IoT technology is now proven - but where is the money? Part 2
The emerging availability of high-resolution data about physical products, their usage and performance, now allows enterprises to leverage an entire range of different monetization concepts – just look at the trend across almost all industries to sell hardware-as-a-service - from simple sensors to heavy shear-loaders for underground mining operations.
In part one of this blog on IoT business modeling, I made the bold statement that the true challenge to turning IoT into a commercial success is no longer technology, but rather the challenge to turn digital business model innovations into reality.
Digital monetization concepts do play a fundamental role in business model innovation. In absence of high-resolution digital data before the introduction of IoT, the only option to monetize on physical product offerings was to sell or rent them. The emerging availability of high-resolution data about physical products, their usage and performance, now allows enterprises to leverage an entire range of different monetization concepts – just look at the trend across almost all industries to sell hardware-as-a-service - from simple sensors to heavy shear-loaders for underground mining operations.
Getting back to the initial question: Where is the money? Before we can answer this question for Communications Service Providers (CSPs), we need to answer it for the CSP’s enterprise customers, because 5G-IoT will eventually be the platform for enterprises to innovate their business models based on high-resolution data.
Business model innovation, and monetization strategy, in particular, is not a trivial topic.
The Monetization Canvas
To address the monetization question in a systematic manner, the different elements of a 5G-IoT solution can be mapped towards possible monetization concepts, resulting in a so called “Monetization Canvas.” Examples of monetization concepts include:
- Availability-based monetization: A provider of a device, software or service charges other stakeholders of the IoT-ecosystem (including customers) for the availability of the device or service independently of whether it is used or not. This could be done through product, license or service sales, and the time of availability can be measured and documented by the IoT-platform.
- Data-based monetization: A customer pays only for the data generated by a device. This may include data-enrichment such as meta-tagging (to create a consistent data model for an IoT-ecosystem) or aggregation of data (to build "virtual sensors"). For example, a vendor of weather sensors charges for the weather data generated by the sensors instead of the sensors themselves - “Sensor-as-a-Service” business model.
- Usage-based monetization: A customer pays for the usage of an IoT device (accessing device capabilities), software or service instead of for its availability. There are typically no restrictions imposed on the usage. Usage can be measured by the IoT-platform through successfully executed commands or completed transactions. For example, a city traffic administration is paying for the number of traffic light switches from green to red or vice versa, instead of paying for the street lights.
- Performance-based monetization: A customer pays for the performance of an IoT device or service. Different from usage-based monetization, performance-based monetization is typically based on defined Service Level Agreements (SLAs) where usage or access to capabilities (e.g. functionality or services) is limited or restricted to what has been defined and agreed. Additional usage, access to additional capabilities or higher performance is typically charged-for separately. For example, an industry customer pays for a defined number of operations of a production machine during a certain period of time, or a consumer pays for a defined increase of horsepower for a car during a specific period of time.
- Value-based monetization: A customer pays for a defined value (which could be financial, functional or even emotional) or business outcome received instead of the involved assets or their performance. For example, a customer pays for the alarms sent when a leak is detected in an oil tank, instead of for the related sensors and systems. Keep in mind, that some value streams created in IoT-ecosystems may not be directly chargeable, or it may be difficult to find applicable charging metrics.
A fundamental part of business model innovation in IoT is the identification of the most suitable monetization concepts for all relevant solution elements (which could be diverse types of physical or digital products and services). Often, the best strategy is to combine several monetization concepts. As an example, consider how you rent a car today: You pay for rental time as well as for an amount of miles -- a combination of availability and usage -- as this limits risks. Documenting all monetization concepts of the involved deliverables in an IoT-ecosystem in the form of a monetization canvas also helps to ensure that the business models of the stakeholders are complementary.
The prerequisite for implementing an IoT business model is that all parameters, like charging metrics, related to the monetization concepts can be digitally identified, measured and documented, which is a critical function of an underlying IoT-platform.
Capturing Value with 5G
The discussion above is equally relevant for the question: how to capture value with 5G.
Looking at massive Machine-Type Communications (MTC) and critical MTC for enterprise customers, most of the related use cases are IoT, which are either 5G-enhanced or 5G-created. This becomes even more obvious when we consider the evolution of “classical IoT use cases” towards 5G-IoT ones. Take an example from smart manufacturing: What starts as a “simple” predictive maintenance use case where sensor data helps to maintain complex machinery, may evolve towards “prescriptive maintenance” based on a digital twin and develop further towards self-healing in collaborative systems. IoT ecosystem logics will also form 5G-enhanced or 5G-enabled IoT use cases, even if a higher degree of automation will trigger business model evolution as well.
From a CSP’s perspective, there are at least three main capabilities enabling 5G-IoT use cases, which could be subject to monetization concepts:
- Customized 5G network slices to fulfill the needs of specific use cases. A network slice designed to enable collaborative, self-healing systems through ultra-low latency and high availability represents a stronger business value for a manufacturing enterprise than a network slice to connect all sorts of sensors for non-real-time data collection.
- Distributed cloud execution environments to address critical low-latency use cases, but also to optimize the distribution of media streaming, for example, the bored driver in an autonomous car, or to off-load data processing tasks from distributed IoT-devices, like with closed-circuit cameras on busses detecting abandoned luggage.
- IoT platform capabilities to enable digital business model implementation. Example: CSP provides an application development environment and a settlement functionality for IoT ecosystem players and charges for the usage of these functionalities.
Mapping 5G capabilities into a Monetization Canvas is not the answer to everything, but it certainly helps to get a step closer to understanding where the money could come from with 5G.
In case you missed part one of this series, please click here.
Interested in a systematic approach to IoT business modeling? Read our new report: Developing viable business models in complex IoT-ecosystems