Applying design thinking to IoT
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See how apply the user-centric method of Design Thinking when designing IoT solutions. The presentation provides an introduction on on how you can shape the most viable idea, reduce the risks of failure. It covers 3 main questions: Do customers need my IoT solution? Can you build it? Will it be profitable?
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Applying design thinking to IoT
- 1. Applying Design Thinking to Internet of Things A GUIDE TO CREATE SUCCESSFUL IOT SERVICES
- 2. Contents ONE TWO THREE FOUR FIVE SIX SEVEN IoT Business Opportunities Introduction to Design Thinking Unleashing Innovation in IoT Designing to be desirable Designing to be viable ConclusionsDesigning to be feasible 2
- 3. Introduction Embed Design Thinking into the development of IoT services. Test your assumptions from 3 core factors: Is it really needed? Is it feasible? Is it profitable? You don’t need to be an expert in IoT to develop innovative IoT Services 3
- 4. IoT Business Opportunities IoT represents extraordinary business opportunities
- 5. Market potential of IoT > 5 devices per person by 2020# 11.1 Trillion euros Market size by 2025 in the EU* * Source Statista. Accessed April 2019. # Source Hoganlovells. Accessed May 2019 5
- 6. Customer experience Performance & safety Sales growthProductivity & efficiency Product innovation 6 IoT Business Opportunities
- 7. IoT: Paradigm shift Traditional mindset Internet of Things mindset ValueCreation Addressing customer needs Reactive Predictive Product offering Stand-alone product Product updates regularly Role of data Used to evolve product Used to create experiences ValueCapture Making profit Selling next product Recurring revenue Advantages to provide Includes commodity advantages Includes personalisation and context Improve capabilities Leveraging core competences Creating ecosystems with partners 7
- 8. Introduction to Design Thinking “ ” If you want users to like your solution, you should design it to behave like a likable person (Alan Cooper. Interaction Design)
- 9. What is Design Thinking Service design helps organizations see their services from a customer perspective “ ” A user-centred process Helps to understand the better the user Practical methods to challenge assumptions and status ‘quo' Allows to create, experiment and test ideas in an iterative way. * Stickdorn, Marc; Hormess, Markus Edgar; Lawrence, Adam; Schneider, Jakob.
- 10. Design Thinking process The Hasso-Plattner Institute of Design at Stanford (a.k.a. ‘D.school’) uses 5-stage approach3: Empathize Define Ideate Prototype Test Propose new solutions Uncover additional latent needs Understand better your customer Spark new ideas 10
- 11. Start with simple experiments (e.g. Napkin sketch) and test it; Then increase the fidelity and spending of your testing as your uncertainty decreases. - Prototyping fidelity + -Costinprototyping+ + Solution uncertainty - Iteration 1 1.Define 2.Ideate 3.Prototype 4.Test Iteration 2 1.Define 2.Ideate… Iteration 3 1.Define 2.Ideate… Iteration 4 1.Define 2.Ideate… Learn & Evolve Fail fast. Learn fast. Improve fast. 11 Learn & Evolve Learn & Evolve
- 12. Applying Design Thinking to IoT IoT technology serves only to solve human- problems, but it also needs to be profitable and technically viable. Using Design Thinking helps you increase your chances of success. ‘Smart’ solutions & IoT technology must have a human-centric approach Smart Housing Smart Cities Smart Infrastructure Smart Transportation Smart Healthcare Human-centric 12
- 13. Example Think about an smart thermostat, it’s ‘smart’ only to optimise it, improve it and ease its use but its ultimate purpose it’s that your house is warm when you arrive at home without overspending.
- 14. Unleashing innovation in IoT Solve the right problem before solving the problem right
- 15. Innovation principles 3 Success factors to consider Desirability Do customers needed it? Feasibility Can we build it? Viability Is it profitable? Innovation 15
- 16. Innovation & the role of the Business Model Canvas Partners Costs Revenue streams Activities Value Proposition Customer Segments Resources Customer relationship Channels 12 3 2 1 3 Feasibility Test several combinations on how to deliver you product Desirability Viability For each Business model variant run a financial models simulations Consider different customer segments and how you will interact with them Use the Business Model Canvas model to visualize, test and iterate the 3 Innovation principles. 16
- 17. Epicentres of innovation There are 2 main epicentres of innovation A) Resource-drive, b) Offer-driven. B A Born from the resources & capabilities already existing. B Resource-driven Offer-drivenA Born from underserved needs in order to bring value to customer. 17
- 18. Designing to be desirable Innovative products are those who address needs users don’t really know they have.
