Nest shows the importance of planned business models for IoT devices

There’s good news for Nest Cam IQ indoor owners today: The smart cameras now have Google Assistant capabilities built in. The feature is optional — you can enable or disable it — and there’s no additional charge for the functionality. If you choose to enable it, you now have another microphone and speaker for home control, informational queries, setting reminders, and more. I wouldn’t suggest playing music through the small speaker found in the Nest camera though.

Nest also expanded its Nest Aware subscription offering with a new five-day plan costing a dollar per day. That’s perfect for non-subscribers or folks who don’t want to pay for a monthly plan if they’re only going on vacation for a few days. Person Alerts are also new for the suite of webcams, helping to identify a person compared to some other moving object in your Activity Zones. Again, no charge for this new feature.

This news reminds me of a recurring theme that we discuss on the IoT Podcast: When it comes to IoT are you buying hardware, services or both? More often than not, the answer is the latter.

But if you bought a Nest Cam IQ, did you expect new services like Google Assistant or not? If you were promised a future service but never got it for your next IoT device, would you be upset? (You probably would and so would I.) Lastly, if you bought an IoT product and the service offerings were scaled back or changed from free to paid services, how would you feel?

All three of these examples highlight the importance of IoT companies clearly defining and communicating their business models, both internally and externally. If they don’t, they run the risk of quickly upsetting loyal customers or failing to account for their true operational costs.

Making sure the Canary is secure costs quite a bit.

Take the recent case of Canary, for example. Last October, the company removed some of its free service features from customers who bought the hardware with an understanding that they’d have such features, even without a paid service plan.

Night Mode, which captures video from motion detection at night when you’re home and presumably sleeping, went from free to paid. Video recordings were limited to just 10 seconds under the scaled down free plan. And downloading or sharing video clips was eliminated unless you decided to now pay the monthly service fee.

That’s a very different approach from the recent Nest news. Some of it very likely has to do with resources. Since Canary isn’t in the business of running cloud servers for its services, it has to pay for Google Cloud, Amazon Web Services or Microsoft Azure in order to provide these capabilities. Being part of Google, Nest has “in-house” cloud services to use.

But that’s irrelevant to the people buying IoT devices: To them (and me, since I’m a Canary owner), they don’t want to feel like they’re in for a “bait and switch” when purchasing a connected home hub, sensor, webcam, door lock, or what have you. That’s why if you plan to sell any type of connected device with some type of service, you have to plan ahead early in your design process. And if you commit to a level of free services, but later have to change them, existing customers should be grandfathered in, if possible.

I’d argue that Nest has done a better job at this than most. And the Canary example is more of an outlier than the norm, thankfully.

However, I’d bet a month’s worth of my Nest Aware subscription that Nest planned for Google Assistant capabilities when designing the Nest Cam IQ before it launched last May. This way it would make sure that the hardware could handle Assistant queries and be loud enough for responses, while at the same time lining up the necessary software to hook into Google’s cloud for digital assistance.

Besides the hardware and software though, Nest surely did the math on costs for Google’s cloud. Maybe those are free or maybe they’re an internal transfer for the accountants. I suspect it’s the latter, along with analysis of how much of the cloud costs could be recouped through growing hardware sales based on new or additional features.

The point is: If you’re in the IoT device business, service planning may be the most important aspect of your product’s life-cycle. Make sure to do your homework well before the product hits the shelves and begin with the customer in mind.

Stacey on IoT | Internet of Things news and analysis

IoT And Personalized Medicine: Digital Transformation Is Creating New Business Models For Life Science

From electronic record systems (EHR) to the Internet of Medical Things (Healthcare IoT), the digital revolution has already brought disruptive changes to the healthcare sector. Even bigger changes are on the way, thanks to advances in networking and in-memory computing. Powered by IoT, personalized medicine is creating new business opportunities for pharmaceutical drugs, medical devices, and patient services that will dramatically improve therapeutic outcomes. Digital disruption has the potential to unlock $ 100 billion in commercial value, reports Accenture. With the life sciences industry poised for change, companies that take move to capitalize on new business will gain a critical, first-mover advantage.

