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IOT PRODUCT MANUFACTURING – FROM PROTOTYPE TO REALITY:

BUSINESS MODEL FOR IOT PRODUCT MANUFACTURING:

Organizations can incorporate IoT in their business models to generate

additional revenue streams in several different ways, including the pay-
per-usage and data-driven models.

IoT technology is quickly becoming vital to business everywhere. IoT makes

it possible to create and develop new business models quickly and at
scale, triggering a digital transformation in nearly every industry.

A good IoT business model is one that supports a viable business for
customers and delivers value easily and efficiently. The IoT business model
you choose or create is only restricted by your creativity and willingness to
try. Here are the top IoT business models

1. Platform business model : The platform-based business model

combines manufacturers and consumers in the marketplace to benefit
both. The key to it is interoperability and interconnection of the devices
and the business to generate revenue from related transactions.

Amazon and its Alexa voice recognition platform is a good example of this,
as Amazon generates data through Alexa and then uses it to sell related
products to consumers. Amazon charges third-party vendors and developers
to create and release services on the platform, increasing its revenue and
market reach.

2. Subscription model

Businesses can use the always-on connectivity of IoT devices to develop a

recurring revenue business or subscription model. Like the as-a-service
business model for technology, an IoT subscription model enables you to
deliver continuous value to customers for a regular fee.

The IoT device breaks down the barrier between you and your customers,
helping you foster an active relationship instead of a transactional one. Your
device gathers more data about customers over time, giving you the chance
to provide valuable features and products tailored to their unique needs.
3. Pay-per-usage model

Active sensors on your IoT devices mean you can regularly monitor your
customer's environment to see how much they use your product or service.
This gives you an opportunity to use a pay-per-usage business model where
you charge them for the amount of time they actively interact with your
product.

Many auto insurance companies are jumping into this model by offering a
mileage-based insurance plan to customers. People don't pay for the
IoT device installed on their car that tracks their driving usage and habits;
they pay for the lower rates based on the data they generate on the device.

Rolls-Royce has been doing this for years with their Total Care program,
where airlines are charged on a fixed dollar per flying hour basis for the use
of the engines on their planes. Rolls-Royce retains ownership of the engines
and actively maintains them through IoT sensors that send telemetry in real-
time to their monitoring sensors.

4. Asset-sharing model

Many industries have big expenditures when it comes to vital equipment.

They want to be sure they're going to use the equipment enough to merit
the expense. An asset-sharing business model for IoT could help with
this by helping businesses sell their extra capacity back to the market. That
way, each business pays a reduced price for the equipment and can still use
it. Businesses could use this model on their own assets or as their main
business by renting out large assets for sharing.

For consumers, this looks like car and scooter sharing companies such as
Zipcar and Lime. For industrial firms in construction and mining, this means
partnering with nearby businesses to share the cost of heavy machinery. IoT
sensors would track the location and usage of the machines while also
minimizing breakdowns by monitoring engine data in real-time. Each firm
would have access to the data and could reserve time on the machines as
needed.

5. Asset-tracking model

Connected devices in the supply chain help businesses identify, monitor and
track assets in real time. It helps them protect in-field assets from loss or
theft while monitoring for maintenance purposes. With the data generated
by connected devices on these assets, businesses can check on their status
regularly and know when to repair, fix or replace assets before they fail. This
business model can also track the supply chain to identify inefficiencies,
optimize workflows and increase visibility into usage.

Sierra Wireless helps global companies track their cold-chain cargo integrity
with high-value IoT asset tracking platforms. Temperature-sensitive cargo
such as food, produce and pharmaceuticals require precise temperature
controls throughout the cold chain to maintain the integrity of the loads. As
pressures mount for the refrigerated cargo industry as a whole, carriers can
use these types of IoT sensors and online tracking platforms to ensure
complete visibility of cargo, maintain adequate temperatures and take swift
action on any identified issues.

6. Outcome-based model

The idea for this model is for customers to pay for the outcome of the IoT
product, not the product itself. Many of the models discussed here are
outcome-based, as they focus more on what customers gain from the device,
rather than the device itself.

