Almost all businesses are aware of the potential gains that the Internet of Things (IoT) has to offer, they are unsure of how to approach it. This article proposes a business model that builds on Holler et al., (2014) [1]. The model consists of three dimensions: “Who, Where, and Why”. “Who” describes collaborating partners, which builds the “Value Network”. “Where” describes sources of value co-creation rooted in the layer model of digitized objects, and “Why” describes how partners benefit from collaborating within the value network. With the intention of addressing “How”, the proposed framework has integrated the IoT strategy category, tactics, and value chain elements. The framework is then validated through the case studies of some successful players who are either the Awardees of the IoT Award 2014 or the ICT Award 2015 of Hong Kong.
Internet of Things (IoT) is an integrated part of Future Internet. According to the agreed protocol, any article can be connected and talk to each other. This can be achieved through a vast number of methods and technologies, including radio frequency identification (RFID), near field communication (NFC), infrared (IR) sensors, and many more. The IoT paradigm is a result of the convergence of three main visions: internet-oriented (middleware), things oriented (sensors) and semantic-oriented (knowledge) (Abdmeziem and Tandjaoui, 2014) [
Physical objects gain characteristics of digital technology with the addition of a digital aspect (Yoo et al., 2010) [
Business model is defined as the plan implemented by a company to generate revenue and make a profit from operations (Investopedia n.d., “Business Model”) [
Business models consist of several essential elements: “Who, What, How, and Why” (Gassmann et al., 2014) [
As value creation in traditional product mindset shifts from solving existing needs in a reactive manner to ad-
dress real-time and emergent needs in a predictive manner, filling out well-known frameworks and streaming established business models will not be enough (Hui, 2014) [
・ Object sensing and information gathering: The first step of enabling smart services is to collect contextual information about environment, “things” and objects of interest.
・ Information delivering: Various wireless technologies such as wireless sensor networks (WSNs), body area networks (BANs), WiFi, Bluetooth, Zigbee, GPRS, GSM, cellular and 3G, etc. can be used for delivering the information.
・ Information processing: Pervasive and autonomic services are provided through ubiquitous machines in both “autonomic” and “smart” way.
・ Application and smart services: Heterogeneous network performance in terms of bandwidth utilization, computing capability and energy efficiency are improved according to different users’ requirements, and application-specific design.
Each company can participate into more than one layer, and create its own business model.
Leminen et al., (2012) [
The degree of openness is dependent on the maturity of the ecosystem. Rong, et al., (2015) [
lopment but still welcomes customers and third parties to modify the incomplete product and refine it with more functional features once the ecosystem begins to mature. As the ecosystem becomes very mature, the focal firm will consider the product as a dominant design and get feedback from customers and no access points for customer to change the products. They suggested the development of any new business model should be adaptable via an open platform and diverse solutions to allow participants’ resources and capabilities to be fully utilized.
Sun et al., (2012) [
But in a connected world, products are no longer one-and-done in a connected world. New features and functionality can be pushed to the customer on a regular basis. Customer behavior can be tracked, and products can now be connected with other products, leading to new analytics and new services for more effective forecasting, process optimization, and customer service experiences (Hui G., 2014) [
The focus shifts to other business model parameters as the service content increases particularly in IoT markets. Kindström D. (2010) [
Business model parameter | Key issues |
---|---|
Value proposition | ・ Articulated offering ・ Visualization ・ Closer customer interaction ・ A dynamic offering portfolio |
Revenue mechanisms | ・ New revenue model |
Value chain | ・ Dedicated roles for service development ・ A structured service development process ・ A new reward system ・ Extending the resource base |
Value network | ・ Finding partners that can add value to the new offerings |
Competitive strategy | ・ Branding ・ Differentiation |
Target market | ・ New customer segmentation |
Turber et al., (2014) [
Westerlund et al., (2014) [
In the review of the contemporary business models in IoT, the framework posited by Holler et al., (2014) [
Competitive Advantage can be gained with an effective strategy in grasping the emerging opportunities from
IoT. Li et al., (2012) [
Besides the strategy, we can study tactic of the focal firms to enrich our framework. There are six components in the digitally charged products derived by Fleisch et al., (2015) [
・ Physical Freemium: This component describes a physical asset that is sold together with a free digital service at no additional charge. Some percentage of customers will select premium charged services afterward.