A more than $ 100 billion opportunity: Life science digital transformation

Life science companies that embrace digital transformation are shifting value within their industry. These companies successfully unlock new revenue streams by providing a substitute treatment or medication, enabling the sharing economy, converting healthy activities into currency, or setting new standards for treatment and personalized care monitoring. For example, Accenture reports that remote monitoring for Type 2 Diabetes has the potential to shift more than $ 100 billion in value from traditional to emerging business models.

Healthcare IoT and analytics processing are coming together to enable this digital shift. IoT uses real-time data feeds from sensors and devices to enable machine-to-machine interactions. Data is now available through remote tracking, electronic medical records, diagnostic information and hand-held personal devices. Advanced analytics processing analyses this data in real time, providing actionable insights that enhance the decision-making powers of professionals and enables patients to take a more active role in managing their personal health. These innovations are transforming not just how we care for the chronically ill, but also how we empower individual wellness and proactively work to prevent disease.

In addition to the benefits of IoT for personalized health care, IoT is also making it easier for life science companies that produce equipment or medication to proactively mitigate machine failure. This helps life sciences companies improve reliability and quality. Patients benefit from a responsive supply chain and companies benefit from efficiency gains that lower production costs.

IoT digital transformation in action: Cold chain supply for biologics and smart pills

The impact of IoT on the life science industry is significant, particularly in terms of how these businesses interact with their B2B customers and, even more importantly, their consumers. Cold chain supply for biologics and consumer smart pills are two examples of how IoT is improving therapeutic outcomes through personalized medicine.

Cold chain supply for biologics

Pharmaceutical companies that manufacture environmentally sensitive drugs face several key challenges. First, these manufactures need to improve the safety and efficacy of drug production. Second, these companies are working to reduce theft and lost drugs. Finally, these companies are seeking to reduce incidental spoilage and decrease inventory requirements. IoT tracking and sensors addresses these key challenges.

By 2020, IDC predicts that more than half of all top-selling drugs will be biopharmaceutical or biologic products requiring temperature controlled transportation and storage, usually 2–8°C, but sometimes frozen or cryogenic. This requires a huge network of time/temperature sensors in factories, warehouses, trucks, labs, and pharmacies that can monitor and send this information, for both clinical trial supplies and approved products. IoT tracking sensors and networks help life sciences companies ensure the safety and efficacy of their products in transit and in storage. Investment in cold chain IoT networks will be driven by safety and compliance concerns; these investments will also contribute to savings from lower inventory and spoilage costs.

Smart pill for personalized medicine

Health care providers struggle with prescription non-adherence, especially among patients with chronic diseases. Since patients are reluctant to tell their health care providers that they are not taking their medications, the American Medical Association reports that providers may needlessly escalate treatment. IoT powered innovations like the “smart pill” may improve patient compliance. Key benefits include maximizing drug effectiveness, reducing medical costs due to improper drug usage and decrease incidental spoilage and supply chain waste.

The Proteus pill by Proteus Digital Health contains a tiny ingestible sensor that can communicate to a wearable patch on a patient’s skin when the pill has reached the patient’s stomach. The patch then sends a status update to a mobile device. The technology can be helpful for conditions where adherence to taking prescriptions has traditionally been poor. Related technology includes “smart” pill bottles that can send signals to portable devices when opened or altered, thereby improving safety and reducing fraud.

