With the advent of smart technology, there is an astounding breadth of new capabilities that IoT technology enables for consumer products. A new generation of smart products allow for integration of services, either embedded into the physical product or offered via a connected application on a smart device. With products and the consumers who use them so greatly changed, business models must take into account that there are new needs to answer and new goals to achieve – but these goals and needs must be met through new models.

In order to ensure business value from your smart product, you should first explore how the IoT business model creates, delivers and captures value in an entirely original way.

The Internet of Things is all about turning products into services

The product is larger than its physical dimensions and includes digital services that create value during the in-market phase. Take a smart bike, for example. Bike theft is a serious issue for anyone who cycles frequently. A smart bike with GPS tracking connected to an application is incredibly valuable for owners, who can instantly identify the bike’s location and retrieve it. But once the smart bike is connected to an application, it accrues value exponentially to cover much more than theft prevention. The same app serves as a social tool that enables multiple users to connect with one another, suggest routes, swap advice, and plan trips together. Another possible service would connect users to the nearest bike repair shop, directly on the app. Deciding which features to give your product and thus extend its value depend largely on your ability to think outside the box.

Revitalize your product and keep it fresh for users. Extending the product lifecycle is one way to extend your smart product’s potential value. Once a product goes on the market, it has a figurative ‘best-by’ date, at which point it becomes obsolete and its value runs out. With smart products, the ability to update the product software remotely, and in a centralized manner, revitalizes the product and keeps it relevant for a significantly longer time.

iot business value model
Value creation and capture, traditional product vs. Internet of Things product. Image credits: hbr.org

To get strong business value, rethink value creation: Find opportunities for services and create new habits

If up until now manufacturers responded to customers’ needs retroactively, with the Internet of Things it’s about predicting new needs – or even inventing them. Today you can establish new user habits to create new sources of value.

Going back to the bike example, adding GPS tracking that connects with a smart device enables owners to find stolen bikes easily – or locate where they parked it. Owners can activate the camera on their smart bike, with a tap on their smartphone screen whenever it’s parked, to catch a thief – or turn it on before a ride, to act as evidence in case of a traffic accident. Safety in general is a major concern which smart products tap into; other examples include smart infant and child car seats that alert parents if children are left in a locked car, and smart doors and windows which automatically alert owners if someone attempts to break into their house. By providing new answers to old problems, smart products can create new standards of value in their industry.

The IoT Ecosystem: Identify who can best deliver each source of value or services

Within the Internet of Things, you don’t need to develop everything on your own. The trick to turning products into services is to create an IoT business model with an ‘ecosystem approach of doing business”; i.e. integration and partnering with outside stakeholders. In the realm of smart products, “value creation” occurs inside of “an ecosystem with multidirectional value and service streams”.

There are numerous “stakeholders”, or players, in the IoT ecosystem.  Product companies need to engage with these stakeholders to complete the layers that lead to value creation and capture: technology skills, hardware components, IP rights, resources, and other things that provide a competitive advantage.  App and hardware developers create business value through innovation, and “the business ecosystem” captures value during the in-market phase. The connected app, for example, enables you to suggest add-ons and other digital services that give substantial value, many of which will come from partners in the IoT ecosystem. Once you know which business values you want, ask who will add them – and which stakeholders can best deliver them.

It’s equally important to understand exactly what the incentive is for each stakeholder, in order to encourage “sustainability of value creation within a stakeholder network”. It’s a two-way approach: The ecosystem must deliver value to customers, and in return, each player in the ecosystem benefits from their involvement. Provide the right incentive, and you guarantee the best possible service and delivery of a source of value from their end.

iot business value depends on a strong ecosystem of shareholders
The Internet of Things gives the best business value when there is a strong ecoystem in place to deliver services.

4. Validate services and other new sources of value through user data

With IoT, the black box that prevents product companies from understanding product-user interaction and user experience disappears. Instead, real-time analytics shed light on the customer’s interaction with the product.

User data provides insight that enables product companies to prolong the product lifecycle by optimizing popular smart features. With this astonishingly valuable insight, manufacturers discover exactly what value the product holds for their users: which features they use, where, and when.

Returning to the smart bike, if real-time analytics show that users tend to bike together, the product can feature more social functions on the app, or the firmware can be reconfigured so the bikes ‘recognize’ one another. The possibilities are endless; it’s a matter of choosing which data to analyze and how to handle the subsequent insight.

Business Value in the Internet of Things can be summed up in one word: opportunity. With the new potential to anticipate needs and excite consumers, smart products empower product manufacturers and companies to anticipate or even invent needs to excite and surprise consumers, and make the product as necessary to everyday life as smartphones and computers. They also enable the leveraging of in-market insight to find new business value and enhance the product while in use. Most importantly, having a strong ecosystem of third players who deliver services and sources of value provide companies with the optimal smart product and the highest business value from IoT. While some of these value drivers may not come into play until the product is on the market, grasping the importance of these elements when planning a business model guarantees a much greater value from the smart product in the long run.

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