Open Collaboration Business Models for Industrial M2M and IoT

Don´t be afraid to collaborate with an integrated and customer service approach

After several months evangelizing on Internet of Things(IoT), Machine to Machine (M2M), Wearables and repeat the dizzying figures provided by the analysis conducted by Cisco indicating $14.4 trillion of potential economic “value at stake” for global private-sector businesses over the next decade; Ericsson´s vision of more than 50 billion connected devices by 2020 and multiple predictions of analyst and vendors (http://www.slideshare.net/FranciscoMaroto/oies-m2-mpredictions2014), hardly anyone in the online connected world is oblivious to the revolution that is coming.

But a revolution involves changes that conflict with the existing status quo, a change in the basic assumptions, or paradigms, a change in economic and business models.

The innovation is almost always associated with technology, and it is true that we all expect a lot of creativity in the multiple IoT start-up companies that are appearing in every corner of the planet, but the fact remains that the innovation that has more impact on society is one that is changed to create new business models.

The Internet changed the fundamental nature of doing business and competition. Numerous innovations (e-commerce,  contextual advertising,  social networks,  mobile banking  among others) new ideas or ways of improving existing processes or products have transformed virtually everything and have given to rise to  new kinds of business models as well as reinvented old tried-and-true models.

Now it’s time for the Internet of Things change all over again. Most of the IoT research has focused on technology and technology layers, although the importance of developing IoT business models has been widely identified. New business opportunities will be opened with IoT. Successful business models will be possible thanks to sufficient data collected automatically from the information exchange of the devices. Embedded new services and new revenue models will be developed.

Henry Ford, famous for using the assembly line in his car factories, neither founded the world’s first car company nor invented the assembly line. Borrowing an idea originally used in the meat-packing industries, Ford was able to go after a new market in his industry to great success. It goes to show that in the dog-eat-dog world of business, it’s often not as much about the product as it is about the process.

In Information Technology and Services and Internet industries, companies like Microsoft, Apple, Dell, Amazon, Google, eBay, PayPal, Groupon or Facebook have influenced in create new innovative successful business models. In other industries companies like MacDonald’s, Starbuck, Inditex or Ikea using the right method with the right materials in the right place at the right time have created explosive results.

Dr. Stefan Ferber, Director for Business Development of the Internet of Things & Services at Bosch Software Innovation points out in this blog that enterprise managers must create the organizations and web-based business models that can turn these ideas into reality.

I remember when I talked with some Insurance companies some years ago about “Pay as You Drive- Vehicle Insurance Model”, all of them liked the idea but they had to protect their revenues and certainly this model only guaranteed them less income but not more loyalty or additional sources of revenues. Usage-based auto insurance plans have been around for a decade. But because drivers are wary of letting insurance companies track their driving patterns, adoption has been slow. Now insurance company executives say they’re amassing enough data to refine the formula for calculating risks- aka rates. The result is that plans are becoming more widely available. New competitors, drivers looking for better insurance prices, technology and regulation will make this business model success at a large scale in a few years.

Other example is traditional manufacturer, they can see the Internet of Things as a threat that must be fought off in order to preserve the value of the manufactured product and safeguard the capital tied up in production facilities. Every new investment they make can go either to strengthening their product-centric facilities, supply chains, human resources, and brands, or to stretching them into the new territory of higher-margin services. The wisest course, most find, is to make investments in both directions, looking to achieve that magic balance that maximizes margins.

In this thoughtful talk, economist Marco Annunziata looks at how IoT is transforming the industrial sector, creating machines that can see, feel, sense and react — so they can be operated far more efficient.

Harbor Research´s white paper: “Smart Systems and Services Business Models” points out that new Business Models are required for the Internet of Things. In this white paper the business models under the category of “Team Business Models” either Value Chain Aggregator or Collaborator, that considers that the data becomes exponentially more valuable when aggregated, are in my opinion those which will present more opportunities for new entrants. The challenge in the “Team Business Models” is select the right group of partners and define the relationship based on the potential impact that the ecosystem will have in the market.

The “Report on IoT applications of strategic interest” published by The Internet of Things Initiative(IoT-i), a EU Framework Programme 7 project, in spite the application scenarios are diverse, offer 4 main business model directions:

  1. Cost savings and efficiency (Cheaper)
  2. Service motivation, e.g. environmentally, safety or public relationship motivated investments (Better)
  3. Application economy based on IoT and Open Data (App Economy)
  4. Selling off IoT generated data (Open Data Economy).

Summary

The traditional notion of M2M applica­tions has largely grown up in a B2B context, focused almost exclusively on customer support and automation.

Evolution of Internet business models could be the easy path for new innovative IoT business models that will be based on B2B, B2C, B2B2C existing models but with a strong focus on create business ecosystems where participants focus on reliable and trusted Services rather than in Product, in Value of Data rather than in Connectivity.

The Connected Car / Driver, the Connected Home, the Connected Livestock, the Connected Patient, the Connected citizen, and the rest of most potential scenarios, all of them will need a business ecosystem to address the IoT-related possibilities in these scenarios.

Executives need to consider the mode of collaboration and make informed decisions about the nature and types of relationships that can build sustaining value and differ­entiation. Determining the degree of open­ness and participation and the “design” of the system and user experience will be key.

For additional information or resources please contact: francisco.maroto@oies.es

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