- 19. Desirability Areas IoT can help: Address needs in a predictive way Increase customer engagement Improve customer experience Deliver seamless services How to ensure customer’ desirability 19 Run iteratively Test your proposition Define customer Generate ideas & prototype Uncover latent needs
- 20. Example when a product fails due to lack of desirability 20 Initiative The “Start” button was removed in Windows 8 to be integrated with tablets. Actual result Customers found it tortoise when using it with PCs. It was on of the biggest Microsoft’s failures. Lesson learned Microsoft shouldn’t have just assumed what people wanted, but actually test with users before launching it.
- 21. Discover user needs for IoT Focus on identifying what undeserved needs they have. Tools and methods to uncover latent needs: Personas. A fictional character that represents a type of user. Customer Journey. A end-to-end experiences. System map. A visual or physical representation of the components of the system. 5 Why’s: A chain of questions to uncover users problems’ root cause. 21
- 22. Example: Needs vs. latent needs of an ‘smart’ thermostat It is easy to use It is reliable Prevents pipes from freezing Colour does not fade over time Latentneeds
- 23. Prototyping for IoT Use prototyping to make quick and rough concepts to explore your ideas Start with low fidelity prototypes, test, iterate and refine Napkin sketch Paper prototyping Technical mock-up model Minimum Viable Product Production-like pilots Cost/Effort/Fidelity Prototyping tools Whocandoit? Anyone Specialists 23
- 24. Prototyping Examples Napkin Sketch Draw a rough representation on a piece of paper on how the main components of your IoT fit together. Difficulty: Easy Fidelity: Low Technical mock-up model A physical representation on how the service would work. You may replace IoT components by manual actions. Difficulty: Medium Fidelity: Medium Napkin Sketch example of an ‘Smart’ drill in which users are charged only when using the drill and not for the drill itself Example 24
- 25. Designing to be feasible Considering the technical challenges of the solution
- 26. Feasibility How to ensure feasibility IoT has 5 specific technical challenges that need to be addressed correctly. Key success factors: Choose the right IoT platform Define the technical resources needed Identify your main challenges 26 Customer expectations
- 27. When a product fails because it was not feasible Initiative Virtual Boy was the first console game to enter into the Virtual Reality World. Actual Result The console did not meet expectations due mainly to its low resolution, games did not look good Lessons Learned While the idea was received well, Nintendo simply did not have the technology required to build it and satisfy their Customer expectations. 27
- 28. Under deliver or bad user experience can kill a product Customer opinions can increase or decrease the popularity IoT products are not meant to work on silos Reliability and easy connection are customer’s key points. 64% Percentage of customers that are likely to switch from a brand that doesn’t anticipate their needs* 28 Meeting customer expectations
- 29. Regulations can slow or boost IoT deployment. Many regulations affecting today's IoT don't fit for machine-to-machine communications GDPR and ePrivacy Regulation affects IoT as it data cannot be uncoupled. 29 Complying with Governmental regulations <20 <20 31 31 vs. <20 31 separate categories of regulatory requirements applicable to IoT in the EU, whereas China and the United States have fewer than 20 #
- 30. One of the most important technical challenges to address. Security breach may jeopardise the success of a product. Consider testing against: security testing brute-forcing passwords malware and ransomware data breaches 600% Increase of IoT attacks in 2018* 30 Addressing security and data privacy concerns Increase
- 31. IoT requires the development of skills such as data science, AI, Security, UX, engineering and programming. « IoT manufactures don’t have the talent they need with skills in security, cloud, industrial communications and data analytics technology » (Vasko 2016). of businesses are struggling to hire talent for IoT 31 Handling skills & talent limitations 73%
- 32. Reliable & connectivity suitable to the context(s) Each connection type has its own strengths and weaknesses Choose carefully the right connection type Example: A device that requires WiFi or that consumes a lot of power may not work properly if the device is intended to be used in the outdoors. 32 48% Of EU’s rural household still don’t have access to broadband Ensuring connectivity & interoperability
