer or the provider of the services with huge of data that are valuable for improving the product/service, better delivering, creating customer relationship
- Improving product/services or creating new product/services
- Better delivering and customer assistance
- Creating better customer relationship
- Servitization of the business: addingservices to the product, moving to service
Resulting in:
Enabling customer relationship business models (Servitization + CR) based on platforms
Advantages
With the advent of Internet of Things technologies, the recourse to servitization business model is even more enhanced.
Under this perspective, the most common approach to servitization is to transform the product, thanks to the use of IoT devices, into a platform for providing services to the customer.
This what is called the IoT servitization platform that can be either:
- B2C platform, this is the case of a product or a set of products that are available forfinal consumers that a transformed in a platform of services for them;
- B2B platform, this is the case of a business product that is equipped with IoT devices and, thanks to that, it constitutes a platform delivering services to the business customers.In both the case, IoT devices enables any type of servitization models we have analyzed so far.
Economic Dimension
IoT business models rely on the ability of servitisation to leverage scope economies. Indeed, by transforming the product into a platform for delivering services, the company can add new source of revenues (see for instance the subscription in the case of Peloton or the additional services provided by MindSphere) by lowering the cost of the Cloud infrastructure, the algorithms and of the product itself.
Another important cost advantage dimension is surely the switching cost. Indeed, services increases the switching cost for the customer when she/he consider product substitution. The presence of services related to the product, represent a barrier to exit to change the supplier of the product both in B2C (think about when you need to substitute or add a new device in your home system) and in B2B (think when a company need to replace or buy a new machines). Indeed, in this cases choosing a product that can be integrated in the platform represents a surplus for the customer and therefore a source of switching cost.
Finally, IoT platform allow to lower operating costs of the installed base of products and for product design. Indeed, learning from data collected through the platform helps at better managing maintenance that is an advantage for the customer, but also a cost saving opportunity for the supplier that can better organize and optimize the process. The same data allows a better and more economic product design.
Key Points
- Scope economies
- Switching costs
- Operating costs
- Product design costs
Competition Dimension
- In IoT business models of course the main competitive battle is for creating an installed base of products (and therefore customers) that constitute the platform, i.e. platform competition. For instance, in case of Peloton the main battle was to install so many bike to make platform services (such as Peloton studio, streaming services and so forth) economics and profitable.
- For doing that, like we have seen in digital platform business models, can be important to subsidiaze customers with free services. For instance, Samsung doesn’t ask additional money for the services to their customers.
- As said, another important strategy consists in leveraging switching costs for keeping the installed base of customer there.
Key Points
- Battle platform installation
- Switching costs strategies
- Subsidizing strategies
Managerial Cultural Dimension
IoT business models leverage either a service mentality and a digital mindset.
- Service mentality is an important mindset manufacturing companies often have difficulties to undertake. Since a manufacturing company traditionally sells product, they do not think services are really part of their business. This syndrome is often related to the Not Sold Here (NSH) mentality. Indeed, services means to deal with the customers continuously, a firm that only sell products often doesn’t have. A path for acquiring service mentality, in accordance with a path for servitization, is adding services to the products such as post sail assistance or maintenance. Performing such services connected to the products allows the company to acquire service mentality
- Digital mindset is of course related to the IoT dimension of the business models. Acquiring digital mindset for a traditional manufacturing company is not easy and this is one of the main source of failure of IoT projects in manufacturing companies. Concerning this, Bireswar Roy, Head, Digital Enterprise Services, Digital Industries, Siemens India, in a recent interview declared: “About 45 percent [of manufacturing companies] see the potential of Industrial IoT, but don’t know where to begin; 70 percent of all digital transformation projects do not reach their goals; and billions are wasted in wrong investments… Successful digital transformation of an organization “requires having a digital mindset with focus on agility and ownership culture …a cultural change that percolates throughout the organization by reskilling and upskilling, while encouraging and rewarding technology adoption”.
Key Points
- Digital mindset
- Service mentality
Business Canvas
Samsung's Case
An example of B2C IoT servitisation platform, is provided by Samsung.
Samsung has been working to make all Samsung products IoT ready by 2020. In addition, the
company announced its plan to advance IoT adoption via an open, consistent and intelligent platform.
