A Point of View

Building New Business Models for the Internet of

Things
Abstract
By facilitating real-time data gathering and analysis, the Internet of Things (IoT) is disrupting existing business models. The influence of the
IoT spans a wide range of industries, and it is set to make a bigger impact on the way organizations conduct business than any other recent
technological revolution. Organizations that recognize the potential of the IoT and strategize accordingly stand to gain immense long-term
benefits from the investment. However, it is not the magnitude of the investment that will determine the long-term success of the
organization. Instead, what the organization invests in and how it changes the way it does business is what will make for competitive
advantage.

This paper explores the two sets of organizations that participate in an IoT ecosystem the primary and the secondary. It also discusses
ways in which primary as well as secondary participants can benefit from an IoT economy.

The Growing IoT Ecosystem

The Internet of Things (IoT) is the next major wave of the internet era. With the ability to connect a vast number of smart devices that enable
real-time data gathering and analysis, the IoT is disrupting existing business models. It is likely to have a bigger impact than any other
technological revolution in the past, as its influence spans a wide range of industries.

From the customer's perspective, the pre-IoT era offered numerous choices that were unimaginable even a decade ago. With the IoT steadily
gaining momentum, the degree and level of product and service customization will accelerate, providing customers with abundant
personalized choices.

For enterprises, the ability to garner insights from data streaming from connected devices will pave the way for new business models and
revenue streams. The possibilities are immense, only restricted by an enterprise's innovation capabilities. This leads us to the question: How
should the enterprise modify its business model in a fast-evolving IoT-driven business environment?

The New Business Model and the Changing Roles of Stakeholders

The increasing number of connected devices has been a driving force behind the growth of the IoT. This will lead to the development of
small IoT business ecosystems, each of which consists of primary and secondary participants. The primary participant is the manufacturer or
service provider who collects the data from the customer and transmits information that is key to the ecosystem's survival. The secondary
participants are associated manufacturers or service providers who receive this information.

As illustrated in Figure 1, connected cars in the automobile industry are a great example of how an IoT ecosystem functions.

Powertrain Infotainment
Manufacturer Service Provider

Tire Insurer
Manufacturer

Engine Coolant Automobile

Manufacturer Service Provider

Manufacturer of Connected Car (Primary Participant)

Figure 1: Primary and secondary participants in an automotive IoT ecosystem

Here, the primary participant is the automobile company, while the secondary participant comprises associated manufacturers and service
providers. The secondary participant generally consists of more than one enterprise this could include a motor insurance company or tire
manufacturing company. The primary participant, the car manufacturer, facilitates a platform that can help monitor the vehicle's health.

Similarly, Figure 2 illustrates the secondary participants when the primary participant is a smart watch manufacturer.

Nutritionists

Fitness Apparel Life Insurance

Manufacturer Company

Fitness Equipment 00:00 Healthcare

Manufacturer Service Providers

Manufacturer of Smart Watch (Primary Participant)

Figure 2: Primary and secondary participants for a smart-watches ecosystem

In an IoT ecosystem, the usage of one component can impact the marketing and purchasing strategies of other components. For instance,
real-time relay of information geography-specific and otherwise collected through connected sensors in a car can deliver crucial
information about the car, including theft and accident prediction. This can help secondary participants such as the insurer and car alarm
manufacturer alert the customers about potential risks or predict a customer's propensity to apply for a claim and adjust premiums
accordingly.

The Need for Analytics in an IoT Ecosytem

The growth of IoT will lead to an increase in the number of connected devices. This will, in turn, create a wide range of new data sources and
data types that are vital to decision-making1.

At the same time, organizational decisions based on accurate and insightful data have become an integral part of the business plan of every
organization. Data can be analyzed to observe trends, and design initiatives to capitalize on these trends. These initiatives will help
organizations re-configure their business models to maximize business growth and profit margins.

IoT is Not a Zero Sum Game

Once a customer buys a product, such as a car (from the automobile company, which is a primary participant), the purchase cycle is complete.
However, the customer may have recurrent purchase cycles with secondary participants such as the insurer or engine coolant manufacturing
company.

The primary participant collects data based on the customer's actions and choices, and shares it with secondary participants. The primary
participant plays a vital role in the business environment and is responsible for investing in the technology and setting up the IoT
infrastructure. The secondary participant is merely a consumer of the information arising out of the primary participant's investment.

Such a scenario leads us to ask: Is the IoT ecosystem a zero sum game between primary and secondary players?

1
Getting More out of the Internet of Things with Real-time Analytics, TCS White Paper, published 2015, Accessed January 2016,
http://www.tcs.com/research/related-insights/Pages/Getting-More-IoT-Realtime-Analytics.aspx
2
Internet of Things: The Complete Reimaginative Force, TCS Global Trend Study 2015, published 2015, accessed November 2015,
http://sites.tcs.com/internet-of-things/

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IoT-based Business Models for Primary Participants
Our recent research shows that, on average, enterprises with IoT initiatives will invest $86 million to further their projects2. However, it is not
the magnitude of the investment that separates IoT leaders from the rest. What businesses invest in and how they change the way they do
business to capitalize on the investment is what will determine success. Let's look at a few opportunities and the ways in which primary and
secondary players can benefit from an IoT ecosystem.
Scenario 1: Forge an alliance

One factor that is likely to determine the success of these ecosystems is the ability to forge an alliance. The primary participant can
collaborate with a select set of secondary participants. For instance, HP rolled out HP Instant Ink, a campaign to provide streamlined services
to its end-consumers3. The company has multiple channel partners (secondary participants) including retailers such as Staples and Best Buy.