- 33. Designing to be viable Choosing the right revenue model that works best for your service
- 34. Successful products are also profitable 34 Viability Revenue model Choose the right revenue model suitable for you and your customers Financial analysis Elaborate your financial analysis based on the 2 previous assumptions Business Model models. Choose carefully the 9 Keys to profitability Explore the different business different aspects
- 35. Initiative Nespresso started a business-to- business model in partner with machine manufactures while keeping a sales force Actual result Their initial business model did fail and lead the company near to bankruptcy Lessons Learned An excellent product can also fail because of a bad business model 35 When a product fails because it was not Viable
- 36. Revenue models for IoT • Customers use your IoT service in exchange of a regular fee. Subscription Model • Customers use your IoT service for free (or at low cost) and pay for upgrades. Bait & hook • Customer pays for the actual desired outcome. Outcome- Based Model 36
- 37. Revenue models for IoT • A set of customers share the same asset and pay proportionally Asset- sharing • Analyse customer data and have tailored-made offers Data-driven • Customers pay only for maintenance services Service Offering 37
- 38. 38 HP Instant Ink uses IoT to offer replacement services plans. Plans include automatic ink replacements, shipping, and cartridge recycling. Monthly plans are based on pages printed, not cartridges used. HP Instant Ink: Subscription example
- 39. 39 PolySync, a company that offers an IoT platform to test autonomous vehicle systems, . Possibility to start a free, 30-day trial, where you can use all their functionalities When the trial is over, you may choose a subscription based model PolySync: Bait & hook example
- 40. 40 Porsche launch Smart Driver as a pilot program Collects data to measure speed, acceleration, cornering, and braking while driving Driving behaviour is evaluated Drivers get monthly cash-backs, based on their road safety performance. Porsche: Outcome-based example
- 41. 41 Reused their IT infrastructure services, reliability, scalability, cost-effective data centres. Decided to provide infrastructure services to third-party customers. Amazon: Asset-sharing example
- 42. 42 A jewellery store chain, uses Bluetooth sensors in their stores to Track traffic numbers in their stores Customers movements within the store In order to Better organize and display its products. Push specialized / customized offers Alex & Ani: Data driven example
- 43. 43 Predictive analytics platform to monitor the truck's usage the current status Allows to Plan maintenance better Predict component failure In order to lowers the diagnosis and repair time Volvo trucks: Service Offering example
- 45. Conclusion DOs DON’Ts Design IoT products having a user- centric approach Design IoT products focus on device-to- device communication Create innovation considering: Desirability, Feasibility and Viability Create innovation focused only technology breakthrough Consider the different epicentres of innovation The spark of innovation must start always from a user need Find user latent needs or needs which users have difficulties to express Focus on obvious needs or not focusing on the underlying needs 45
- 46. Conclusion DOs DON’Ts Test your ideas cheap and fast and evolve as you get feedback Think you need an IoT working prototype (e.g. MVP) to test it with your users Consider the technical limitations that could engender your solution Underestimate technical limitations such as data privacy or user-context Explore and test different revenue models Based your revenue model only on a ‘one-off’ payment Search for different revenue models examples for inspiration Think you don’t need inspiration from others 46
- 47. Subscribe 47 Subscribe and get your free whitepaper https://www.sinnova.be/applying-design- thinking-to-iot
- 48. Let’s get in touch @otnielgm Phone +(32) 489 50 29 80 E-mail eli.garcia@sinnova.be Website www.sinnova.be/eliogarciam /eliotnielgarcia Eli Garcia Digital Innovation 48