Three steps to prepare your life science company for digital transformation

Innovate or be left behind: digital transformation is contemporary imperative for today’s life sciences companies. Whether a scenario can be implemented now or in the future, your company must have the right technology and IT infrastructure in place. Otherwise, your company risks losing out on first-mover advantage. These three steps will position your business for success:

  1. Conduct a risk-benefit assessment. Define strategic and tactical goals, including high-level benchmarks against key industry competitors, both traditional and emerging. Align efforts with customer needs, key business goals, and the likelihood of market disruptions.
  1. Be “digital ready.” Start modernizing systems and business processes in alignment with future opportunities.
  1. Form strategic partnerships. Identify the partnership ecosystem that can best support your business on its path towards digital transformation.

Taking these steps today will prepare your life science company to capitalize on the disruptive IoT innovations that are essential for the next generation of personalized medicine.

Learn how to bring new technologies and services together to power digital transformation by downloading “The IoT Imperative for Consumer Industries.” Explore how to bring Industry 4.0 insights into your business today by reading “Industry 4.0: What’s Next?


Internet of Things – Digitalist Magazine

Building Scalable Business Models

Business model innovation has become an increasingly hot topic in management circles, and understandably so. No management activity is more important than having clarity about how the organization creates, delivers, and captures value. It requires, among other things, knowing what customers want, how value can be best delivered, and how to enlist strategic partners to achieve maximum benefit.

Although the ability to develop strong value propositions can enable companies to “get by,” in our view many of today’s most successful businesses are those that are able to place themselves in the “sweet spot” of business model scalability. Scalability is about achieving profitable growth and is therefore a fundamental consideration for managers and investors alike. If managers are incapable of factoring scalability attributes into their business model design, they risk being left behind, much the way bookstores owned by Borders Group Inc. were eclipsed by Amazon.com Inc.

Over a five-year period, we studied scalability in the context of more than 90 Scandinavian businesses and also examined the experiences of a number of well-known businesses, including Google, Apple, and Groupon. (See “About the Research.”) In the course of our research, we identified five patterns by which companies can achieve scalability. The first pattern involved adding new distribution channels. The second entailed freeing the business from traditional capacity constraints. The third involved outsourcing capital investments to partners who, in effect, became participants in the business model. The fourth was to have customers and other partners assume multiple roles in the business model. And the fifth pattern was to establish platform models in which even competitors may become customers. Based on these patterns, we have developed a framework for identifying potential levers for business model scalability, along with a road map that managers can use to improve their business models.

Over and above the need to create value propositions that are difficult for competitors to replicate, managers need to develop business models that are capable of achieving positive and accelerating returns on the investments made. When companies restructure or invest in acquisitions, it’s common for them to identify synergies that reduce costs and simplify workflows and product offerings. However, simply thinking in terms of synergies isn’t enough; such synergies don’t necessarily lead to improvements in business model scalability. To achieve scalability, managers and entrepreneurs need to remove capacity constraints. They have opportunities to do this in a variety of ways: by collaborating with partners, by encouraging partners to play multiple roles in the business model, by creating platforms to attract new partners, or even by working with current competitors.

Accelerating Returns to Scale

What do we mean by “scalable”? We use the term scalability to identify where changes in size or volume are possible and seem worthwhile. Scalability refers to a system’s ability to expand output on demand when resources are added. Linking scalability to business models provides us with a framework for discussing and estimating business potential, which is important to both executives and many stakeholders because, among other things, it has implications for hiring and skill development. Another important characteristic of scalability is that the organization has sufficient flexibility to grow while incorporating the effects of external pressures, such as new competitors, altered regulation, or macroeconomic pressure.

The first dimension of scalability is the degree to which increased input can create higher output. The second dimension of scalability relates to the ability of the business model to accelerate the returns on the additional investment. Accelerating returns to scale are typically found in business models where new resources, capabilities, or value propositions provide completely new properties to an existing industry.1 Amazon.com’s retailing business model offers a good example. For example, the company’s algorithms introduce customers to products they may not have considered but might be of interest to them as they shop online.

In those situations where returns to scale are declining rather than increasing, managers should figure out how quickly to exit the business. If the returns are falling precipitously, it might make sense to pull out quickly. Even when returns are flat, further investments may be unattractive. As a general rule, executives should invest capital where they can generate increasing returns to scale.