Sensors in HP printers predict when a customer will run out of ink. HP then automatically ships cartridges to the customer through its channel
partners. HP Instant Ink also offers ink on subscription to reduce customers' costs and build loyalty.

Such a syndicated approach can help cater to a larger customer base and improve overall customer service. The downside of such
collaboration is that a customer may feel restricted in his or her choice of secondary product participant owners.

Such an alliance also creates an opportunity for the primary participant to share data with select secondary participants for a premium.
Secondary participants may readily pay the premium for an alliance that assures data and customer insights, as it will give them an advantage
over competitors.
Scenario 2: Create an aura of exclusivity to enhance brand image

Another strategy would be for the primary participant to tap into the 'exclusivity factor'. The primary participant, acting as the custodian of
data, has the advantage of drawing actionable insights from the collected sets of data. Studying customer behavior and preferences, the
primary participant could guide the secondary participant in fine-tuning its offerings. This would help industry players to move from product-
centric services to customer-centric services and create an aura of exclusivity.

A secondary participant in an exclusive partnership with a primary participant has to sell products only through the preferred channel set by
the latter. This also means that customers may not be able to buy products from such secondary product owners on any other platform. Such
an exclusive platform therefore needs to be a calculated move by both participants, with market analysis that assures benefits from
exclusivity.
Scenario 3: Act as a custodian of data

Data is the new currency. The IoT allows primary participants to remain connected with the customer even after the purchase of a product,
providing new avenues for monetization. The primary participant can collect data based on customers' actions, behavior, and choices. For
instance, General Electric has recently made investments that led to the launch of a cloud-based platform housing approximately 40
applications for predictive maintenance. The data captured from these applications can provide in-depth information on machines' health
quotient4.

Primary participants can create additional revenue streams by selling select data to relevant stakeholders along the value chain. However,
primary participants must distinguish between data that does not affect the privacy of customers, and data that is specific and can be
misused. Protecting sensitive data and privacy must be a priority for all stakeholders involved in the value chain. Primary participants must
also assess security risk, minimize the quantum of data they collect, and continuously test for vulnerabilities to avoid a security attack.
Scenario 4: Create strong brand equity

For this scenario, the brand equity of the secondary participant should be strong enough to draw the primary participant's attention. The
primary participant may then seek a partnership to augment its brand image.

For instance, a new wearables manufacturer entering the market may partner with a medical device company or a sports apparel or
equipment manufacturer with a powerful brand. The primary participant will share data with this more reputed company in exchange for
piggybacking on its brand image.
3
Internet of Things: The Complete Reimaginative Force, TCS Global Trend Study 2015, published 2015, accessed November 2015,
http://sites.tcs.com/internet-of-things/
4
Internet of Things: The Complete Reimaginative Force, TCS Global Trend Study 2015, published 2015, accessed November 2015,
http://sites.tcs.com/internet-of-things/

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IoT-based Business Models for Secondary Participants
Now let's look at the benefits of an IoT ecosystem for secondary participants.
Scenario 1: Subscribe to data from a primary participant

The IoT provides a structured technical platform for enterprises to shift toward a targeted marketing strategy based on streamlined, in-depth
customer data. This transparency in customer data creates new revenue generation opportunities for enterprises that offer usage-based
services.

Secondary participants can buy data from the primary participant to formulate customer-centric strategies and drive business growth. For
instance, in the consumer electronics industry, a refrigerator manufacturer can create an IoT ecosystem that includes associated products and
services. The data captured from sensors embedded in a refrigerator can provide in-depth information on food and power consumption
patterns. This would help the grocery retailer and the energy provider plan sales, marketing, and procurement. The refrigerator here becomes
the transmitter of information providing valuable data that can be mined for insights by several components in the ecosystem.
Scenario 2: Partner with a primary participant

To reach a wider customer base, the secondary participant can collaborate with multiple primary participants. For instance, an energy
provider can partner with multiple manufacturers of smart appliances like thermostats, TVs, air-conditioners, and refrigerators. Data from
these devices can provide insights into energy consumption patterns, and allow the utility to offer special discounts or packages to
customers, a part from enabling better planning.
Scenario 3: Form an exclusive alliance with a primary participant to build the brand

New entrants from the secondary participant pool can partner with an established primary participant to gain a foothold and build their
brand. For example, a pathology lab that provides diagnostics services can collaborate with a wearables manufacturer that already has an
established brand. The lab can offer services exclusively through this wearables company at a steep discount, and gain from the established
presence and existing customer base of the bigger brand.

Designing a Win-Win Game

It is clear that with the advent of the IoT, both primary and secondary participants need to unlearn and re-learn processes for optimal mutual
benefit. In a hyper-connected world, primary and secondary participants that collaborate and proactively adopt IoT will benefit from
increased efficiencies and agility. Such a move will enable them to offer contextual, customized, and relevant products and services to
customers, thereby enhancing customer loyalty and satisfaction.

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About the Author
Nitin Rai

Nitin Rai is the Head of Content Marketing at Tata Consultancy Services' (TCS) Business Process Services unit. He has over 12 years of
experience in the field of strategy and marketing. He has expertise in content marketing, brand management, and digital marketing. He also
manages ValueBPS initiative - TCS' new approach towards business process services. Nitin holds a bachelor's degree in production
engineering and has undertaken a post-graduate program in strategy management from the Indian Institute of Management, Calcutta.

Acknowledgment
I am grateful to Shyam Kerkar for his guidance and also thank my colleague Avinash Pattabhiram for helping me develop this paper.

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