HOW THE INTERNET OF THINGS IS CREATING NEW BUSINESS MODELS
Internet of Things (IoT) has changed the way everyday products interact with human beings with the internet directly accessing data from toothbrushes, thermostats and glasses. This provides us with value added services as a result. The technological evolution will impact the offering, the product life cycles as well as buying patterns say Bogdan Botezatu and Michael Ni.
Analyst firm, IDC, predicts the IoT market will grow by 19 percent in 2015. Faster than many realise, the world of connected devices is maturing and companies are now looking to capitalise on it. Software makers are set to earn at least 90 percent of total revenue created by the IoT. The real money is to be made by selling the software and services on top of the hardware and not on the devices themselves.
Data density is one important consequence. Moore’s law is in action as technology companies compact the complexity of a 21st century computer system into a watch or glasses. As digitally-savvy customers keep moving the goal posts on what good customer experience is, businesses need to adapt their technology to succeed.
In a world where digital services is shifting taxis, hotels and music shops as we know to history, what companies should focus on is providing additional value to the customer at every point of interaction. There needs to be a move away from just being product-focused to the complementary services the vendor can provide.
IoT to create millions of new jobs
With IoT set to create millions of new jobs across the globe, there is a real enthusiasm for businesses to embrace this latest technology shift. Connected devices can deliver more personalised services to customers which can lead to increased customer loyalty. An online or mobile service which gives customers greater customisation such as new ways to change the user interface, or providing localised payment methods appeals more than inflexible services.
The IoT age is not only about bringing new products and services to the customer but it offers an unparalleled opportunity for businesses to understand their customers better. The data collected by connected devices could prove useful in understanding the influences behind each individual customer’s purchasing decision.
There is already appetite to make purchases via wearable devices as Avangate’s research shows 64 percent of consumers want to buy through wearable devices. Today, almost three quarters of shoppers make mobile purchases each month.
New models for old
As new technology creates revenue opportunities, so the challenges which businesses need to overcome mount. Traditional revenue models such as one-time purchases have been replaced by new models such as subscription, freemium and free-trial.
Consumer-facing industries such media and entertainment are the most obvious examples of disruption, services such as Spotify, Tidal and Netflix show how modern customers subscribe to services by starting small. Businesses need to consider free or premium pricing models to drive adoption. Once a sizeable market is acquired, they can then convert ‘free users’ into ‘paying customers’.
IoT, cloud and mobile technology, gives them more opportunities to engage with the customer throughout the commerce life cycle from discovery to acquisition to activation, cross-sells and up-sells and renewals.
The Internet of Things creates yet more new business models but also challenges, specifically around security. As more people put their faith into technology, there are concerns about the security of personal data and networks which businesses should address. The IoT has opened more networks and possibly more attack vectors for criminals to target.
Security of Things
A 2014 HP IoT report stated 70 percent of the most commonly used IoT devices have vulnerabilities involving password security, permissions and encryption of user data. Protecting connected devices is a crucial step for vendors and some already have created “Security of Things” technology which aims to make recurring revenue from blocking malware and unapproved agents accessing smart devices, home or work networks.
New business models are created to secure smart devices because there are currently no policies or regulations regarding best practices or security standards for IoT devices. Security vendors are offering tailored packages for data protection software to IoT users which hopes to allay customer concerns. Other companies, such as Bitdefender, have released dedicated security appliances (the Box) that specifically targets the IoT consumer market and you can buy this directly online, via their commerce partner Avangate.
Smart businesses thinking ahead
Smart businesses who offer the Security of Things are thinking ahead as the new European General Data Protection Regulations (GDPR) could mean businesses may have the responsibility to ensure strict data protection regulations are put in place.
New technology needs to be trusted to gain traction, IoT is no exception, and damage of high profile breaches could set back progression within this industry significantly. In this post-breach world, there can never be too much security or cyber threat prevention. This explains why the global IoT security market has a Compound Annual Growth Rate (CAGR) of around 32 percent over the next four years.
In this increasingly connected world, there are more opportunities for businesses to enhance the customer experience and increase loyalty. This also brings up new challenges around how businesses use and store customer data. Keeping customers safe is crucial but it is also about keeping them engaged throughout the commerce journey. IoT is disrupting online services but still abides by the old rule of presenting the customer with real value. Customers are expecting a more efficient, secure and tailored experience. If businesses can provide this, their revenue stream will be protected for a long time.
Bogdan Botezatu is Senior e-Threat Analyst Bitdefender and Michael Ni is CMO of Avangate