Understating IoT Business
The first step in developing winning IoT (Internet
of Things) strategy to be a leader in the emerging IoT market is to understand
the business reality and characteristics of IoT. Goldman Sachs defines IoT as
the third wave of internet revolution: by connecting to the internet billions
of devices, IoT opens up a host of new business opportunities and challenges.
According to McKinsey, IoT has the potential to create up to $6 trillion
economic value annually by 2025. According to Research and Markets, there are
more than 2000 companies that are selling IoT enabled products, playing a vital
role in the IoT technology infrastructure, or act as an enabler to the IoT
development. Then, what is the business
reality of the IoT market Does
IoT mean a specific industry/market such as consumer electronics or automotive?
Does IoT mean a group of tangible products/services such as smartphons or
healthcare services?
IoT has various applications including, smart
home, connected car, smart grid, smart healthcare, smart businesse and smart
city. Many players across diverse industries including semiconductor, consumer
electronics, IT, telecom, healthcare, retail, industrial & manufacturing
and transportation are participated in the IoT business. Thus, IoT will extend
the boundary of each industry itself, and the IoT business will be interdisciplinary
across many industries. The IoT business will have synergies by the convergence
of many different technologies or business attributes (e.g., IoT
Smart Home & Connected Car Convergence Insights from Patents). The IoT business can create entirely
new industries providing dramatically different values to the customers.
A
business ecosystem is the community of business entities that is formed by the
competitive and collaborative interactions among business entities for new
innovations. A business ecosystem evolves to form a new value network, and
thus, to create a new market. The key building blocks of a business ecosystem are
the platform providers and value creators. A platform provider develops a
platform, which is a collection of core technologies/solutions with open
interfaces for interaction with the value creators. A value creator creates
values by exploiting the platform. Recently, many global leaders in IoT
business provide the IoT
platforms to create diverse platform-based business models
and form the IoT business ecosystem. According to Research and Markets, there
are more than 260 companies that are offering the IoT platforms.
For
example, Samsung is now intensifying its relationship
with the IoT business ecosystem collaborators by providing the open IoT
platforms. Samsung released the IoT platform “Artic,” an open platform
comprised of hardware modules, software, networking and cloud services, in May.
Samsung Artik platform can help
developers create new sensor-enabled devices. Artik platform
includes a family of processors and wireless
connectivity that can power and connect everything such as servers, smartphones
and wearables. Samsung also recently
introduced a Web based platform, IoT.js, to provide interoperable service
platform. SmartThings, acquired by Samsung last year, announced the SmartThings
Open Cloud, a cloud service. Samsung is fostering its collaboration
relationship with innovative IoT start-ups through the Samsung Strategy and
Innovation Center in Silicon Valley.
Thus
a few major companies will not
dominate the growth of the IoT market. Rather, virtually all of business
ecosystem players will be involved in creating and developing the IoT market. The
number of competing IoT platforms is likely to increase for a certain period of
time, and then, merge into several dominant IoT platforms (the essential
features of the dominant design IoT platforms for the IoT ecosystem are modularity,
openness and scalability: modularity allows various platform components of core
technologies/solutions compatible to the independently developed component
technologies/solutions; openness provides the flexible and transparent
interaction interface for the efficient and effective development of
value-added applications by the value creators; scalability is the application
capability across several industries) through the IoT platform wars, which
means the super-competition to form a cluster with value creators at some
market positions in the evolved IoT ecosystem. The cluster of a platform will
be complex because of participation of diverse ecosystem players across several
different industries. Following figure illustrates the clustering of a platform
with value creators across the smart home and connected car industry.
HBS professor Clayton M. Christensen coined
the concept of the “disruptive innovation.” Christensen explained the
disruptive innovation in his famous book “The Innovator’s Dilemma” as an
innovation that disrupts an existing market in ways that the market does not
expect, and eventually create a new market. PCs replaced the mainframe
computers, 3.5 inch floppy disk drive replaced 5.25 inch drive and digital
cameras replaced film cameras are some examples of the disruptive innovation.
Key features of the disruptive innovation that differentiate it from the
traditional (sustaining) innovation are as follows.
·
The
products/services provided by the disruptive innovation underperform demanded
by the current mainstream market. Thus, the incumbents in the current market ignore
the opportunities provided by the disruptive innovation. The speed of
performance improvement of the disruptive innovation is, however, faster than
that of the traditional innovation supporting the current market demand. Thus,
the products/services provided by the disruptive innovation can serve the
future market demand.
·
The
performance of the products/services provided by the disruptive innovation does
not need to surpass the performance of the products/services provided by the
traditional innovation. The products/services provided by the disruptive
innovation will create a new market by either offering comparable performance
or meeting the customer’s expectation at lower cost.
Interconnected IoT devices enable the
development of the disruptive products/services by meeting the customer’s
expectation at lower cost. For example, a prefabricated house with built-in IoT
applications for the smart home can provide the comparable quality of life at
lower cost. Interconnected IoT devices also can provide the disruptive
products/services by offering comparable performance. For example, the
telemedicine system equipped with interconnected low cost medical devices can
offer comparable performance of the traditional healthcare system with high
cost and high performance medical devices.
