Collection No 2

Internet of Things

Valuing the Internet of Things

Four value creation models to highlight the potential of The Internet of Things

The Internet of Things (IoT) must move beyond hype and buzz and embrace viable value creation models.

At frog, we evaluate ideas through three different lenses: product, technology and business. Successful products nail all three. Like many breakthrough innovations, the IoT started as a technology capability as sensors became cheap and available, the reach of wireless expanded and battery and energy harvesting techniques improved. A number of commercialized use cases emerged – from health and wellness to industrial automation, automation and logistics. Yet the final pillar – the business rationale – is still missing. Surveying the IoT landscape, we found four value creation models that can be used to either increase share in existing markets or target new customer segments, as well as lower cost of operations and create new revenue opportunities.

Lower Running Costs: the IoT helps minimize the costs associated with maintenance, repair, operations and IT support.

Amplify an Existing Product: the addition of an information layer enhances the value of an existing product or service.

Monetize the data stream: an information layer is generated that can be sold to advertisers, direct marketers and data brokers, or lead to referral fees or sold as reports.

Create an Information Product: an entirely new data stream in which the information layer itself is the product.

Of course, the real world is messier than this neat taxonomy and there are obvious overlaps between these concepts. Still, we consider them helpful when thinking about how an IoT product or service might create value. We already see some of our clients, who design connected products, growing their market share and gaining insights into the usage andperformance of their products. Let’s examine each concept more closely.

Lowering running costs is a well-understood business value proposition. A great example of this is Big Belly Solar, a company whose solar powered waste compacting and recycling bins automatically notify city waste management firms when the bins need to be emptied. The “connected” bins reduce operating expenses by eliminating unnecessary garbage collection “truck rolls.” Any asset that involves maintenance in which a truck and driver need to be dispatched – from vending machines to ATMs and streetlights – could benefit from the IoT in a similar way.

For the German logistics company Agheera, frog designed a real-time shipment tracking system that illustrates how the IoT can amplify the power of an existing product. In addition to tracking the movement of a shipment from point A to point B, Agheera provides shippers with access to data on the location, temperature, light exposure, humidity and barometric pressure along the route. Early adopters of the service include healthcare and aerospace firms, which have a special interest in maintaining the authenticity and visibility of the supply chain. This is also critical for companies shipping valuables such as jewels, gems and metals, and those moving sensitive material including scientific instruments and cold-chain goods.

The most obvious examples of monetizing the data stream are advertising or marketing related. However, we believe that the biggest untapped market opportunities today reside with data streams that unlock new revenue sources beyond advertising.

Consider the Kenyan micro-crop insurer, Kilimo Salama. For a 5 percent premium on the price of seed, Kilimo Salama will insure a farmers’ seed against crop failure. This is important because small farmers rely on this year’s harvest to pay for next years’ seed; to fully recover from a bad harvest can take five to seven years. Traditional crop insurance only made sense for farms with over 200 acres, because the insurance firm had to dispatch an agent to validate a claim. Using a combination of automated IoT weather stations that cost the company $4,000 each to produce and install, and a claims system leveraging mobile phones, Kilimo Salama has automated insurance monitoring and claims for farmers living within 15 kilometers of the company’s weather stations.

To best explain the final category, information products where the data stream is the product, look at early examples for consumers such as Fitbit and Nike+. These products track the movement, exercise, sleep patterns and diet of the person wearing them, and offer visualizations into the user’s daily life patterns.

Another highly innovative example is the Gun Fire Sensor from the firm SST Shotspotter. With this device audio sensors positioned in a neighborhood allow SST to pin point the location of a gunshot as well as detect the direction a car was moving (if the shot was fired from a car), which means that street cameras can track the shooter. The Gun Fire Sensor has already been used with some success in Oakland, California and a shooter was convicted recently in Cincinnati based on SST evidence.

The Internet of Things is already here. Things are talking to things, and additional pieces of information are being added to that conversation to make really interesting products and services. Things will do more talking as technology and our acceptance of this evolutionary trend grows and companies realize the commercial potential of the IoT. The value creation models we have outlined create a framework for that development. Who would have believed that an IoT solution would be used to convict felons, track shipments across rough seas or help small farmers in developing countries? We are just beginning to understand the true potential of things talking to things.

Timothy Morey

Tim leads a global team of business and product strategists who work alongside frog designers and technologists to bring game changing innovations to market. He has worked in Silicon Valley for 15 years in a variety of product, strategy and marketing roles.

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