“At Samsung, we believe IoT should be as easy as flipping a switch. With the new products and services announced today, we’re making IoT easier and more seamless,” said Hyunsuk (HS) Kim, President, Head of Samsung’s Consumer Electronics Division and Samsung Research. “We’re committed to accelerating IoT adoption for everyone and making all Samsung connected devices intelligent by 2020. These advancements will help consumers realize the benefits of a seamless and simple connected life.”
Examples
Advantages
Thanks to its platform of smart home devices, Samsung offers its customers a set of new services based on the connection of smart IoT devices. Such strategies allows several advantages:
Peloton's Case
Peloton was founded by John Foley, a former Barnes & Noble e-commerce executive, in 2012. He wanted to figure out a way to bring exercise classes home, and that’s where the idea of Peloton was born. In the same year he brought together the key team and closed a 3.5M$ Series A round, on top of the $400k initial seed.
- In 2013 the first IoT bike was developed. It was a bike with a Internet connection equipped with a Power Data Broadcaster (DFC) able to transmit data taken by several sensors through the Internet. Although the design of the bike was not perfect, it allowed Peloton to collect 307K€ on Kickstarter.
- In 2014 Peloton received a further series B round of 10.5M$ that was used to open Peloton studio opened in Manhattan, allowing spin instructors to record their classes.
- In 2015 the company got a series C funding round of 30M$ for speeding up bike production and retail shops. Another round of 75M$ was obtained in the same year for further developing the software platform.
- On September 26, 2019, Peloton became a public company via an IPO, raising $1.16 billion and valuing the company at $8.1 billion
Peloton innovates the sport market bringing bikes classes that normally you attend at a gym to the comfort of your house and this allowing you to virtualize the instructor and team.
- Peloton brings the gym at your house. With the TV screen on your bike, you can follow the bike class that is either on-line or registered and doing your exercise with an on-line community by sharing with them your performances.
- Peloton servitizes the product (the bike), by adding the service subscription to its line of business. Indeed, revenue composition of Peloton is made by 70% of asset sale (bikes, treadmills and rowers) and 30% of subscriptions for the classes. However, subscriptions contribute for the 82% of the profit.
- By bringing online exercises, Peloton has created an online community that is one of the strength of the Peloton business model. Indeed, through forum, chats, exchange of training data and so forth, the community has become one of the asset of the company
IoT B2B Model. Siemen's Case
An example of B2B IoT servitisation platform, is MindSphere by Siemens.
- Siemens’ MindSphere, a cloud-based, open Internet of Things (IoT) operating system, enables industries worldwide to link their machines and physical infrastructure to the digital world easily, quickly and economically.
- Harnessing data from virtually any number of connected intelligent devices, enterprise systems and federated sources allows for analysis of real-time operational data.
- This analysis then leads to optimized processes, resource and productivity gains, the development of new business models and the reduction of operations and maintenance costs.
- Companies leveraging MindSphere boost performance, sharpen their competitive advantage and realize much more profitability.”MindShpere allows Siemens “To survive disruption and thrive in the digital era, incumbents need to become digital enterprises, rethinking every element of their business.” Thanks to digital services provided through MindSphere, Siemens has already reached 1B$ revenues.
Connecting Real Things to the Digital World
Connecting:
- With MindConnect, Siemens offers flexible, open options for connecting both Siemens and non-Siemens assets to MindSphere.
- With MindConnect FB 1500, your existing S7-1500 Programmable Logic Controllers (PLCs) can connect directly to MindSphere and the digital world using a TIA Portal STEP 7 library with no additional investment in new infrastructure or development.
Data Integration
- MindSphere facilitates data integration with existing enterprise systems and databases. By joining data streams from multiple sources into one centralized location, customers will have more insights across their entire operation.
Open Platform as a Service (PaaS)
Data availability to the community: With open standards and robust loT APIs, MindSphere enables developers to build applications, exchange data and connect a wide range of products with little effort.
Development community (Industrial App market): With Siemens' deep domain expertise across industries and the global scale of Amazon public cloud, partners can develop, deploy and distribute their own MindSphere solutions and share them among the entire MindSphere community.
Development environment: MindAccess DevOps Plan, provides access to a complete environment for application development and lifecycle management.
