In this video, Bruce Sinclair explains the second fundamental concept of business: monetizing value. In IoT, innovation also comes in the forms of the business models, which are best explained by the business model continuum.
- [Instructor] The business model describes how the company monetizes the value it creates. All incremental value from an IoT product, is derived from transforming its data into useful information. Not only do we use this information to create value in our products, but we use this information to create value in our business models. Fundamentally, business models are just an exercise in packaging value. With IoT, we have an advantage. Because we know what the customer needs, what the customer wants, we can package that value in the way that's best aligned with their business.
For IoT to be successful, innovation can't just happen on the technology level. Innovation must be extended to the business model to encourage marketed option. We can classify our business models in two ways, B2B, business to business, and B2C, business to consumer. B2B business are further along than B2C business models, mostly because the business is concerned about their P&L, they're worried about profitability, they're worried about cost.
The consumer, who the B2C business model serves, doesn't have the same motivations. Manufacturers, brands, and enterprises that sell to consumers, are still working out their business model. One of the biggest challenges for companies that are selling IoT products to consumers, is their cost. Generally, they're 10 times the cost of their analog counterpart. The reason the cost is so high, is because there's a back end, invisible to the consumer, that still must be paid for. A home thermostat that normally costs $25, costs $250, when empowered by the internet of things.
A bolt lock, which would cost $15 normally, costs now $150, if it uses internet of things technology. The challenge is, consumers still want to use the product business model, that is a one and done product sale. However, to cover the cost of the back end systems, the prices must be much higher. The business models used in the internet of things have been around for a long time. There's nothing new here. But what is new, is that we can measure them.
We can measure them with the data that we collect. While there may be hundreds, even thousands of business models in IoT, the most valuable ones will be variations of the five classes of business models covered here. We start with a product, product service, service, service outcome, and finally, the outcome business model. The product business model is transaction based, it's one and done.
It's sold based on features and price. The outcome business model is quite different, we're selling an outcome, or a result. What's competitive now, is the business model itself. The vendor only makes money when the customer makes money. This is the business model continuum, it starts as a patchwork of products, and ends as a series of products all orchestrated to work together, to deliver the outcome the customer wants. I'll dive into each of these business models in depth later in the chapter.
The IoT business model evolves over time, getting closer and closer to the customer's business model. This reduces monetization friction, and brings the businesses closer together.
- Creating value with IoT
- Value modeling
- Operating products better
- Monetizing value with IoT
- Using IoT to become closer to the customer
- Product business model
- Increasing customer lifetime value