A
business model is the way in which a company makes money through its business.
The key building blocks of a business model are the value proposition, profit
model, and business resource. The IoT has various applications across diverse
industries including, smart homes, connected cars, smart grids, smart
healthcares, smart businesses and smart cities. The key building blocks of
business models for IoT applications can be summarized as follows.
A.
Business Resource
·
IoT devices: Devices that can
sense/recognize their surrounding environments (including
position/movement/identification) and communicate with other devices
·
Networks: Connecting/communicating medium/infrastructure that can interconnect
devices and connect devices to the internet
·
IT systems: Back-end or embedded systems
that can process information (data) obtained by the IoT devices (e.g. cloud
computing/big data analytics) and provide the value added services exploiting
the information
B.
Value Proposition
·
Automation: Providing various automation
services for the customers’ job to be done (e.g. order the out of stock product
automatically; mobile payment; self driving car)
·
Care: Caring for customers (e.g. monitor
customers’ body status and provide various health care services; control
customer’s home cooling and heating/lighting system for energy savings)
·
Business Intelligence: Providing better
working tools/environments (e.g. analyze customers’ shopping behavior for
proactive promotion/advertisement)
·
Entertainment: Providing fun to
customers (e.g. virtual reality games)
C.
Profit Model
·
Device/IT system sales with value added
services
·
Subscription fees
·
After-market sales (e.g. part sales)
·
Third-party sales (e.g. advertisement)
Combing
the key building blocks, various business models for the IoT applications can
be developed. Thus, the IoT
products/services will keep making life richer, safer and more comfortable and
work easier, more productive and more efficient.
IoT Strategy Development Exploiting Patents
Patents can provide insights regarding the
state of the art of IoT products/services innovation and future IoT innovation/business
directions. To measure the level of IoT innovation, a system approach to the
IoT patents can be adopted. The disclosures of the IoT patent can be considered
as a system that is consist of several subsystems: environmental context, IoT
sensor, information, transfer mean and processing tool.
1. Environmental context is the context of
the surrounding object(s) sensed by the IoT sensor. Some examples are water,
electricity, lighting, room temperature, a person’s or vehicle’s location or movement,
traffic congestion and a person’s heart rate and blood pressure.
2. IoT sensor is a stand-alone or embedded device
that can sense/recognize its surrounding environments (including
position/movement/identification) with networking capability. Some examples are
RFID imbedded items, sensor embedded home appliances, wearable healthcare
devices and vehicle control system.
3. Information is the context data obtained
by the IoT sensor for specific purpose. For example, the context room
temperature is measure to obtain the data for automatic room temperature
control.
4. Transfer mean is the networking/communicating
medium/infrastructure that can interconnect sensing devices and connect sensing
devices to the internet. Some examples are 3G/4G/5G mobile networks, wireless
connectivity (WiFi,
Bluetooth, Zigbee, NFC etc.), internet/telephone connectivity and vehicle-to-vehicle
(V2V) and vehicle-to-infrastructure (V2I) connectivity.
5. Processing tool is the back-end or
embedded IT systems/processors that can process the context information (e.g.
cloud computing/big
data analytics) and
provide the value propositions exploiting the information.
The IoT patent system can include the system
integration subsystem that integrate and manage the functionality of each
subsystem as a whole.
You can measure the level of IoT
products/services innovation status of a specific IoT application (e.g., Connected
Car, Smart
Healthcare, FinTech) or a specific company (e.g., Apple, Cisco, Samsung) by dividing each researched patents’ disclosures
for a specific IoT application or company into the IoT patent subsystems, and
then, measured the current level of IoT innovation for each subsystem. The level
of IoT innovation for each subsystem can be measured as early, developing, and
matured stage except the system integration subsystem. The level of IoT
innovation for the system integration subsystem can be measured as low,
moderate and high integration stage.
Insights for the future IoT
innovation/business directions can also be obtained from the patent research. For
example, the patent research can provide insights regarding the future IoT
services/systems (e.g. smart
business services, smart manufacturing systems). The patent research for Apple and Samsung shows that Apple and Samsung IoT products
developments are focused on smart home devices that can provide personalized
and context-aware services respectively.
Based on the IoT innovation analysis and
insights for the future IoT innovation/business directions, the IoT products/services
innovation and patent portfolios development strategy can be developed by exploiting
the system evolution principle (e.g. TRIZ) for each subsystem and the system as
a whole and scenario planning methodology.
Existing patents can be exploited for the
development of the disruptive IoT products/services using the “Blue
Ocean Patent Strategy.” The
basic principle in the Blue Ocean Patent Strategy is to exploit patents to
achieve the value innovation by using the patented technologies to create new
values, and thus, to provide new products/services. The exploitation of
existing patented technologies not only allows the low cost IoT product/service
development but also provides the protection against competitors’ infringement.
Existing patents can also be exploited for the development of a new IoT
startup.
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