Self-monitoring products that can automatically reorder replacement parts

or create a service request are good examples of this. Think of the HP
printers that reorder ink cartridges automatically when you're nearly out of
ink or the industrial company whose products automatically book a service
call when they're not working optimally.

An innovative example of this is Propeller Health's digital health tool,

Propeller. It enables those with asthma or chronic obstructive pulmonary
disease manages their conditions in partnership with their clinicians and an
IoT sensor attached to their inhalers. The sensors connect to the Propeller
app on patients' smartphones and deliver insights on medication use,
symptoms, triggers and environmental factors. Patients can share that data
with their clinicians to inform their treatment plans and identify better
outcomes.

7. Compliance model

Compliance tracking is vital to many industries and costs a lot of time, effort
and money. Depending on the industry, there might be significant checks
that must be done for safety, environmental or legal reasons. Deploying IoT
devices into the field can help reduce the cost of compliance by making your
business more responsive to changes before they become a problem.

IBM's Vegetation Management platform combines weather, satellite and IoT

data to help utilities make better decisions. Vegetation-related outages are
among the top reasons for outages globally and affect system reliability and
customer satisfaction. Compliance is critical in such a highly regulated
industry. IBM's platform helps utilities monitor sites in real-time and offers
relevant insights to help with budget allocation, work planning, hazard
reporting and regulatory reporting.

8. Data-driven model

A popular IoT business model is the data-driven model powered by the data
generated by your devices. You build a product that provides value to
customers and collects data that you can use for other products or sell to a
third party. This model works well if you have many devices out in the field
collecting data and if you've notified customers that you're using their data
for this.

There are many ways to use this business model outside of the classic online
shopping model -- where consumers get product suggestions based on their
browsing or purchase history. For example, in office buildings, energy
efficiency devices can monitor energy consumption and be used by landlords
to manage HVAC and energy usage throughout the day. This data can also
be sold to utility companies for forecasting purposes as they manage the
local energy grid.

9. Service-adjacent model

In this model, your business offers a service that enhances the use of the IoT
device but doesn't necessarily sell the device itself. The device is the enabler
of your service, not the main point of your business.

For example, you use an IoT device to monitor a network or system, predict
maintenance timelines and sell a maintenance contract to customers. You
don't create or develop the device. You might not even install the device but
know of it and how it's used in the industry. You could partner with an IoT
manufacturer to create a service industry that supports it.

There are many ways to incorporate IoT into your business model. Many
businesses are combining them in creative ways to maximize their
opportunities and diversify their revenue streams. You can be an IoT vendor,
provider or partner, generating new revenues as you deliver more value to
your customers.

BUSINESS MODEL CANVAS

A business model canvas is a visual representation of a business model,

highlighting all key strategic factors. In other words, it is a general, holistic
and complete overview of the company’s workings, customers, revenue
streams and more.

The actual business model canvas definition was first proposed by Alexander
Osterwalder, a Swiss entrepreneur, and consultant, but has gone to be used
around the world.

What’s the Purpose of a Business Model Canvas?

Other than providing a general overview of the business model, these

canvases enable companies to visualize and analyze their strategy. This
includes updating the model as the company evolves, such as changes in the
market, new streams or expansions.
The business model canvas provides the central, common source of
knowledge through which each department can add their unique input
from their respective domains.

It is a template that defines the business - specifically, how each section

interacts with the others. For example, understanding the value
proposition, the target customer and the channels through which they are
engaged all need to be analyzed together, not just in individual vacuums.

Alternatively, the business model canvas can be used by organizations to

plan, assess or execute new models altogether. In this way, the canvas
highlights the key essentials and ensures that no vital factors are
forgotten. If the canvas is incomplete, then the respective strategy is also
incomplete.

Elements of a Business Model Canvas: So, what does a business model

canvas include?

Customer Segments: Whether its B2B or B2C, all businesses have

customers. These are the people or organizations that buy your products,
use your service or are otherwise essential for creating a profit.

Customers can be defined through various means but it’s important to focus
on the core customers first, then assess less critical or potential future
clients. The canvas should assess, among other factors:

 Current and future needs: what are customers looking for, and what
might they be looking for in the immediate future?