Scalability Patterns in Business Models

A scalable business model is one that is flexible and where the addition of new resources brings increasing returns. In the course of our research, we searched for business model attributes that were sufficiently flexible to cope with internal demands and external forces and where the potential wasn’t constrained by physical or material assets (such as labor shortages, machine capacity, cash liquidity, or storage capacity). Below we will examine the five patterns of business model scalability individually.

Pattern A: Add new distribution channels. While the notion of selling through multiple distribution channels isn’t novel, it’s useful to understand what happens when an additional channel is added. As long as the implementation of a new distribution channel does not cannibalize sales in existing channels, adding a new sales channel can allow a company to spread the costs of overhead and reap benefits from increased sales.

We found this to be the case at Copenhagen Seafood A/S, a Danish supplier of fresh fish. The company, which had traditionally sold only to high-end restaurants, added the sale of fresh fish directly to retail customers, enabling it to offer restaurant-quality seafood to individuals at reasonable prices. Because restaurants typically ask for specific cuts of fish, the percentage of waste can be high. By adding the retail channel, Copenhagen Seafood was able to cultivate a new clientele with people who relished the opportunity to buy from a seafood supplier closely associated with some of the city’s best-known restaurants.2

Pattern B: Explore ways to work around traditional capacity constraints. Scalability often means finding ways to overcome traditional capacity constraints. Obviously, constraints vary from industry to industry. In the pharmaceutical industry, the constraints might involve the cost of establishing research infrastructure and the ability to develop new products and receive approval for new products. However, when viewing constraints from the perspective of business model innovation, companies should ask themselves if they can find ways to work around existing constraints. In the private banking sector, for example, a company might bypass capacity constraints by focusing on customer relationship activities and outsourcing infrastructure management to others. In a similar vein, a consulting company with a business model focused on hourly billing for large government organizations explored bypassing that constraint by marketing standard outputs and simpler reports to a new customer segment consisting of smaller businesses.

Pattern C: Shift capital requirements to partners. Every organization needs to prioritize its investments and determine which are most critical. CFOs are encouraged to optimize the cash liquidity constraints, cash flow, and working capital attributes of their business models. Given that many companies place a high value on cash, business models that shift capital requirements to strategic partners can be desirable.3

One company we studied was Sky-Watch A/S, a company based in Støvring, Denmark, that develops and manufactures drones suited for a variety of industrial settings. Sky-Watch’s business model has fewer resource constraints than some of its close competitors thanks to management’s decision to concentrate on turning the core platform into an open platform that allows customers and strategic partners to add their own hardware and software.

Pattern D: Leverage the work of partners. Companies need to pay attention to what their customers and strategic partners value. Managers should use this knowledge to optimize the value proposition of the products and services they offer to customers. The key is to find smart ways to leverage the resources of partners. For example, Tupperware Brands Corp., based in Orlando, Florida, is famous for leveraging a community of sales representatives who have an interest in selling the company’s food-storage products to a widening circle of people. Groupon Inc. likewise turns customers into partners by giving them incentives to spread the word about the company. Similar strategies can be leveraged for distribution methods, building customer loyalty, giving access to resources, and performing other activities according to the value configuration of the business model.

Pattern E: Implement platform models. A variation on leveraging partners involves using platform-based business models. Platform models are based on collaboration and can take different forms. For example, PrintConnect.com of Würselen, Germany, operates a web-based workflow platform for printing and packaging that links partners across the value chain. Some platform business models predate the web: Visa Inc., which connects businesses with credit card users, is an example.

