Break the valid industry logic with smart, connected products

For traditional products, companies lose access after the product has been delivered to the customer. Smart, connected products provide access to data which is collected and transmitted in the progress of the product usage. The business model can be extended far beyond the point of sale.[1]

With the following concepts, the functionality of smart, connected products can break existing industry logic and generate continuous revenue streams.

Breaking business logic

Ecosystem

New insights are gained by analyzing the transmitted data from smart, connected products. These insights help to develop software enhancements and online services tailored to customer needs. This opens up opportunities for continuous income far beyond the point of sale.[1]

These opportunities can be increased by creating an ecosystem of smart, connected products, software and online services. The seamless integration of the components increases the perceived value for the customer. For example, the Apple iPod enhances the enjoyment of listening to music by connecting to the iTunes software and the online store with easy search and convenient purchase functionality.[2]

If a customer already owns an element of the ecosystem, he will be incentivized to use other compatible products and services in order to increase the generated value for him. The flexibility and extensibility of the ecosystem are key features for continuous revenue. With the development and combination of a multitude of different services and products, the full potential is exploited. Licensing to third parties is another way to generate revenue and increase value for the customer.[1] The choice of developing an ecosystem for an opened or closed system is of strategic importance.

smart, connected products to break business logics

Product-as-a-Service

Traditionally, manufacturing companies generate revenue trough the transfer of ownership of the manufactured products. From this point on, the purchaser bears all costs arising from the operation and maintenance of the product. He also bears the risk of downtime and defects, unless they are covered by the warranty.[3]

With smart, connected products manufacturers get access to the product data. Thus, any errors that occur can be detected, reduced and eliminated prematurely. This opens up a range of new business models. With the Product-as-a-Service model, the product remains the property of the manufacturer. He therefore bears full responsibility for all costs associated with the operation of the product. In return, the customer pays an ongoing fee. Instead of the full product price in advance, the customer will only be charged for the service he actually uses. Reductions of operating costs (for example, optimization of energy consumption) or efficiency gains increase the added value for the manufacturer in this model.[3]

Sensor-as-a-Service

The wealth of data generated by smart, connected products makes this model possible. The psychical measurement values are no longer used only for one application. Prepared in a suitable form they are made available for additional applications.[4]

The data itself is the basis for revenue generation. A company could use sensors to detect parking spaces. On the one hand, the data is of interest to car drivers, who can find a free parking space a lot faster. In a different form, these data are of interest to authorities to identify parking offender with less effort. Sensor-as-a-Service thus represents a model that focuses on a “multi-sided” market for sensor data.[4]

Blog series: With smart, connected products into a new business era

Part 1: Introduction
Part 2: The importance of business model innovation
Part 3: Laying the foundation through strategic decisions
Part 4: Break the valid industry logic
Part 5: 5 value-creation layers for IoT applications
Part 6: Transformation of the value chain
Part 7: The generation of value of Things in the Internet of Things
Part 8: Fundamental design of smart, connected products
Part 9: Requirements for the technological infrastructure
Part 10: Creating added value by advancing to smart products

References list

  1. Mayer, P. (2010, März). Economic aspects of SmartProducts. Whitepaper.
    Instute of Technology Mangement, University of St. Gallen. Abgerufen
    von http://www.smartproductsproject.eu/media/stories/smartproducts/publications/Whitepaper_Economic_Aspects_Of_SmartProducts.pdf , S. 4
  2. Osterwalder, A., Pigneur, Y., & Wegberg, J. T. A. (2011). Business Model
    Generation: ein Handbuch für Visionäre, Spielveränderer und
    Herausforderer ; [entwickelt in Zusammenarbeit mit 470 überwältigenden
    Profis aus 45 Ländern]. Frankfurt: Campus-Verl, S. 51
  3. Porter, M. E., & Heppelmann, J. E. (2014, November). How Smart, Connected Products Are Transforming Competition. Harvard Business Review, S. 84
  4. Fleisch, E., Weinberger, M., & Wortmann, F. (2014). Geschäftsmodelle im Internet der Dinge. HMD Praxis der Wirtschaftsinformatik, 51(6), S. 822

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Josef

Head of Documention at Microtronics Engineering GmbH
Josef has been on board since the company was founded in 2006. The rapid development of M2M and IoT is part of his daily work routine. From firmware development to documentation and support, he has gone through all the stations and knows devices and products down to the last detail. He now uses this extensive knowledge as a project manager in order to respond to the wishes of the customers and to find the optimal solution.
Josef

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