- 49. Resources & references References: 1 https://www.politico.eu/sponsored-content/why-a-european-policy-framework-for-the-internet-of-things-matters/amp/. Accessed April 2019 2 https://www.slideshare.net/CiscoBusinessInsights/journey-to-iot-value-76163389. Accessed April 2019 3 https://www.interaction-design.org/literature/article/5-stages-in-the-design-thinking-process. Accessed April 2019 4 https://www.politico.eu/sponsored-content/why-a-european-policy-framework-for-the-internet-of-things-matters/amp/. Accessed April 2019 Courses: Internet of Things. Business Implications and Opportunities. Massachusetts Institute of Technology. Sloan School of Management Innovation of products and services: MIT’s approach to design thinking. Emeritus Institute of Management. Book references This Is Service Design Doing: Applying Service Design Thinking in the Real World. Stickdorn, Marc; Hormess, Markus Edgar; Lawrence, Adam; Schneider, Jakob. O'Reilly Media. Value Proposition Design: How to Create Products and Services Customers Want. Osterwalder, Alexander; Pigneur, Yves; Bernarda, Gregory; Smith, Alan. Wiley. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Osterwalder, Alexander; Pigneur, Yves. Wiley. The Lean Product Playbook: How to Innovate with Minimum Viable Products and Rapid Customer Feedback. Olsen, Dan. Wiley. 49
Editor's Notes
- Designing successful IoT services is focusing on people first and use technology as a tool to meet a human need. Embed design thinking into the development of IoT services to shape the most viable idea and reduce risks of failure. Learn how to test your assumptions from 3 core factors: Is it really needed? Uncover unmet needs, design products that solve really a problem, get quick feedback and evolve. Is it feasible? Assess the technical capabilities needed and evaluate you can develop it. Is it profitable? Determine your business model and the right revenue model. Discover non-technical methods to generate new ideas, evolve your concepts, and save time and money by getting to the right solution faster.
- IoT solutions have become ubiquitous in our life, even sometimes without noticing it, from fridges that order milk when you are running out, to smart lifts that know what floor you want to go before you actually press the button, from cars that communicate with red lights to synchronise speed red-lights timings to systems that detects water leakages and automatically stops supply. A market of up to 11.1 trillion Euros by 2025 According to the European Commission1, the market value of IoT in the EU will exceed €1 trillion in 2020. While the McKinsey Global Institute believes connecting physical and digital worlds will have a potential total economic impact of as much as $11.1 trillion a year by 2025. More than 5 devices per person An estimate of 30 to 60 billions devices will be connected by 2020 this is, in other words, an average of more than 5 devices per person worldwide.
- Creating and capturing value of IoT solutions requires a swift in mindset compare to the traditional product/service mindset, as it provides new challenges and opportunities that differ from other type of Products or services. From the MIT Internet of Things: Business Implications and Opportunities we find the comparison between minds sets
- A user-centred process Design thinking is user-centred iterative process that aims to understand the user for whom we're designing the products or services, the objectives, the activities to accomplish and the pains. It provides a practical methods to solve problems, challenge assumptions and status ‘quo' in an attempt to find solutions that welcomed by the users. Design thinking is extremely useful to re-frame the problem in user-centric ways. It helps to create, experiment and test ideas in an iterative way and thus reducing the risk of failure.
- There are numerous approaches and phases for Design Thinking in use today, varying from three to seven phases. Despite these different approaches, all are very similar and they all follow the same principles. What is common in all approaches is that all are user-centric, their phases are not always sequential, in fact they can run in parallel and they are repeated iteratively. For example, the Hasso-Plattner Institute of Design at Stanford (a.k.a. ‘D.school’) uses 5-stage approach3: Empathize, Define, Ideate, Prototype, Test, depicted below3. Empathize. Empathise with the user: activities & needs Define. Find user insights: Latent needs. Ideate. Generate innovative ideas. Prototype. Create potential solutions. Test. Test solutions: Desirability, Feasibility & Viability
- Test your ideas iteratively in a cheap and fast way to learn, understand better your users and redefine your ideas. Start with simple experiments (e.g. Napkin sketch) and test in in the ‘wild’, Then increase the fidelity and spending of your testing as your uncertainty decreases. The iterative tests should test all aspects of your ideas (e.g. the value proposition, customer segments, costs, revenue streams, communication channels, etc).
