The Business of Things

The Business of Things

13-May-2016 by Alasdair Allan

Alasdair Allan, a mentor of the Startupbootcamp IoT | Connected Devices program, discusses the issues facing IoT business models.

Developing a workable business model for the consumer IoT isn’t just important – it’s urgent.

Right now most internet of things devices being sold to consumers have the same architecture, at least on the surface. There is a thing, an app that controls the thing, and a cloud service at the back of both the app and the thing. The business model behind them is also similar, consumers make a one time purchase of the thing itself, but don’t pay an ongoing subscription to support the cloud services that make the thing “smart.”

However the companies selling the network connected things still need to maintain the cloud services behind it. They’re therefore gambling both that the ongoing maintenance costs for the cloud services will be low, and that sufficient new customers will buy the thing that those ongoing costs can be covered by new business. Unfortunately the assumptions about the number of new customers have proved to be overly optimistic.

Unlike the modern smartphone consumers do not replace their thermostats, boilers, refrigerators, stoves, lights, or locks, every year or two. Instead the fabric of our homes is far more static than many companies, used to operating on “internet time,” seem to have assumed. The lifespan of the average refrigerator or air conditioner is more than twenty years. The business model of a one time purchase of a thing, a thing that relies on an ongoing service to make it “smart” appears unsustainable. In fact it’s proved so fragile I’m left with doubts about whether cloud centred architectures are the right fit for internet of things devices aimed into the consumer marketplace.

Alasdair’s podcast below goes on to discuss the need to urgently rethink the business models being used within IoT. Take a listen or read his full article on O’Reilly now.