What Is IoT and Where Is It Going?
To truly understand the IoT business model, we first need to start with an introduction to theIoT (Internet of Things). We don’t assume everyone knows what the Internet of Things is and what it means. But at SpinDance, we see it simply as this: physical things and digital services that connect them to the internet.
Perhaps it’s a smart car or a connected consumer device, like a smartwatch or smart tracker… maybe even a smart building. Essentially, IoT is a physical device that’s connected to cellular, Bluetooth, or Wi-Fi – it’s not just a traditional computer. And to operate these devices, digital services are needed to support and ensure its systems are resilient (i.e. an app or a shared dashboard).
Now, follow along as we discuss the why of IoT, its frustrations and challenges, how to identify opportunities, and how to create an IoT business model that gets your entire team on board while driving lasting value.
The Why of IoT
The most important benefits of IoT are improved user experience, increased sales, better customer support, recurring revenue, and improved quality. (Sound amazing? We think so). The goal of every IoT product is to accomplish all of this—and more.
Frustrations and Challenges
Yet for many companies, there is a real fear that an IoT project won’t hit the mark. The timeline will either be too long or the project itself will be over budget. Or, even worse – customers won’t be happy with the product. We recognize these valid concerns and do everything we can to address them.
Let’s refer to IoT thought leader and Stanford professor, Daniel Elizalde, who performed a survey and identified IoT’s top challenges. While there are obvious technical challenges, like scaling the solution, we’re focused on two aspects: how to make money and how to find a product-market fit. Essentially, we’re outlining the value proposition and the business model.
Defining a Value Proposition and IoT Business Model
Cue the image of Cuba Gooding Jr. shouting, “Show me the money!” Because that’s exactly what we’re doing. While value propositions are the benefits your customers can expect from your IoT product (and the money you can expect in return), the business model demonstrates how to bring that value to market. It’s vital to combine both of these aspects so you can pave the way for a successful product. Check out the image below from Strategyzer to gain more insight on go-to-market desirability features.
A Clean and Clear Example
With any product or service, you want to create gains and relieve pains. Here’s a tangible example: cleaning the floor. Now, the ask, or the required product or service, helps clean it. This might mean mopping, vacuuming, or manually cleaning. But the gain is to clean the floor. Still, another gain might be to clean the floor in half the time. So if there’s a product that cleans in half the time, that surely leads to a satisfied customer. No brainer, right?
But there are stark pain points. For example, a heavy vacuum is a pain. Customers will search high and low for a lightweight vacuum. However, what if a lightweight vacuum can pick up more dirt in half the time? Well, then we’re winning.
This is a perfect picture of how you can connect your customer’s needs and create a product that addresses their pains and gains.
Three Types of Fit
- Problem-Solution Fit – First, focus on validating everything with your customer. Before guessing your customer’s pains and gains, always talk with them. You’re guaranteed to learn something new, plus you can verify if it’s a valuable problem—and if you have a solution.
- Product to Market – The second phase is often the longest. Bringing your product to market has its fair share of ups and downs because you’re refining every detail. While geared on innovation, you’re not so worried about making money. Yet, at some point, you’ll need to pivot and be ready to scale the solution.
- Finesse and Fine Tune – Lastly, once you’ve tied up all loose ends, you’re prepped to finesse and fine-tune the business model.
A common question we receive is: “How do I apply IoT to my product or service?” But that’s not the best question to ask. The better question is, “How do I apply IoT to my customers, jobs, pains, and gains?” This sheds light on what you need to know and allows you to attack IoT from the right angle.
To help you understand the benefits, pains, and gains, we’ve developed two tools: the IoT Evolution Canvas and the IoT Value Map.
IoT Evolution Canvas
IoT isn’t revolutionary, but rather evolutionary. Because it’s all about making small, incremental improvements. With our IoT Evolution Canvas, you’re making decisions and taking steps to identify product enhancements.
Let’s look at the three steps to any job:
- Collect the Information
- Make Decisions
- Take Action
You’re gathering necessary information, asking all the important questions, and taking action based on the outcome of that decision. To illustrate, we can refer to any piece of equipment. You’ll ask, “does it need to be fixed?” Or, “is it going to break?” Then, your focus is on performing the maintenance.
This happens one of three ways:
You can either fix it yourself, use a tool for assistance, or completely automate the process and remove a human from the equation. Again, we’ll use our example of floor cleaning. You can get on your hands and knees and scrub the floor, use a cleaner to remove stains, or better yet, automate with a robot vacuum that knows exactly what to clean—and how often.
Here we uncover the end goal, the true benefit of IoT: automation.
IoT Value Map
To bring depth and distill opportunities into a shareable plan, we recommend our IoT Value Map. This describes a single IoT value proposition in greater detail by reviewing the data collection, the analysis and decision making, the actions (human and machine), and the outcome (customer benefit).
Moving back to our example of carpet cleaning, perhaps you create a robot vacuum that can alert when cleaning is required. The obvious thought is how to achieve that outcome or customer benefit. And frankly, it’s all about data. Look at dirt levels, spot density, and create a schedule. This information will feed the model, and the algorithm will lead to the necessary actions.
But most importantly, in any project, after laying the framework, ask if it’s the right outcome. Will the customer care about this? Are there other actions that will solve a bigger problem? Further yet, is it truly attainable? Trust that questioning everything will only instill confidence in your IoT model and better determine your ROI.
Three Types of IoT Revenue Models
Finally, we dive into the benefits and three revenue streams of IoT.
- Fixed One-Time Transaction – Using our friends at Whirlpool as an example, if you buy an oven or a dishwasher from the appliance manufacturer, you make a one-time transaction. Because you’re giving them a specific amount of money and they’re providing the product.
- One-Time or Ongoing Service – Think Netflix. This revolves around a fixed fee. So you’re paying $10 per month to gain access to an entire content library. But the point is, no matter how much you’re actually watching, the fee won’t change.
- Outcome – View this revenue model as a variable transaction based on consumption. For instance, a financial planner may invest and know how to cushion your bank accounts—but you’re paying them just as much to do so.
All of these revenue models can be mixed and matched to create the framework of selling IoT. But if you’d like to learn more, be sure to read Bruce Sinclair’s IoT Inc.
Presenting Your Go-To-Market Strategy
So there you have it. You now have the tools, the models, and the rationale to show VPs and stakeholders the value of the IoT business model. We’ve identified ways to address customer concerns and use value proposition design to solve problems. Plus, we’ve offered avenues to maximize your investment and establish a better relationship with customers.