 General demographic: age range, location, interests, etc

 Likes, dislikes and pain points: what do your customers enjoy and
what puts them off? Knowing this will help understand how best to
approach them.

 Relations with other segments: this is important if your business

relies on multiple groups interacting. Airbnb, for example, has both
 property owners and guests - the business strategy only works if both
are satisfied.

Additionally, you can list additional segments that may utilize the product or
service in the future. This will highlight future directions the strategy can
go in, once success has been gained with the core, primary audience(s).

Value Proposition: A company’s value proposition is the sum of its

various products and services, specifically in regards to how it uniquely
stands out amongst the competition. In layman's terms: what is the unique
factor that makes this business better than another?

The creator of the business model canvas, Osterwalder has also stated
that organizations need to offer something unique and, what’s more, this
needs to be immediately discernible from the competition.

The value proposition can be as simple as being cheaper, faster, more

efficient or more readily available than the competition. However, we can
roughly place all values in two broad categories:

Quantitative: This refers to benefits that can be easily counted; from a

customer’s point of view, this means they can be easily compared to the
competition. Examples of this can include pricing or speed. Users may very
well choose your service because it's cheaper or quicker.

Qualitative: This refers to abstract concepts such as value or

experience - those that can’t be readily measured by hard numbers; but
nonetheless, give a strong emotional response to your audience. Examples
of this can include various characteristics, such as using local products,
being eco-friendly or having a personal, customer-centric approach that
competitors lack.

Another way of expressing the core value is by asking what you want
customers to remember. When it comes to recommending your business to
others, what’s the essential benefit that people should mention? This is the
value that your organization needs to drive - so it needs to be on the canvas.

Of course, your value also needs to be maintained. For instance, if your value
lies in being the only service in a respective region, what will happen when a
larger competitor eventually decides to move in? The business model canvas
should highlight these weaknesses, in order to better plan ahead.
Channels: How will you and your customer interact? Once you define your
customer, as well as flesh out your unique value, this will impact what
channels you use.

For example, if your audience is busy and on the go, a mobile-facing

service will be essential. Likewise, if you’re targeting specific locations,
perhaps a physical presence is also needed? What’s important here is that
you consider the many touch points that your customers may want and
highlight the beneficial ones.

However, it should be noted that channels can adapt over time and this is
one area where the business model canvas is likely to be updated.

For example, when Domino’s first started, there were only a handful of
options, namely dialing the store or visiting in-person. The invention of the
internet and mobile apps quickly changed this and now there are over 10
different ways, including smart TVs, slack integration and voice commands.

Yet the decision to expand with new digital products didn’t just happen on a
whim; the business model canvas considered the customer needs (efficiency
and a desire for less effort) with their value proposition (making food
ordering and delivery as easy as possible) to define new channels.

Customer Relationships: This section covers your relationship with each

customer. This includes how customers first came to use your business, how
you kept these initial customers and, ultimately, how the business will grow
its audience.

There are a number of factors to consider here, especially in regards to the

type of relationship you want:

 Personal Assistance. In these forms, customer service is essential.

Clients want a personal approach from your company and, in turn, you
offer a direct approach tailored to their specific needs. This often
involves having employees attached to specific customers (such as a
sales or business development position) both before and after the sale
process itself. This is something a bank might have for its business
clients, for example. How dedicated this exact relationship depends on
the nature of your service, as well as your customers.
  Automation and Self-Service. On the other hand, you might not
want to have a direct, personal relationship at all. This can often be
found in e-commerce stores, for example; customers just want to
browse and shop at will, without speaking to anyone. Automation can
enhance this through personalization, without the customer being
aware, such as Netflix’s recommended viewing.

 Communities. Alternatively, if your target audience is a particular

niche, segment or region, you might want to establish a community. In
this approach, your business model brings people of shared interests
together, to facilitate more actions.

Revenue Streams

Ultimately, a company has to turn a profit. On the business model canvas,

this is represented by revenue streams: the various channels with which
income can be generated. Here are the most common revenue streams to
consider:

Asset or goods sales: this is one of the oldest streams. By selling goods,
the business generates revenue at each transaction.

