The top 5 most successful IoT business models

There’s a lot of excitement buzzing around the Internet of Things (IoT) these days. And while much of it is deserved, sometimes that excitement has gotten ahead of understanding. As a result, the emerging IoT industry has been rife with the kinds of miscalculations and misapplications that so often plague early adoption. 

But as the field of IoT moves past its infancy, certain trends and economic realities are becoming clear. Perhaps the most significant of those is the realisation that traditional hardware business models just don’t work in IoT.

The unique economics of IoT 

Traditional hardware business models are based on the classic, product-at-a-margin principal — a company produces a piece of hardware for X and sells it to consumers for X+Y. What complicates this model in IoT, however, is that the X value isn’t fixed. 

Unlike traditional hardware, IoT products come with continuous, infrastructure-related costs. In order to work, they need a network on which to function, and a service platform on which to collect and manage data. 

Because of that, IoT technologies only prove economically viable when they can deliver recurring, continuous value for the customer. That value can come in many different forms, but these five models have emerged as particularly effective applications for IoT: 

1 — Compliance Monitoring

Each year, American manufacturers spend an estimated $192 billion on compliance. It costs a lot of money to keep in line with economic, environmental, and safety regulations. And as you can imagine, businesses are keen on finding ways to reduce those costs. 

IoT technologies have already shown tremendous potential in those efforts. An excellent example of this is IoT’s application in the oil and gas industry.

Oil and gas extraction and processing sites are subject to extremely rigorous compliance standards. In the past, a field agent would need to physically inspect an extraction or processing site to ensure compliance. 

Now, an IoT device can remotely monitor essential compliance metrics, such as oil leaks and gas emissions. Not only does this functionality reduce the costs of putting people out in the field, it’s also much more responsive. Whereas a field agent may only be able to visit a given site once a quarter, an IoT device can provide constant, up-to-the-minute data in real time. That responsiveness also helps limit the extent of penalties when non-compliance does occur. In the case of leaks and emissions, regulatory penalties are often proportional to the amount of materials released. IoT devices could therefore limit a company’s exposure to penalties by allowing them to respond to leaks more rapidly.

2 — Preventative Maintenance

The same functionality that lets IoT technologies facilitate compliance is also helping businesses protect valuable in-field assets. By returning to the example oil and gas extraction, we can see how IoT can help facilitate equipment maintenance. 

Traditionally, the (extremely expensive) equipment used at an extraction site was safeguarded solely by infrequent and imperfect in-field inspections. Due to their scale and complexity, even minor technological malfunctions can result in reduced efficiencies and significant financial losses. Catastrophic failure, meanwhile, can cost businesses hundreds of millions of dollars. 

Now, an inexpensive IoT device can be deployed to remotely monitor equipment, track maintenance schedules, and prevent malfunction. If a piece of equipment begins to malfunction or underperform, the IoT device will instantly issue an automated alert. Doing so will limit losses caused by inefficiency, and help prevent full-scale failures and equipment damage.

3 — Remote Diagnostics

IoT devices are also being used to collect detailed and timely diagnostic data in a wide variety of different fields. An excellent illustration of this comes from the agricultural industry. 

Forward-thinking indoor growers and nursery owners have implemented IoT devices to help monitor and manage their plants. In this scenario, a connected device continuously monitors environmental conditions such as temperature, humidity, sunlight, and soil condition. 

This data is then collected, compiled, and organised to help growers analyse long-term environmental trends. IoT devices can also be designed to automatically respond to that environmental data. If the device registers low moisture levels in the soil, for example, it can automatically trigger a watering system to correct it. This kind of functionality both boosts productivity, and reduces overhead costs. Like other IoT applications, the end result is a system that is more efficient, more productive, and less costly. 

4 — Asset Tracking

Of all the fields embracing IoT, supply-chain management has probably been the most enthusiastic. That’s because, logistics and shipping companies have found that IoT devices can dramatically increase supply-chain visibility for relatively little cost. 

A simple, 3G-connected microcontroller can identify, track, and monitor an asset in real time, from anywhere on Earth. That unprecedented degree of visibility is helping companies prevent against loss and theft, increase fleet efficiencies, and improve demand forecasting. 

Tracking data can also be shared instantly with all entities in a supply chain to further increase visibility and reduce inefficiencies. Because of these capabilities, DHL and Cisco have predicted that IoT technologies will have a $1.9 trillion impact on the logistics and supply-chain management industry.

5 — Automatic Fulfilment

Up-to-the-minute inventory and consumption data are making automatic fulfilment and service level agreements viable for a whole new class of customers. 

Probably the most recognisable example of this model is the Amazon Dash button. For those of you who don’t already know, the Amazon Dash button is a small, consumer IoT device which can be configured to reorder specific items when pressed. For example, a customer can program their device to order a 12-pack of Bounty paper towels whenever it’s pressed. 

These models provide continuous value by driving sales, and by providing valuable data on customer consumption habits. These types of service models are still very new, but their potential is plain to see. At the end of 2016, Amazon announced that Dash sales had increased over 400 per cent since 2015, and 60 new brands had signed on to participate in the program. And while the Dash model relies on customer input to trigger replenishment, truly automatic models are also beginning to gain traction.

Conclusion

In a 2015 report, McKinsey & Company estimated that the Internet of Things has “a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025.” 

“At the top end, that level of value—including the consumer surplus—would be equivalent to about 11 per cent of the world economy.”

To take part in that economic revolution, companies will need to reconsider the business models traditionally associated with commercial and consumer electronics. Those companies would also be wise to take note of the industries and applications in which IoT is already delivering on that promise of revolution.

Dan Jamieson, General Manager of Enterprise Team, Particle
Image Credit: Particle