When looking at business model innovation from a platform perspective, an important question is, “How do we turn competitors into partners or perhaps even customers?” For example, The Relationship Factory,4 a company based in Aarhus, Denmark, that organizes professional networking groups for managers, opted for a platform model to achieve business model scalability. It makes its software platform available to competitors on a private-label basis, thereby providing the company with a supplemental and recurring revenue stream on top of its traditional service-based activities. While competitors continue to rely heavily on their sale of service hours, the company is able to generate incremental revenue by selling “ease of use” to its competitors as well as benchmarking data across the industry.

A Road Map to Business Model Scalability

The patterns we have discussed above describe how companies can adjust their business models to make them scalable. While traditional thinking typically leads to synergy effects and, at best, positive returns that are linear to the investments, some of the companies we studied showed that it was possible to redesign business models to achieve accelerating returns. However, achieving accelerating returns is not easy. It requires thinking strategically in terms of the value propositions of stakeholders, strategic partners, and customers involved in the immediate business ecosystem. Aligning and leveraging the competencies and motivations of these stakeholders can lead to better cooperation. It can also build greater trust and loyalty among partners, which will pay off in the long term.

To implement the patterns for scalability, it is often necessary to identify activities and resources where collaborating with partners is advantageous and can strengthen the offering’s value proposition to customers. These patterns can assist managers in rethinking how their business models make use of partners, customers, and other stakeholders. Rather than just relying on traditional analytical exercises such as analyzing cost structures, product-segment profitability, and market-segment growth, managers can work on achieving business model scalability by asking a different set of questions. The questions will often lead to the identification of new partners and potentially new roles.

We suggest that companies pursue three steps:

1. Identify potential strategic partners. Scalability typically involves connecting strategic partners to the value proposition, either through sharing activities or resources. Given that scalability requires thinking beyond simply sharing costs, executives should ask themselves the following:

  • Are there potential strategic partners that could perform activities in our business model — or provide resources to it — in ways that would help improve the value proposition to our customers?

2. Ask questions that reveal a road map to scalability. Asking questions can trigger ideas about how to reconfigure a business model. When encountering novel ways of doing business, managers should analyze how such a business model would play out for their own company. We have found that the following questions can be helpful:

  • How does this novel business model challenge our existing way of thinking about the business?
  • What would we need to do differently to implement this business model?
  • Which other companies excel at what we are trying to do, and what can we learn from them?
  • What are the key value drivers of this particular business model?
  • Could this business model lead to scalability?

Based on the ideas you are able to generate, we recommend using the following questions to help clarify potential avenues for scalability:

  • Are there potential strategic partners that can offer features (at minimal or no cost to our company) that enrich the existing value proposition to our customers, while receiving value themselves?
  • Are there alternative configurations that free the business model from existing capacity constraints?
  • Would it make sense to establish a platform for other businesses to buy into — and thus create alternative ways of generating revenue?
  • Is it possible to change the role of existing stakeholders and utilize them in multiple roles in the business model?
  • Who would pay for either access to our customer base or knowledge about our customers and their characteristics?
  • Which mechanisms are in place to create customer lock-in?
  • How agile is our company in reacting to threats from new entrants or new technologies?

3. Analyze the scalability attributes of business model options. When all of the ideas generated have been presented, executives should facilitate a discussion to start to evaluate potential business models. They should analyze the attributes of the various options and consider how they might be configured to achieve accelerating returns on investments.

Traditionally, some companies have developed business models that focus on achieving economies of scale while other companies have been more geared toward creating economies of scope through differentiation. We have found that scalability goes beyond this traditional distinction and that identifying the sweet spot of business model scalability involves identifying accelerating returns on input.

In cases of declining returns to scale, managers should focus on downsizing the business so as not to cannibalize existing value. In cases where the returns on additional inputs are constant, managers should attempt to find ways to increase returns or invest excess capital elsewhere. When the business is able to generate positive, albeit linear, returns on additional inputs, the existence of synergies can make this a favorable place to be, although the company may be stuck with a business model that is at best average. In this case, managers should attempt to improve their business model using one of the five patterns described above.

