- Thousands of smart connected IoT products were introduced to the market in the last 6 years
- IoT Analytics published a comprehensive 189-page report studying the success factors of early IoT business model innovators such as iRobot, thyssenkrupp Elevators, and Caterpillar
- An overwhelming 61% of study participants claim a competitive advantage thanks to the IoT solution. This article highlights 6 insights from the report.
Why it matters
- Smart Connected IoT products are disrupting the dynamics of entire industries
- The study provides quantitative data to support OEMs and their technology vendors in decision-making on IoT business models and commercialization
Less than 6 years ago, in November 2014, Michael Porter (one of the world’s most influential management thinkers and professor at Harvard Business School) and Jim Heppelman (CEO at PTC) published a widely recognized article in Harvard Business Review titled: “How Smart, Connected Products Are Transforming Competition”. In it, they argued that IoT connected products would alter traditional industry structures, business models, and the nature of competition in many industries.
Indeed, the world has seen a number of disruptive IoT business model innovations since the article was published. Examples include:
- irobot, which, with its autonomous IoT connected vacuum robots, has gone from zero to 9 million IoT connected devices sold, thereby changing the dynamics of the entire vacuum cleaner industry.
- Thyssenkrupp elevators, which has gone from zero to 130,000 IoT connected elevators. All 3 major competitors (Otis, Schindler, and Kone) have introduced a similar IoT-based business model.
- The entire shared scooter industry, which has gone from zero to 39 million trips in the US, and was essentially created through the advent of IoT technology.
There are thousands of other examples of new smart product / IoT business models and many more which are still in the making that we will hear of in the coming months and years.
Those who are currently bringing (or are planning to bring) smart connected products to market should ask themselves: What can we learn from these early innovators in order to create a truly successful IoT business model?
Components of a successful IoT implementation
IoT Analytics’ 189-page report, titled “IoT Commercialization & Business Model Adoption 2020” provides an in-depth look at how some of the leading equipment and product manufacturers (OEMs) around the world have successfully introduced smart connected IoT products in the last 5 years and which learnings they had on the way.
There are many tradeoffs when bringing a smart connected product to market, for example:
- Do I approach existing customers first or target new ones?
- Do I monetize the hardware, the software, a service, or the data? Or perhaps a combination of those?
- Do I charge once, on a monthly basis, or perhaps even per usage (pay per use)?
- Do I offer some features for free or not?
- Do I price the solution at cost, with a margin, or perhaps deliberately at a loss to gain early market share?
- Do I sell direct to the customer or via a third-party (marketplace)?
The report provides answers and viewpoints on each of these tradeoffs and highlights which IoT business models are considered to be more successful. This article does not go into the same depth as the report, but it highlights a few of the other insights that were uncovered during the analysis.
The IoT business model is tightly intertwined with the two adjacencies of product development and product commercialization. We, therefore, split our analysis into 3 parts:
- Developing the IoT product (e.g.,time-to-market and developing the features)
- Developing the IoT business model (The analysis is largely based on the Zollenkop framework , which looks at three elements: Market positioning, value chain, and revenue model)
- Commercializing the IoT product (e.g., determining the right price level, measures to drive adoption, and KPIs to measure success)
1. Developing the IoT product
It takes 23 months for the average smart connected IoT product to go from internal project kick-off to first paying customer. However, there is a wide variance in average of total time needed time needed from kick-off to first paying customers. The fastest implementations happen in 8 months while the longest may take up to 76 months (according to our analysis).
There are a number of factors driving complexity in bringing the smart connected IoT products to market. Larger companies in particular must spend more time aligning the activities of several departments and processes. The typical IoT product introduction “majorly affects” 6 departments according to the analysis (with IT and R&D being the top affected).
Driving the efforts within the IT and R&D departments are the many software features and services companies build into their IoT connected product. The average IoT product comes with 12 new features. Nearly all companies (91%) offer monitoring dashboards for their customers. Features such as inventory management or workflow optimization are rarer.
2. Developing the IoT business model
Nearly three quarters of respondents in this analysis developed a completely new or majorly redesigned product that did not exist in similar fashion before.
