February 26, 2020 11:17 CET

How IoT is Challenging Business Models

Asset sharing and subscription are two ways

Thanks to the Internet of Things, business models are reconfiguring how we do business from the inside out. And IoT is not only stimulating new business models, it is also enhancing and disrupting already established ones.

Plenty of companies will continue to drive significant revenues from traditional business models, but instead of solely relying on the tried-and-true one-off sales model, IoT has opened up a whole new world and there are a number of ways this is having a transformative and advantageous impact on how we do business, particularly when it comes to B2B.

Subscription

We are quickly reaching the point where nearly anything can be sold as a service. Take an equipment manufacturer: with the old business model this kind of company would use its own money or raise financing to build products which were then sold to customers. The value was solely in that one transaction. When that same company moves to selling services instead of products, everyone wins. Customers avoid big upfront costs and gain the ability to make fast changes in response to shifts in the market while also accessing enhanced service and support. Businesses, on the other hand, gain more consistent and recurring revenue streams.

Asset Sharing

The asset sharing model involves selling extra capacity back into the market, allowing you to ‘sell’ your IoT-enabled product to many customers.  The bonus for the customer is that they pay a reduced price and the bonus for you is that you can grow your market much quicker and in doing so can establish a steady revenue stream.

We’re already seeing asset sharing in our cities and towns with car sharing, city bike schemes, and urban micro-mobility solutions such as e-scooters. People have begun to question whether they need to make a big, expensive purchase, such as a car, when so much of that car’s time is spent doing nothing, just parked in a space.

The Razor & Blade Model

When King Gillette created this model in the early 1900s, he inadvertently created one that is almost perfectly suited to IoT. Sell the base product – in Gillette’s case the razor handle – at an extremely low price or even give it away for free, and then sell the replaceable product (the blades) at high margins. The challenge arises when there is a gap between running out of the replaceable product and ordering new ones.

This is where IoT enters the picture, because that ordering gap, can be of varying length or even permanent.

Take the humble ink cartridge used in your printer, which needs to be replaced regularly and quickly. With IoT, the printer can sense when ink is running low and automatically reorder it. This is win-win for everyone: the customer never runs out of ink and the company selling the ink knows it has a solid customer on the books. Take it one step further by leasing the printers instead of selling them and you bump up against the subscription model, where you provide services such as predictive maintenance along with the printer and the ink. Everyone has a better handle on revenue coming in and going out and no one is running out of ink or dealing with a broken printer.

Asset Management

When it comes to IoT, asset management is probably the one business model that has seen the most widespread adoption. Why? Because IoT devices dramatically increase supply-chain visibility for relatively low costs. And while IoT has had a particularly big impact on the logistics and shipping industries, connected devices have been used to track everything from livestock to organ transplants.

A simple connected device can identify, track, and monitor an asset pretty much anywhere in the world, and this degree of visibility helps companies forecast, increase efficiencies, and prevent against damage, loss, and theft. Additionally, the data generated can be used to further increase visibility while decreasing inefficiencies.

If we look at a fleet transport company, asset tracking and the data that is generated allows the company to not just optimize routes and staffing, but also receive vital information about usage, maintenance, calibration, security, driver behavior and much, much more.

As IoT’s reach continues to grow (particularly with the advent of 5G) more and more diverse business models will emerge and some will converge. Not every model is suited to every business, so gaining a clear understanding of what you have already and then understand how IoT can help you not just enhance that but transform your company into the future.