Business Models and

the Internet of Things

The Influence of the Internet on Business
Models to Date
• how and where the Internet has impacted the development of
business models?
• Role of information technology (IT) in innovating business models
• Business model pattern
• Who are the customers?
• What is being sold?
• How is it produced?
• How is revenue earned?
Add On and White labeling
• Fees or charges added to the basic price of a good or service
• for additional features or benefits
• price of a car for accessories.
• case studies of Ryanair, SAP, and Sega

• White-labeling is a business-to-business model

• involving manufacturers and resellers
• software manufacturer sells an unbranded piece of software or a service
• to a reseller who then places their branding on the offering and resells it to
their business clients
• Foxconn, Richlieu‐Foods
IT Roles
• Constitutive role: Without it, the business model pattern would be
impossible
• E‐Commerce
• Long Tail: Realize significant profits by selling low volumes of hard-to-
find items to many customers instead of only selling large volumes of
a reduced number of popular items
• Crowdsourcing: Individuals or organizations obtain goods and
services, including ideas and finances, from a large, relatively open
and often rapidly-evolving group of internet users
IT Roles
• Increase value: Patterns such as Self Service or Customer Loyalty
• Irrelevant for a business model like Franchising
Non-driving, non-
driving/supporting,
supporting,
supporting/driving,
Driving
• Distribution of
industry‐transforming case
studies based on the role of
IT, business model pattern
and time
Each new Internet wave has led to new digital
business model patterns
• Web 1.0: New business model patterns enabled by IT included
• E‐Commerce, Freemium, Leverage Customer Data, Open Source (in
relation to software) and Digitalization.

• Web 2.0: Internet made it possible even for ordinary users to

contribute content.
• These included User Designed, Crowdsourcing, Crowdfunding, Long
Tail, and Open Source (in the sense of content).
• Web 3.0 : Internet of Things (when sensors add value)
• Digitally charged products, sensors as service
Three common characteristics of Internet
Business Model Pattern
• Integration of users and customers:
• integrate customers in value‐creation chain
• User Designed, E‐Commerce, Open Source (content) and
• Mass Customization business model patterns
• Service orientation:
• Run time services and/or after‐sales digital contact with customers
• Rent instead of Buy, Subscription, Freemium, Razor and Blade and Add on.
• Core competence analytics:
• Precise collection and analysis of transaction and use data
• Subscription, Flat Rate, Freemium, Pay per Use and Performance‐based
Contracting
Business Models
• The subscription based business model is a business model that
charges customers a recurring fee — typically monthly or yearly — to
access a product or service.
• Netflix and spotify
• Flat rate business model – charging for a fixed fee rather than
charging by the hour.
• Popular with legal services, creative services, building contracting, and other
services companies.
• Freemium: A pricing strategy by which a product or service (typically
a digital offering or an application such as software, media, games or
web services) is provided free of charge, but money (premium) is
charged for additional features, services, or virtual (online)
• Pay per use: Pay as you go model where we use the product
Hidden Revenue Model
• Applied by companies like Google or Facebook
• a pattern for revenues generation that keeps users out of the
equation
• so they don’t pay for the service or product offered.
• revenue streams come from advertising money spent by businesses bidding
on keywords
• 86% of Google’s revenues came from advertising networks.
• Users: I can find an answer to anything
• Businesses: I get more sales through targeted Ads
• Publishers: Easily monetize my content
The Economic Power of the Internet of Things
• Digitalization leads to high resolution management control circuits
• Google analyzes questions put in its search engine and clicks on web
pages to measure its users’ behaviour
• presents each user with an individual, profit‐optimizing advertising
message
• aid of user reactions, Google measures in real time
• the effectiveness of its banner ads, optimizes their allocation model,
and uses the same data to invoice its
• advertising customers.
• unidirectional medium like television or a billboard sends a static
message to an unknown mass of potential customers
Internet of Things now makes high resolution
management possible in the physical world too
• Every object and location in the physical world can become part of
the Internet
• Smart things are hybrids, composed of elements from both the
physical and digital worlds.
• inventory costs in physical warehouses are high, manual counts are
done as infrequently as possible;
• a complete inventory is taken only once a year.
Internet of Things technologies