・ Digital Add-on: A physical asset is sold very inexpensively at a thin margin. Over time, the customer can purchase or activate any number of digital services with a higher margin.
・ Digital lock-in: This refers to a sensor-based, digital handshake that is deployed to limit compatibility, prevent counterfeits, and ensure warranties.
・ Product as Point of Sales: Physical products become sites of digital sales and marketing services. The customer consumes services directly at the product or indirectly via a smart phone and identification technology.
・ Object Self-Service: This component refers to the ability of things to independently place orders on the Internet.
・ Remote Usage and Condition Monitoring: “Smart” things can transmit data about their own status or their environment in real time. This makes it possible to detect errors preventatively and to monitor usage and the remaining inventory of consumables.
In fact, digital freemium is very common. An example is Apps, where digital asset are free at first, but customer may pay premium services afterward. All these components are the general tactics employed by most of the collaborators in the IoT ecosystem.
Industrial driving force | |||
---|---|---|---|
Market pull | Technology push | ||
Strategic intent | Get-ahead | Get-ahead strategy in market Example: Haier | Get-ahead strategy in technology Example: Cinterion |
Catch-up | Catch-up strategy in market Example: Local Supermarket | Catch-up strategy in technology Example: Junmp |
Value chains break down a firm’s activities into a sequence of value-generating activities, starting from the conception and leading to end use. Value chains for IoT firms are more complicated than those of a traditional product; however the underlying concept remains the same. There are a least nine distinct product or service categories along the value chain in IoT in
Holler et al., (2014) [
Building on the framework of Holler et al., (2014) [
The qualitative analysis is based on multiple case studies which are adopted to explore the why, what, and how (Yin, Bateman, & Moore, 1983) [
Project description: Wong Tai Sin Temple is a popular tourist spot in Hong Kong, attracting more than 5 million
Radios | Chips that provide connectivity based on various radio protocols |
---|---|
Sensors | Chips that can measure various environmental/electrical variables |
Microcontrollers | Processors/storage that allow low-cost intelligence on a chip |
Modules | Combine radios, sensors, microcontrollers in a single package |
Platform Software | Software that activates, monitors, analyzes device network |
Application Software | Presents information in usable/analyzable format for end user |
Device | Integrates modules with app software into a usable form factor |
Airtime | Use of licensed or unlicensed spectrum for communications |
Service | Deploying/Managing/Supporting IoT solution |
Company | Collaborator | Inputs | Network | Service/ processing/ packaging | Content/ Information product | Benefits | Strategy | Tactic |
---|---|---|---|---|---|---|---|---|
C1 | ||||||||
ABC | C2 | |||||||
C3 |
visitors per annum. However, during the crowded peak seasons, the information board that contains detailed information about the cultures and stories of Temple becomes inaccessible to many visitors. Due to the absence of effective communication platform between Temple and visitors, the Management was unable to estimate the number of visitor during peak seasons and couldn’t allocate enough manpower to handle the huge number of visitors. With reference to the real time object tracking approach, the project leveraged on the existing WiFi network in Wong Tai Sin Temple, as well as the real time location tracking system platform and mobile application, to develop a free mobile app for tourists, providing self-serving tour guide services. With the free mobile app, they now can access introductory video and information at each attraction point without the assistance of tourist guides.
Product/service: Real time location tracking system (RTLS) with an App to be downloaded by visitor:
The GUI appeared on a smart phone
Project description: Jewelry is one of the traditional industries in Hong Kong. Over the past decade, the whole industry has been growing rapidly due to the fast growing economy in Mainland China. However, many jewelry stores are still handwriting receipts, providing price information verbally and operating in the traditional business model. When the salespeople are showcasing diamond and jewelry to customers, they are required to keep a close eye on the jewelry and customers, thus they are not able to provide further information in order to make the deal. Megabyte Limited has developed a mobile retail tray, mTray, a smart display tray for jewelry running on Cloud. It is equipped with multiple wireless technologies, including RFID, NFC and Bluetooth and the solution reduces manual process and eliminates human errors.
Product/service: Mobile retail tray
Based on Android platform, and with 50 patented designs, mTray perfectly integrates POS, security, price calculation and user survey functions in a single platform.
