In an increasingly digitized world the product as an economic good seems to be losing ground enormously. Instead of buying cars, more and more people opt for car sharing. The place of CD and DVD collections is taken by streaming portals like Spotify and Netflix that provide access to huge media libraries for a monthly fee. The situation is much the same in everyday business operations. Instead of enlarging their own data centers, companies book resources, software, and entire infrastructures as a service from the cloud. OPEX-based payment and provision models are becoming increasingly established for production machinery too.
The advantages of these offerings are self-evident. They enable the user to respond flexibly to requirements as they arise. Car sharers book a compact for their commute and a van for the big shop. Users of streaming services adjust the playlist to how they feel and their preferences at any given time. Companies increase or decrease IT resources from the cloud in line with their current requirements. The Internet of Things has given service-oriented offerings even more of a boost. Why is that so and what opportunities does it offer providers?
Swift implementation on an IoT platform
Objects equipped with sensors, IT components, and communications technology offer more than their conventional predecessors. Updates provide them with new functions. IT-supported decisions based on sensor data make them able to react. That is a key aspect for manufacturers and providers. Connection enables them to stay in contact with devices, to read their status (subject to the user’s approval) and to react to certain conditions. It is the crucial link for new service offerings that range from predictive maintenance to an automatic alert in critical situations.
Until recently only large enterprises were able to connect their products and create new service offerings. Today that is something small and midrange businesses can also do. One reason is the continuous fall in prices of sensors and modules that are now no longer only affordable if manufactured in large numbers. Furthermore, cloud-based IoT platforms like Telekom’s Device Cloud that can be used to set up new services swiftly and inexpensively are now in the market. In earlier M2M projects a six-digit amount had to be invested before the first devices could be connected. Today’s platforms start at EUR 25.00 and are ready for use right away.
Subscription models as an opportunity
Which business models will make the running? Nobody can tell, but the greatest potential is currently seen as that of models based on a subscription service. Fuel and heating oil distributors can tell from sensors attached to their customers’ tanks how full they are. That enables them to reduce their running costs and avoid unnecessary deliveries while ensuring that the tanks are never empty. The same principle can be applied wherever consumables are in use. Detergent can be supplied to a car wash on demand – or beans for a coffee machine or blades for a razor.
In addition to consumables the condition of parts that are subject to wear and tear can be checked continuously. A bicycle, for example, could report when its brake blocks need replacing. There are new opportunities here for maintenance and repair services and for the accessories market. Why companies should be looking into other service-based business models was explained by Accenture’s Prith Banerjee in a recent interview with All about M2M:
If you don’t do it, your competitors may do it instead and get ahead of you. Today you make your business by selling products. Instead of buying a product, customers want to buy the value of the product. By developing products as a service offering, companies can fulfill customer wishes much better.
We are currently seeing how certain companies impact on traditional business models. Take Uber for example. The car rider service is impacting on the traditional business of taxi drivers. Or look at Airbnb. It is revolutionizing the hotel industry. Industrial companies see themselves faced by a similar development. Once they integrate connectivity into their products, they can collect information that opens new possibilities to create services on top of that data.
While various industries are currently experimenting with connected devices and the services that might be generated as a result of their connectivity, technology might in the future make its mark on the portfolio as an indispensable component. Pressure is growing because new competitors are in the starting blocks in a number of product areas – including competitors from Silicon Valley. Take Nest, for example. A few years ago no thermostat manufacturer will ever have anticipated being confronted today with a technically superior competing product from a search engine provider.