Having a road map for business model scalability can be enormously helpful for managers, whether they are involved in developing new business models from scratch or innovating, rejuvenating, or redesigning existing business models. Although much of the recent research about business model innovation examines the alignment between value propositions and customer needs,5 business model scalability depends on close alignment between the value proposition and strategic partners.

The patterns we have identified as gateways to scalable business models (for example, enriching value propositions, removing capacity constraints, and changing the role of stakeholders in business models) provide avenues for managers to explore. Identifying business model configurations that allow for such characteristics should be a top priority for managers as they develop and review their corporate strategies.


MIT Sloan Management Review

Enabling new business models through the power of software

Industrial manufacturing is one of the core areas of the global economy. Manufacturing plants create employment and encourage development of expertise in high-value sectors, such as product and process design, sales, and marketing.

Development of high-quality services in the areas of engineering, consulting, IT, and research are directly associated with the existence of a robust and innovative manufacturing base. The continuous modernisation of the manufacturing sector therefore represents a major opportunity for economic development and improvements in the labour market in general.

This report aims to identify the main benefits for the companies in adopting smart manufacturing and to highlight monetisation opportunities. It will also briefly discuss the main technological components of smart manufacturing. The report also suggests practical means to overcome the challenges manufacturers face on their journeys to becoming smart. It will also highlight that that journey concerns also all the ecosystem around the manufacturers such as the supply chain and the original equipment manufacturers (OEMs). The study will then end with some conclusive remarks on the status quo and the future path towards smart manufacturing.

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What can we expect from the next generation of software business models?

The software industry is changing at a startling pace. From virtualisation to the cloud to the Internet of Things (IoT), what software buyers expect and demand from their software investment is drastically different than it was in years past.

On the other side of the table, says Eric Free, senior vice president of Strategic Growth at Flexera, software suppliers are eager to grasp monetisation opportunities and tackle new software business models. In a report released earlier this year, Disruption in Software Business Models Creates New Opportunities for Monetisation, Gartner analysts commented that “Technology strategic planners will find next-generation software monetisation is not about protection, limited to IP licensing, but about growth from enabling new models with repeatable revenue streams.”

I expect that in 2018 we’ll see software suppliers embrace this next generation of software business models, and the following shifts in the software industry take place:

Software buyers will demand increased transparency

No one wants to pay for shelfware. No one ever wanted to. But in the past software buyers were often left in the dark about what they used. They figured it out themselves. They leveraged Software Asset Management (SAM) tools, and they will continue to do so. But they’re also looking towards their suppliers and asking for more help, transparency and ease of use. Producers should show what buyers are allowed to use and what they’re actually using. This builds trust and strengthens the customer relationship. Suppliers should embrace this data as well and grow customers that aren’t yet using what they paid for.

SaaS will be managed in a smarter way

As more software suppliers move to SaaS, they’ll bring new offerings to market. The reality is that on-premises applications won’t go away immediately and hybrid models will exist for a long time. Don’t let the deployment model drive your customer’s experience. Make sure that customers are provided with self-service, ease of use and a seamless software experience for all of your products. Even if you are using different deployment models, your software products should be managed centrally and connect to the same back office, rather than being operated in silos.

Opex will rise as more people focus on subscription

The move to opex models is imminent. ISVs and device manufacturers alike are moving to recurring revenue models. Subscription models are widely adopted already. Suppliers should proactively increase the number of subscribers and automate subscription and renewal management processes. Manage the customer journey continuously and start thinking about the renewal when the subscription period starts. Make sure that customers get value from your software and the renewal will happen almost automatically.

Increased demand for individualised products and monetisation strategies

There’s no one-size-fits-all – for products and for monetisation. Software buyers expect individualised products and few are willing to pay for a feature set that’s not being used. Modular products and features that can be switched on and off meet these expectations. The same is true for monetisation and pricing. In the past you just defined the one model that worked best for your product and customer base.

Today, monetisation is more […]

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