Project description: The building cost of Hong Kong-Zhuhai-Macao Bridge Project is as high as RMB76.2 billion and the progress is now in full swing. Since the construction is very close to the Hong Kong International Airport in Chek Lap Kok, the developers must efficiently control the heights of the construction machineries to prevent affecting the flight paths and causing danger. It is easier to control the heights on the land as compared with that at the sea because there are high and low tides at the sea, as well as the sailing vessels. The height restriction should meet the requirement from Civil Aviation Department; therefore, it is necessary to have a real- time monitoring system for precise height calculation. The system consists of 5 components, namely: GPS antenna, a master controller, sensor for measuring height and angle, Draught Senor, and an alarm system installed at different parts of the vessel. Together with the use of cloud server, if the height of the suspended platform of the engineering vessel exceeds the limit, the red light alarm will be turned on to remind the suspended platform operators to immediately lower the suspended platform back to the safe level. If the irregularities sustain, the system will automatically send messages and emails to alert the engineer manage and Civil Aviation Department.
Product/service: Equipment Height Real-time Monitoring System (EHRMS) for HK-Zhuhai Macao Bridge Project
Once the sensor and the intranet device are installed on the suspended platform and working vessel, administrators and the government officers can monitor the height of the suspended platform anytime.
Project description: HKBus+ is an information platform offering comprehensive public transportation information in Hong Kong, covering buses, mini-buses, MTR, ferries and trams. It combines the open data released by the HKSAR government as well as data collected from the Internet to offer the most comprehensive and up- to-date information to the users. The app provides many useful and convenient functions, including intelligent search, point-to-point route search, nearby stops and stations, transit suggestions, taxi fare estimation, and some personalized functions such as favorite routes and destinations. The app will also notify the users via push messages about the latest updates of public transportation services and abnormal traffic conditions. Currently, HKBus+ is offered for free in app stores. The main source of revenue is from mobile advertisements. They are using Google’s AdMob mobile ad services. Their collaborators in the ecosystem include:
Vpon: a company specialized in location-based mobile ads, to deliver mobile ads to their users. EasyVan: a popular van calling app in Hong Kong providing the estimated cost of calling a van.
Flytaxi: a popular taxi calling app in Hong Kong providing the estimated taxi fare when the user performs a point-to-point search.
Foodpanda: a mobile app that allow users to order food delivery easily. By using location-based technology, they recommend to the users restaurants that offer delivery services and are close to their current or home locations.
Product/service: Public Transport App
Latest traffic news Functions route information Point to point search
Project description: With the smart TV installed at the shopping mall, the camera on the TV can find out the effectiveness and ROI of digital signage and point-of-purchase displays through a Cloud Audience Analytics. It is a video “presence detection” solution providing shopper analytics about their profile such as gender, age, etc in real-time, automatically pop up the appropriate advertisement, collecting and reporting insightful information for improving advertising effectiveness. Cenique provides the analytic software and gateway, while Hutchison provides the mobile network and Cloud facility.
Product/Service: IntelliSense Analytics
Project description: Unlike diamonds and gemstones which can now be sold online with confidence and have their own internationally recognized standards, the pearl industry is facing the challenges of identity, track- and-traceability, and authentication. Each pearl nucleus is embedded with a RFID tag, registered by technology called Metakaku. By adding in data and information to the database along the cultivation period, each pearl shall have a record that tells its unique story about the pearl’s true origin, cultivation period and its current whereabouts. The RFID tag contains a unique Electronic Product Code (EPC) serial number via a unique serialization and the track-and-trace function provided by GS1, a non-profit organization, industry-led global supply chain standards organization. A high level authentication with a dynamic security key is done by a technology called AuthenTick™ developed by theHong Kong R&D Centre for Logistics and Supply Chain Management (LSCM). The information is collected collaboratively throughout the value chain is then stored in the database called the Global Pearl Database (GPD) developed by LSCM as well. The pearl enquirer can access the information by using the pearl search engine that is powered by the GS1’s Search Directory and the GPD’s information.
Product/Service: Metakaku™, the technological enabler that allows unique identification for each pearl.