Subscription: If your providing an ongoing service or rented out

products, then these fall under subscription models; your customers pay on
a regular schedule (such as per month or year) as long as they are using
your business.

Leasing or lending: This is similar to the subscription, but differs in that it’s
for a predefined period. Car rentals, for instance, often do this, as customers
define the rental period before purchasing. Newer models, however, try to
challenge this status quo by offering a more subscription-based service.

Licensing: This is where the business sells licenses to other companies or

individuals to use the property. It’s similar to sale, but differs in that you still
own the intellectual property; the user can’t resell it.

White labeling: Similar to licensing, white labeling is where you provide a

product or service that businesses can relabel as their own. This is typically
done as a subscription or one-off license purchase, so it can be considered
an additional variant of the above.

Advertising: Perhaps your model is designed to attract users, but currently

drive revenue from advertising opportunities? Social media networks are the
most famous example of this; they don’t make money through purchases or
subscriptions, but through charging advertisers to benefit from this network.
It’s important to note that these revenue streams are not set in stone -
they will adapt and evolve as the market changes. As a business, you should
regularly return to the canvas to make sure each stream is as effective as it
can be. This includes different pricing plans and options (especially if you
have multiple streams) or adding new streams, such as with Domino’s, for
example.

Key Resources

Every organization runs on resources: the essential assets in running

the business and providing the value (defined earlier) to customers. Like the
other elements, this can come in many forms.

Human resources: if you’re providing personalized value or have a model

that requires a lot of staff, the cost and training of employees need to be
considered.

Financial: how much investment is required to run and maintain a business

before it makes a profit? The more money is needed upfront, the bigger the
burden to generate ROI.

Physical: expanding your presence, opening offices or buying physical

space is also an asset that needs to be considered. This is mostly true for
organizations that need prominent positions, such as high street retailers or
hotels. For a lot of businesses, the push into a digital landscape is quickly
reducing the strain of this particular resource.

Intellectual property: this can include everything needed to develop your

IP (such as an app), as well as develop and maintain it. For example,
subscriptions and licenses survive by ensuring customers cannot use the
service without your business, as you still hold the intellectual property
rights.

Through these factors, you should identify what is currently available and
what is needed to succeed. Much of this will be defined in your previous
channels; this is where you focus on what those channels need to succeed -
with an end goal of creating a sustainable business model.

Key Activities
Similar to the last section, what do you need to do to produce your value
proposition and ensure it succeeds? This section includes the key activities
needed to make your model effective and successfully connect with
customers.

This can include initial investment, such as finding a development company,

or even marketing and advertising to generate that initial awareness. This
section should take everything into account, including the impact each has
on the overall business, to understand the absolute essentials and
recommended extras.

Key Partnerships

Very few companies survive on their own. Identifying and preparing key
partnerships is essential for long term survivability. Here are the primary
partnerships that you’ll typically need to consider.

Distributors: how will your business sell to customers? Whether its using
online stores, sales agents or other companies, you need some form of
distribution.

“Coopetition”: sometimes two businesses, that would otherwise be

competitors, can join forces to take on larger markets. This works where this
is enough potential gains that a joint venture makes more fiscal sense: there
isn’t a clear risk of one siding gaining at the expense of the others. For
example, smaller organizations can often team up to provide a larger,
holistic offer to users, or to even attend events that are outside of either
side’s budget.

Suppliers: Similar to distribution, you also need suppliers for everything

from raw materials to software development. If there’s something you need
and can’t produce in-house, then you need to identify trusted suppliers.

Existing customers: Perhaps if you have existing clients, you can offer
some recommendation rewards, or a commission-based system, to spread
awareness?

Like everything else, much of this will be subject to change. As the business
grows, you might find you no longer need certain partnerships, and likewise
need to move to others. All of this should be noted in the business model
canvas.
Cost Structure : Finally, as far as business model canvas elements go, you
need to define all potential costs. After all, you need to know how much
you’ve spent to know when you’re generating profit. The cost structure takes
both existing and future costs into account:

Fixed costs are the easiest to determine as they have a singular price or a
repetitive price that doesn’t change. Rent is a good example.

