I unsuccessfully tried to avoid calling this blog “Business Models for the Internet of Things” as there is no shortage of web articles on this topic. A recent Harvard Business Review online issue on the Internet of Things has triggered a fair deal of debate on whether IoT radically changes business models or to what extent unlocks new value. Like all technologies in the hyped ramp-up phase, it is often difficult to separate fact from fiction, and prediction from fanciful guesswork. Here I try to consider some of the key characteristics of the Internet of Things ecosystem for consumers (i.e. excluding industrial applications), and to what extent it changes business models of existing businesses.
Let’s start with focusing on what defines the Internet of Things. In my mind, there are three key factors:
1. Seamless & unconscious interaction between users and objects
The advent of the smartphone ushered in the first era of interactivity between the real world and the online world. However, by and large, this required a conscious action by a user to initiate an interaction with his physical environment, whether by tapping an NFC tag or scanning a QR code. Apple’s foray into Beacons and apps that listen to their environment started a movement towards making this interaction seamless. Likewise, wearable devices such as fitness monitors, watches and the like will all enable unconscious interaction with our environment, whereby sensors, and online services will learn what we are doing, without us needing to take our smartphone out of our pocket, but simply based on our proximity to other objects, our movement patterns or gestures.
2. Generation of a continuous stream of data by users
Data will flood towards the cloud. Some of it will be generated by wearable devices and smartphones, while the rest will be by sensors in the appliances we use, our homes (e.g. thermostats, security systems, home monitoring, utility meters), our towns and cities (e.g. parking spaces, street lamps, rubbish bins, pathways, bus stops, shops etc) and in our vehicles and public transport. This non-stop stream of data, much of which can be used to trace back or identify a person, will raise privacy concerns and business opportunities in equal measure.
3. Pairing between physical objects and web services
In the first wave of the mobile Internet, very few companies managed to succeed in making hardware and pairing effectively with Internet services. Indeed, only Apple springs to mind as having cracked this nut fairly consistently. Google quickly disposed of its Motorola acquisition, while most handset vendors’ service proposition made little if any impact. However in the brave new world, the full service experience is created by the fusion of the physical and online worlds. Again, fitness trackers are the currently the most obvious example of this. The Fitbit app or website is meaningless without its associated activity tracker and vice versa.
Impact upon Business Models
So taking these factors into consideration, how does this impact business models or operations of companies. I’ve compiled a list of consumer-facing company types, and how they will be affected by the Internet of Things. IoT enabling companies (e.g. ARM, Cisco etc) are not considered, as are excluded companies whose very existence depends upon IoT.
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For some companies, the potential for change can be very significant and transformational. Indeed, for home appliance manufacturers, connecting an appliance to the Internet not only provides the opportunity for a host of online services, but also marks the transition towards becoming a service company, rather than a manufacturer. For example, maintenance and service plans can be tied into status monitoring of the appliance, allowing for potential faults to be identified before they occur. A washing machine can be updated with new washing programmes tailored specifically to a user’s washing patterns, while an oven can be programmed to cook an online recipe.
The likes of Google, Amazon and Facebook of this world will be equipped with a mass of new data about how their users behave in the physical world, complementing what they already know, further strengthening their existing business models. Physical world service companies such as retailers, hotels, entertainment venues will be amongst the principal beneficiaries, as they will finally be equipped with the tools and insights on their customers’ behaviours, likes and dislikes that their online counterparts have been enjoying for the past decade. In fact, I believe that physical world retailers will finally be given the tools to fight back against online retailers, which explains why John Lewis, the UK-based department store has embraced the technology enthusiastically.
Conclusion: The power of interconnectivity
Above all, I believe that the most transformative change will be driven by the increase in information generated by users and sensors and which will be accumulated by all companies selling us services. This will become a tradeable commodity, with the creation of innumerable new interfaces and interactions between companies. For example, energy companies will interact with home appliance companies to minimise energy consumption in the time of peak demand; local authorities will be able to show parking spaces on a car’s satnav display, stores can send online advertising to customers who were loitering in a specific area, but did not make a purchase; equipment in a hotel gym will automatically adjust to the profile set in the guest’s fitness band, which will then automatically activate the ‘do not disturb’ sign when sleeping in the room. These are fairly banal examples, but aim to give a flavour of the opportunities. Just as on the web, APIs will act as the glue between different companies, who jointly will build more compelling services than possible on their own. The possibilities are endless, and the surface has yet to be scratched.