- Despite that IoT is manly about connecting devices to each other and making them smarter by allowing their performance to be monitored and managed remotely, these solutions ultimately serve a human-being achieve a task. Think about smart thermostat, you make it ‘smart’ only to optimise it, improve it and ease its use but its ultimate purpose it’s that your house is warm when you arrive at home without overspending. IoT needs to be designed with a human-centric approach, technology serves only to solve human-problems. Theses solutions need to be carefully designed to address real needs. Designing human-centric solutions is easier said than done, besides addressing a real need, it needs to be profitable and technically viable. This is why, using Design Thinking to develop IoT solutions will help you increase your chances of success by following a methodological approach to understand the users, its needs and de-risk solutions. ‘Smart’ solutions & IoT technology must have a human-centric approach
- Despite that IoT is manly about connecting devices to each other and making them smarter by allowing their performance to be monitored and managed remotely, these solutions ultimately serve a human-being achieve a task. Think about smart thermostat, you make it ‘smart’ only to optimise it, improve it and ease its use but its ultimate purpose it’s that your house is warm when you arrive at home without overspending. IoT needs to be designed with a human-centric approach, technology serves only to solve human-problems. Theses solutions need to be carefully designed to address real needs. Designing human-centric solutions is easier said than done, besides addressing a real need, it needs to be profitable and technically viable. This is why, using Design Thinking to develop IoT solutions will help you increase your chances of success by following a methodological approach to understand the users, its needs and de-risk solutions. ‘Smart’ solutions & IoT technology must have a human-centric approach
- Innovation is not limited to technical breakthrough, or even solving customers’ problem effectively, it also needs to be possible to build it in a way that you can make a profit. There are countless of examples where new products have failed because it lacked at least one these 3 factors. 3 Success factors Successful innovation requires to address correctly 3 core questions: Do customers really need it? Can we actually build it? Will it be profitable?
- The Business Model Canvas is an Strategic Management and entrepreneurial tool, which was initially proposed by Alexander Osterwalder in 2008. It allows to describe, design, challenge, invent, and pivot your business model. This model contains 9 Building Blocks: Value Proposition, Customer Segments, Customer relationship, Channels, Activities, Resources, Partners, Costs and Revenue streams. Use this model to visualize, test and iterate the 3 Innovation principles. Desirability The Customer relationship, Channels and Customer Segments will help you test the desirability of your product: 1) Who can be our customers, 2) How can we maintain the relationship with our customers? 3) what communication channels can we use to deliver value Feasibility The Activities, Resources and Partners will help you test the feasibility of your products: What are the core activities we can do for our value proposition, What resources do we need? Who can be our partners? Viability Your Costs and Revenue Streams will help you test the viability of your product. For each Business model variant run a financial models to find out if your idea is viable
- The process to create and capture innovation is not linear process nor has a specific starting point. There are 2 main epicentres of innovation A) Resource-drive, b) Offer-driven. Offer-driven In this scenario you identify your customer first, you find out their underserved needs in order to bring value to customer. The needs of your customers and your value proposition will influence what activities and capabilities you need to acquire and or develop. Resource-driven Innovation is born from the resources, capabilities and/or partnerships already existing to provide new product offerings. In this case, you first identify your capabilities and then you find out what underserve needs you can cover.
- Do customers really need it? IoT can provide unique ways to solve problems, create and deliver value to customers, particularly IoT can: Help to understand better customers and address needs in a predictive way Increase customer engagement with your product or service Exploit customer data to improve customer experience Merge digital & physical experiences to deliver seamless services However, very often than not, you think you have a solution for a problem, so you start building your product assuming other people have the same problem and you are sure people need the solution your building. As already mentioned, successful products start by 1) emphasising with the customer, 2) discovering needs, 3) ideating solutions, 4) prototyping and 5) testing your ideas with cheap experiments to learn more and evolve. Run this process iteratively to define better your customers, uncover well their needs, generate several ideas to solve the problem and test your proposition to your actual customers. In the next pages you will see how to discover user needs and prototype for IoT solutions. Key takeaways Define your customer well Uncover their latent needs Generate many ideas Test your proposition with your customers
- In 2012, Microsoft removed its iconic “Start” button in Windows 8, assuming customers would welcome how well it integrated with touch screens such as its surface tablets. However, customers found it tortoise when using it with laptops and desktops, which it account for virtually all its market share. Eventually, it became one of Microsoft’s biggest failures. Microsoft shouldn’t have just assumed people wanted a ‘surface-friendly’ Operating System, but actually test it with users before launching Windows to the mases.
