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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