Wirepas Wirepas Blog Broken business models - How to make sustainable business in IoT?

June 9, 2016

Broken business models - How to make sustainable business in IoT?

By Wirepas

It is expected that over 20 billion devices will be connected during the next five years. Only half of the 10 billion devices will be connected with cellular networks. This opens a huge opportunity for non-cellular wireless connectivity providers. The non-cellular connectivity offering is fragmented in terms of technologies and business models. Connectivity plays a key role in any IoT business case – in terms of functionality, cost and revenue.

Monthly fee per device is the most usual business model for the connectivity service providers, even if the increasing number of devices is setting pressure to manage cost and lower the monthly fees.

IoT business cases are often calculated only by comparing the price of purchased devices, which is actually only one part of the investment. Total cost of ownership offers a more holistic view at the cost and return when analyzing business cases and especially the differences between the several different solutions. In total cost of ownership both CAPEX and OPEX costs are included. Typically prices of device hardware are declining over time and thus having less impact in the business case. On the other hand installation costs, network fees and connectivity issues are playing an increasing role in the investment calculations. In my opinion, machine to machine communication should be part of the device purchase price and not the running fee. This allows businesses to develop service models which adapt to changes in the business environment and enable scaling to high volumes.

Let’s take asset tracking as an example. When we are talking about millions of small connected devices, it is obvious that the connected hardware cannot cost dollars in double digits. My point is that connectivity should be part of device cost – for good. This truly allows customers to develop business models which are flexible, scalable and predictable.

IoT is an ecosystem play (topic of our previous blog). Co-operation of several focused value add companies is a necessity for the best products and services. However, the business models need to be compatible within the ecosystem. For example, stacking several recurrent fees may invalidate otherwise or technically superior solutions.

IoT is simple. It is about gathering data and about learning, improving and innovating based on the data. The actual value is created on the basis of the analysis made. Connectivity is needed to get the data from millions and billions of devices.

Well-functioning connectivity should actually be completely invisible for the end user. Devices should connect automatically with the devices nearby without any configuration. Together, the devices create a network without additional network infrastructure. This enables unlimited scale.  The network should be self-healing and adapt any changes like removal or addition of a device or external interfering radio devices. This has a great impact on the OPEX during the lifetime of the device or a service.

At the end of the day, IoT connectivity is clearly a question of functionality i.e. what connectivity delivers the best fit for the business need. At the same time, we also see that in many IoT applications a shift in cost paradigm is needed. And when we are talking about cost, we should talk about the lifetime cost. To put it simply, in most Industrial IoT applications unlimited data for the lifetime of the hardware cannot cost more than a bottle of water and the connectivity should be an inherent functionality of the product – naturally.

- Jani Vehkalahti, VP Sales at Wirepas -