Blog Entry

May 31
2016 

The Concept of Value in the IoT Era

As the Internet of Things (IoT) continues to grow, the implications for business model innovation are huge. One of the major drivers in this connected landscape is the shift in end-user preferences: there is an increasing demand for flexible pricing models, ease of access to software upgrades, and a superior customer experience. As a result of the rise in connectivity, end users’ perception of value and what they are willing to pay for is changing drastically. Therefore, to take advantage of the IoT, independent software vendors and intelligent device manufacturers alike need to fundamentally rethink their orthodox attitudes towards value.

Value has always been at the heart of any business model, and nowhere is this truer than in the connected world. There are two main aspects to consider here: value creation and value capture. Value creation increases the worth of a company’s offering and encourages the customer’s willingness to pay – this is actually the value proposition to your customers. Value capture is how a company monetizes the value it creates.

IoT-based value creation

In today’s competitive business environment, customers are demanding more flexible pricing models. Value is built around an information-based model that leverages data, analytics, software, effective forecasting, and services.

When products are connected, vendors can create value using the power of data for personalization. In the age of the IoT, personalization of a product is essential to offering a richer overall value proposition to customers. Whether it’s a car, a tractor, a treadmill, or an MRI machine, users expect the highest degree of relevance, responsiveness, and convenience. So, by harnessing the power of data, vendors can serve each customer on their own terms.

Usage tracking is important, too, as it enables vendors to analyze customer behavior so that they can improve product capabilities and offer additional customer-specific features. These new features are pushed to customers through remote updates, refreshing both the product and its value.

Another benefit of having usage data is that vendors can address real-time and emergent needs in a predictive manner, keeping maintenance costs low and improving the user experience. On the subject of user experience, customer self-service tools engage end users by enabling them to see and manage the products and entitlements they have purchased.

IoT-based value capture

Products are no longer a one-time source of revenue; vendors can capture value throughout the product lifecycle, from both physical product sales and software applications. Other revenue streams become possible after the initial product sale, including value-added services, subscriptions, and apps, which can easily exceed the initial purchase price. In terms of capability development, vendors can team up with other IoT ecosystem partners to understand how they make money and use that knowledge to their advantage.

Value creation and capture have come a long way in the IoT era. When aligned with flexible business models, they enable you to successfully tap in to the IoT’s massive revenue potential.