• Equip formerly “agnostic” storage containers and shelves with

“smart” sensors and communication capabilities
• these smart containers and shelves can now transmit their specific fill
level at any time at zero marginal costs.
• Since a company can only manage what it can measure, these new
measuring capabilities result in
• new management capabilities
The digital and physical value‐creation layers in an Internet of
Things application: example of a smart LED light bulb.
• Layer 1 – Physical thing: Direct physical benefit to the user
• Tethered to a location, can supply benefit to only that location
• Layer 2 ‐ Sensor/actuator: Physical thing equipped with
minicomputer, sensor and actuator
• Sensor measures local data, actuators takes some action on/off
• Microwave sensor to detect people in surrounding, if present on else off
• Layer 3: Connectivity: sensor and actuator connected to the Internet
• Access globally
• Embedded radio module transfer the status to authorized subscribers
• Layer 4 ‐ Analytics: Sensor data is collected, stored and analysed
• Operating hours of light bulb decided
• Layer 5 ‐ Digital service: web service or mobile application
• Intruder detection call alarm to police

• Layers 1 to 5 cannot be created independently, good design will

decide the physical sensors to put for application development
IoT Layers example
Physical products and digital services merge in
hybrid solutions
• a whole that is more than the sum of its parts, building on the original
product
• watch from Limmex (www.limmex.com)
• is still a watch even if it includes a GSM module, a microphone, a
loudspeaker and its own homepage.
• can alert family members, friends or the Red Cross in an emergency
Smart bin
• The “smart” in an Intellion (www.intellion.com) warehouse bin refers
to a long range RFID chip embedded in it, but it’s still a storage bin for
screws and washers.
• It also makes possible a new refill service provided by the screw
supplier, differentiating it from the competition.
 Business Model
Patterns in the
Internet of Things

• value‐creating steps and

high resolution
management
• facilitate digital services for
physical products (Digitally
Charged Products)
Physical Freemium

• physical asset that is sold together with a free digital service

• Over time, some percentage of customers will select premium services that go
beyond these free ones and are then invoiced
• Canary, a New York startup (www.canary.is), offers a smart home alarm system
• that includes a variety of sensors, from temperature or movement sensors, up to
a camera.
• The basic function of monitoring a space during the resident’s absence and
sending a message to a smart phone app in the event of anomalies, is included
free of charge in the price of the system

• Invoiced service: Additional memory to store recorded events or use of a call

center.
Digital Add‐on
• Digital Add‐on is the term for a business model component in which a
physical asset is sold very inexpensively, that is, at a small margin.
• Over time, the customer can purchase or activate any number of
digital services with a higher margin
Digital Lock‐in
• Application of the Razor and Blade and Lock‐in business model
patterns require that only original components are compatible with
the system.
• Digital lock‐in in physical products 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
that the customer consumes 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. For instance,
• a heating system could order oil refills as soon as a certain level of
liquid was noted in the oil tank.
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.
Digitally Charged Products
• Examples include the
• safety solution for an LED light described above, an electronic kanban
solution on a bin, or the distress
• call on a wristwatch. Well‐known service‐oriented business model
patterns acquire new relevance in
• physical industries.
Sensor as a Service

• Another powerful idea is collecting, processing and selling for a fee the sensor data from one
subsection
• to other subsections. That’s why we suggest the term Sensor as a Service to describe it as an
Internet of
• Things business model pattern
• Streetline (www.streetline.com) is a good example of this phenomenon. This company installs
• sensors on municipal and private property that detect vacant parking places in order to sell the
data
• collected to interested third parties. A car driver accesses the information free of charge through
an app.
• For city governments, the data processed somewhat differently has tremendous value: their
physical
• expenditure to identify parking offenders is dramatically reduced; utilization of parking places
increases;
Cyber-Physical-Social Data

P. Barnaghi et al., "Digital Technology Adoption in the Smart Built Environment", IET Sector Technical Briefing, The Institution of Engineering and 32
Technology (IET), I. Borthwick (editor), March 2015.