In the business model framework proposed by Turber et al., (2014) [
Solution providers like HKC, and Megabyte involve sensors, information handling, and application layers. Their services like augmented system integration with customization and software development. The after sales services can be augmented because the system status can be monitored & diagnosed remotely. Fukui worked with a technology enabler to apply RFID in their specific industry, and collaborated with several parties in the Ecosystem. They can extend the service to the whole industry and become a platform business. Axon labs provided a free App for download to build up a customer base first before any value capture. It invited several other related service providers to create synergy. This is a typical digital freemium business model. Cenique provides viewer profile analytic riding on the Cloud service provided by Hutchison. Their services can provide a direct target advertising platform for the merchants. Digimobil Technology and Rodsum Wireless extend the ownership model from the user to the service through access to product data and the ability to monitor the performance of the installed devices. Customer can even enjoy the model of “Pay as you go” or “Product as a Service” instead of a huge upfront payment. A hybrid model between a conventional customer ownership and product-as- a-service, such as product sales bundled with service contract, or product sales bundled with performance based contract has been manifested. Almost all the cases are running on a close system to which third party taking over is difficult. Tremendous effort is required to learn the Industry domain, customization, and implementation. Through all these case studies, it showed that the benefits of the collaborators are a great leap in operation efficiency, productivity, a strengthening in customer services, and new revenue streams.
Although the sample size is not big, the studies included user, vendor, system integration, and solution and service providers, while the applications are cross industries, thus the observations, and the lessons from the interviews are quite conclusive:
1) The technology breakthrough in miniaturization, energy efficiency of sensors enables a lot of portable devices, and thus convenient and real time IoT applications.
2) The development & deployment process is quite long or have gone through a Proof of Concept stage as there is no precedent in most of the applications. The advantage for the incumbents is high entry barrier if they can sustain the initial investment period.
3) Affordable wireless connectivity provides ubiquitous network connection for IoT devices.
4) As Cloud service is widely employed in most applications, it creates a common data storage platform for collaborators.
5) Sometimes external information is required in additional to the sensor data for holistic analysis. Some of these are open data such weather, traffic, and geo-mapping.
6) Integration with client back-end system is required in most cases.
7) All the developers/Integrators adopted either a get-ahead strategy in technology or get-ahead strategy in market while the clients mostly adopted a get-ahead strategy in market. The clients must buy in the idea, and the product/solution providers must accommodate more late-stage and post purchase design changes for the fine tuning after initial implementation.
8) The common tactics are digital or physical freemium, Product as Point of Sales, and Remote Usage and Condition Monitoring.
9) IoT applications may involve a lot of different appliances/devices with different control protocol.
10) After-sales services can be much more efficient compared with traditional system because of the internet connected nature of IoT. It can also share the workload of individual device through system optimization.
11) IoT adoption is not reaching a mass market yet; the network effect is confined to specific vertical market because a lot of customization, and thus the domain knowledge are required.
12) Retailers demonstrate the strengthening of customer relationships, marketing, and security through the adoption of IoT.
13) Although an open system which facilities connection to other devices through an open interface or API is feasible, closed system which aims to have customer purchase the whole system from a chosen solution provider is preferable.
14) The performance of the product shifts from the functionality of a discrete product to that of a broader system which consists of the connection network, data storage, system data analytics, and integration with the existing backend management system.
With a rapidly growing industry and huge potential revenue over the horizon, companies can see the great potential in the IoT but struggle on how to approach it. Not much data exists on how business operates within an IoT context, and so companies are reluctant to take the big leap into the IoT. Just as soon as the business potential was realized, so was the need for network-centric IoT business model framework. This article addresses this issue by revealing the successful business models of the IoT Awardees. With that, we also testified that the value proposition, knowledge requirement, and thus the competitive advantages have been changing in the supply side while a new era of IT-driven productivity growth is emerging in the demand side.
Pure sensors manufacturers or technology enablers are excluded in this study because I mainly focus on those businesses involving more than one collaborators or solution base to validate the proposed business model framework. The case studies are mainly from businesses in Hong Kong. Future study can be extended to other cities with different contexts. Although some of these case studies involve data analytic, the self learn artificial intelligence application is not fully demonstrated. As the artificial intelligence or machine learning is indispensable in IoT applications, its impact on business model is a worthwhile topic for future research.
Hubert C. Y.Chan, (2015) Internet of Things Business Models. Journal of Service Science and Management,08,552-568. doi: 10.4236/jssm.2015.84056