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The IoT Changes Business Models

Added to IoTplaybook or last updated on: 02/24/2020
The IoT Changes Business Models

It’s tempting to think about business in a transactional way. After all, every sale equates to dollars, and the more sales an organization tallies the greater its revenues. But as the Internet of Things and digital technologies take hold, clinging to this industrial-age concept is a recipe for disaster.

Today, business relationships are increasingly defined by outcomes and the ability to generate value. Increased competition and digital innovation are forcing prices down, making it more difficult to compete as a low-cost commodity provider. The way out of the maze is painfully clear: Organizations must fundamentally change the way they approach business.

The IoT lands at the center of this equation. According to Forrester Research, 67% of global mobility decision-makers in the manufacturing sector agree that IoT enables new types of business models. Yet only 15% currently prioritize moving from a product-based to a service-based relationship with their customers.

Bridging the Disconnect

It’s no secret that hardware and software vendors, content providers, and many others are steadily moving to subscription-based models. Not only do these arrangements deliver more predictable revenue flow, they build a relationship that’s based on value—and value-based pricing.

In the IoT space, the idea of developing a value-based approach, while appealing, is easier said than done. There are enormous complexities surrounding sensors, devices, systems, platforms, networks, and more. Assembling everything into working systems that truly deliver value remains a bit of an enigma.

Forrester also notes that there is frequently a misunderstanding about what constitutes value-based outcomes. This is reflected in everything from the way organizations build IoT systems to pricing models. “Business leaders may well be interested in outcome-based pricing, but a number of knotty problems must be overcome if they’re to make it work—and that takes time, effort, money, and focus,” its analysts state.

Unlocking the Value of the IoT

In order to take the IoT to a higher level, there are a few things that system integrators and managed service providers must focus on:

The meaning of value. Too often, businesses use IT and the IoT to generate value for their organization while overlooking how a system or platform impacts customers and partners. It’s critical to create value for everyone. In the IoT space, this means offering convenience, compelling features, and new and better ways to accomplish things within the entire ecosystem of hardware and software. Cost savings and improved internal efficiencies may pay dividends for a client, but they don’t unlock the greater possibilities of the IoT.

The value of data. By now it should be apparent that the currency of the IoT is data that can be transformed into information and knowledge. Myriad sensors and devices collect bits and bytes, which when combined with other bits and bytes, and analytics, create information and knowledge. A cool feature means nothing if it doesn’t generate data that can be plugged into systems to create smart systems, smart supply chains, smart cities, and a more advanced Industry 4.0 framework.

What it means to build a value-based framework. Value-based systems introduce innovation and disruption on a scale both small and large. They create incentives for partners, customers, and employees to use them and motivate customers to willingly share data in exchange for value. At the center of all of this is building frameworks that can grow and expand over time, systems that move data quickly to the point of decision making, and systems that slide the dial from a transactional model to a value-centric pricing model.

The takeaway is simple even if the task is difficult: Integrators and others will benefit from all this disruption when they help their clients innovate and disrupt.


Samuel Greengard is a business and technology writer based in West Linn, Ore. He is the author of The Internet of Things (MIT Press, 2015).