IoT enables Business Model Innovation

Servitization is one of those words that has been talked about a lot lately. Shortly said, services become the key element of manufacturing companies. At the moment, I believe that we are definitely on the eve of a society that will evolve to a ‘service-society’ where the outcome is much more important than the input. But to make this servitization happen, we need technology that provides outcome insight. IoT, another one of those fad words, happens to be one of those technologies that makes servitization possible.

Servitization is a great example of Business Model Innovation. Many established companies, despite their resources and know-how, have difficulties with Business Model Innovation. However, this kind of innovation has become just as important as technological innovation. It is about time that CEO’s realize it as it is a top management issue. According to me, 2016 will be the year of Business Model Innovation. The implications are huge. 

Innovative OpEx billing, enabled by IoT

I would like to pay particular attention to the evolution from CapEx to OpEx business models. We believe that there will be much more emphasis on OpEx environments in the near future, if not already! IoT provides the possibility to retune applications, to evolve from CapEx to OpEx.

Let’s take a closer look at chiller applications. Instead of investing in an 100.000 dollar installation (CapEx), we bill the amount of thermal energy that is asked from the chiller (OpEx). What we bill is the thermal energy that we deliver to our customers. This means that by connecting devices, we have insight in the service level. In other words, instead of selling an installation, we sell a service level to guarantee cooling at all times.

“ Things that generate recurring revenue are actually more appealing to venture capitalists.  Otherwise, the business model is banking on the hope that prospective customers will be loyal and be compelled enough to come back to buy the second product.” Renee DiResta

Let’s approach this story from another perspective: air quality level in office and retail environments. Why letting the customer pay for the input instead of the outcome? By agreeing a service level with the customer concerning the required air quality (particles, VOC…), he or she pays for the outcome. In this case, the outcome is the air quality monitored and constantly controlled at the level that is agreed with the customer. The higher the cleanliness of the air, the higher the amount that is billed.

IoT based value creation

If companies want to take advantage of new, cloud-based opportunities, they will need to fundamentally rethink their traditions about value creation.

The examples are infinite. The outcome in the case of vendor machines (for example coffee machines) is reaching an uptime of 99,99%. To achieve this service level agreement, vendor machines must be connected. So in case we want to offer customers a higher service level, do predictive maintenance or guarantee uptime, we must connect the machine. It is all about IoT based value creation. Again, we are talking about innovative IoT OpEx models.

Ever thought of corrosion measuring in sprinkler piping? Issues with the piping are noticed with the appearance of leaks and damage. Often, this happens at retail or office environments where repairs have to take place in a rush. Preventing your piping from having issues can be done by keeping the piping installation up to date, for example by constantly monitoring the water quality of the installation. It requires a variable pricing model. Like the other examples, this business model tends to an OpEx model where customers can intervene proactively to achieve their service levels.

Doing what we have been doing for so long in the past only leads to failure at the end. Fast trial and error drives innovation. The cost of experimenting through IoT products is lower than ever. Looking for new business models gives you the opportunity to grow so much faster. Reinvent yourself to keep your company fresh. That’s what we do at Smartlog. By connecting devices, we provide outcome insight, which offers so many opportunities for our customers.

Every day, SmartLog pushes the boundaries of what is possible. We reinvent ourselves.
www.smartlog.com