Variable costs, on the other hand, can vary and their high peaks need to be
accounted for. Factors such as temperature can often impact businesses that
need to maintain a certain heat or humidity - they may spend more (or less)
in the warmer months.

Economies of scale and scope, similarly, refer to decreasing costs as the

business expands. This is because larger production can introduce better
efficiencies (scale) while creating new partnerships and improving internal
processes, as a result, can improve the wider organization (scope). For
example, you might rely on third-party providers for immediate support,
such as packaging, but move this in-house when it becomes cost-efficient to
do so.

It’s important to understand these variables so that the business model

canvas provides a realistic view of costs right now, as well as where the
company aims to be short.

Benefits of a Business Model Canvas

Visuals at a glance: Thanks for having everything in one place, people in

the company can gain an immediate understanding of the business model as
a whole. It’s easily interpretable and offers a single source of truth for the
wider strategy.

Quick Improvements & Iterations: By having everything connected,

organizations can see how every part of the business works with the wider
structure. This is where people can highlight flaws or identify solutions. By
comparing all the factors, such as customers, revenue streams and costs,
the company can begin to make strategic improvements it might not have
otherwise identified before.

Shareable: Nobody wants to go through a 2-hour presentation everything

they want to go through the business strategy. The business model canvas
definition is a better way to show this plan. It can be easily shown to new
people to help bring them up to speed, while simple changes don’t require
extensive explanations; people can see how they fit onto the updated
canvas.

What Is a Business Model Canvas?

A business model canvas is an effective way to bring all the elements of

your strategy together, from initial costs to customer & revenue streams.
Doing so helps bring in all departments in your company and allows for a
broad, but deep, an overview of the intended business model. Whether its
propose updates to an existing strategy or developing an entirely new
company, the canvas is one of the best ways to get an initial overview and
assess directions as early as possible.

FUNDING ON IOT STARTUPS

Funding in IoT start-ups has risen since 2010, going from US$ 768m to US$
1.9b in 2014, with yearly deal counts rising from 91 in 2010 to 221 in 2014.
2015 is expected to overtake that latest number.

Private IoT companies have had US$ 500m worth of investment in four of the
last six yearly quarters, which again has risen considerably since 2010. In
2010 and 2011, deals were around 25 per quarter, but in 2014 and 2015
some quarters have had as many as 65 deals. Q2 in 2015 had the most
funding at $626m.

The shares of IoT deals by investment stage remained fairly constant over
the years, there was a trend towards early stage deals that peaked in 2013,
and Seed and Series A deals made up 62% of deal share.

Dollar stage deals tend to skew towards middle staged, with mid-stage deals
making up the greatest dollar share every year, apart from 2012. In 2015, so
far mid-stage deal makes up 52% of IoT funding, with late stage funding
attributing 22% in Series D, and 31% of dollars in Series E+.

View, which raised US$ 150m in 2015’s Q3 Series G round, was the most
well-funded company. Proteus Digital Health followed, a company which
raised $52m in a Q3 Series G round in 2014. Sonos was the third most well-
funded company, raising $130m in Series E in Q4 of 2014.
The most active investor in IoT start-ups is Intel Capital, followed by
Qualcomm Ventures. Both companies are investing in wearables start-ups
and wearables companies. Intel Capital led a round to BodyLabs this year,
which makes 3D body-scanning sensors, and invested in Sano Intelligence, a
biometric sensor developer.

Qualcomm Ventures invested in 3D Robotics, Whistle Labs, and sensor

networks developed by Panoramic Power, Placemeter, and Streetline.

The third most active investor was Foundry Group, making bets on IoT
related hardware investments such as Fitbit, LittleBits, and Makerbot.

Intel Capital is the leading early stage investor. They are followed by Khosla
Ventures, who invested in enterprise IoT companies, such as Helium and
Quanttus. The third highest leading early-stage investor is Foundry Group,
investing in Q2 2015s seed round for Ivee, a home voice assistant.