The majority of respondents also indicated that the IoT product is sold to a number of new decision-makers (as well as some of the existing ones). The result is that 52% of IoT business models can be classified as “Diversifications”, and only 11% are classified as “Market penetration” where an existing product with small additions is sold to the exact same decision-makers as before.
IoT hardware is monetized in more than 95% of all cases today. However, in the vast majority of cases, hardware is just one part of multiple monetization elements. Most study participants expect services (both traditional and digital) and data to significantly gain more importance in the next two years. Along with the decreasing importance of hardware monetization, it is expected that time-, usage- and success-based monetization models are going to increase in importance.
“Our future focus will be a lot more on digital services. Currently the user only has one touchpoint: When the hardware is installed. Going forward, as our data matures and we have better remote software update capabilities, we will be able to provide more user centric SaaS products/features that customers can purchase online.“Senior IT Manager, Automotive industry, Europe
3. Commercializing the IoT product
Successful commercialization of an IoT solution starts a long time before the product is launched.
“It is critical to clearly understand the needs of the customer before building and selling a solution.“Senior Product Manager, Machinery and equipment manufacturer, USA
The analysis shows that there are vast differences in adoption rates among customers from different regions and that some features area clearly more popular with customers than others. Two of the features that are ranking in the top quartile in terms of customer adoption are “Condition Monitoring” and “Predictive Maintenance” – an observation which is in line with IoT Analytics previous coverage on the topic of Predictive Maintenance.
The three biggest concerns / roadblocks that customers report when adopting new IoT-based digital services & software are: IT/data security concerns, unclear benefits of the solution, and issues with integrating the product into legacy systems.
It is therefore not surprising that many study participants singled out the importance of educating the own team, particularly the customer-facing staff:
” The employee training process was a huge undertaking because the technology was new to the company overall and all field experts required training.”Senior Product Manager, Machinery and equipment manufacturer, USA
More information and further reading
Interested in learning more about IoT business models and commercialization?
Developing an IoT business model and commercializing the solution is not simple but it can be a game-changer for companies. 61% of study participants claim that it allowed their company to achieve a competitive advantage compared to their competition.
The 189-page IoT Commercialization & Business Model adoption Report 2020 is part of IoT Analytics’ ongoing coverage of industrial IoT and includes many additional insights not discussed in this article, including an analysis of the 7 most striking characteristics of successful IoT commercializations (vs. the unsuccessful ones), more details on how to price the solution and 10 recent case studies with key learnings from the last years.
This report provides answers to the following questions (among others):
- Which features are companies offering alongside their smart connected products and what is the time-to-market?
- How do companies position their products in the market (customer segment, target geography, novelty of product)?
- How to align the value chain with the new product offering (specific actions and organizational processes on department-level)?
- Which revenue model to select (what to monetize, how to design the revenue stream, which sales channel to use)?
- How well-perceived is the Equipment-as-a Service (pay per use) model and what are its drivers or barriers?
- How to price the smart connected IoT product (pricing strategy, billing frequency, finding the right pricing level)?
- How to drive adoption once the product is launched (adoption success factors, which customers to target first)?
- How to measure success of the IoT connected product (time to amortization of investments, which KPIs to use)?
- What are successful companies doing differently compared to their competitors?
- What are some examples (case studies) of recent introductions of Smart Connected IoT products?
A sample of the report can be downloaded here:
Are you interested in continued IoT coverage and updates?
The IoT Commercialization and Business Model Adoption report 2020 is part of IoT Analytics’ ongoing coverage of Industrial IoT and Industry 4.0 (Industrial IoT Research Workstream). The information presented in the report is based on an extensive survey with OEMs who have successfully introduced smart connected IoT products in the last 5 years. The survey was conducted between November 2019 and January 2020. In order to ensure complete objectivity, IoT Analytics did not alter or supplement any survey results and also did NOT accept any participation from participants that were suggested by third parties (e.g., customers from specific vendors).
- Type of research. Primary research via prequalified online survey
- Audience type. C-level / Senior manager/ VP/Director
- Study time frame. November 2019 – January 2020
- Number of individual participants. 64
- Region mix. ~38% North America, ~37% Europe, ~25% APAC