- “If I had asked people what they wanted, they would have said faster horses” (Unproven Henry Ford’s quote ) Innovative products are those who address needs the users doesn’t really know they have. After you have defined your target customer/user, focus on identifying what undeserved needs they have. Finding underserved needs is particularly difficult as users usually express their needs in a fuzzy way, and very often than not, their needs tend to go unspoken. There are many tools and methods to uncover user’s latent needs, such as: Personas. A fictional character that represents a type of user, its motivations and its pains. Customer Journey. A end-to-end experiences that users go through when interacting with the product. System map. A visual or physical representation of the components of the system in which a service, is embedded. 5 Why’s: A chain of questions to uncover user motivations that are at its root cause.
- Use prototyping to make quick and rough concepts to explore your ideas, find different approaches and get early feedback from users. Start with low fidelity prototypes, test, iterate and refine, as you advance, increase the fidelity of your prototypes. There are many prototyping tools you use applicable to IoT, from very quick & simple to very complex.
- Napkin Sketch. A cheap and fast way to make your idea tangible. Take a paper, draw a rough representation how the main components of your IoT fit together. This will help you as basis to tell a story. Technical mock-up model. A physical representation on how the service would work. You may replace IoT components (e.g. sensors) by manual actions. For instance, a movement sensor can be replaced by a human, so to simulate how the IoT should work.
- This is the second question to answer. Some technical solutions require technology that is out of our reach or it’s technically challenging to use for our customers in the context they will use it. Make sure the solution is technically feasible for the resources you have and that it also works as expected for your customers in the context and environment they will use it. Since there are usually different technical, explore the different options and choose the most feasible for you and your customers. Meeting customer expectations. Ensure it works as promised Deliver exceptional customer experience (UX) Consider user’s ecosystem Addressing security and data privacy concerns Secure passwords Protect against malware, ransomware & botnets Reduce risks of data breaches Complying with Governmental regulation Analyse the regulations that affect the solution Keep an eye on the evolution of regulations Handling skills & talent limitations Acquire the right talent & skills Develop skills such as: security, cloud, communications & data analytics Ensuring connectivity & interoperability Choose the right network connection type for its intended use Enable a seamless integration to the user’ context IoT has 5 specific technical challenges that need to be addressed correctly: Meet customer expectations Address security and data privacy concerns Comply with Governmental regulations Handle skills & talent limitations Ensure connectivity & interoperability Key takeaways Choose the right IoT platform Define the technical resources Identify main challenges
- In 1995, Nintendo launched its Virtual Boy, being the first console game to enter into the Virtual Reality World. Despite the big expectations the console generated, the reality was that Virtual Boy was not up to what it promised. The low resolution was one of its greatest flaws, as games did not look good and it deceived customers. While the idea was received well, Nintendo simply did not have the technology required to build it and satisfy their Customer expectations. Virtual Boy eventually became the biggest flop in Nintendo’s history, since it’s creation in 1800.
- Meeting customer expectations Customers have higher expectations than ever, a product that under delivers what it promised, it doesn’t work as expected or delivers a bad user experience can kill even the most innovative solution. IoT products are not meant to work on silos, when a customers buys a device, the customer expects a reliable and easy connection to his own ecosystem and that it works in harmony. Dissatisfied users can complaint very easily on high-traffic cannels and increase or decrease the popularity of the device. Statistic: 64% Percentage of customers that are likely to switch from a brand that doesn’t anticipate their needs* Complying with Governmental regulations With the rise of the IoT and related technologies new regulatory frameworks are deployed. These regulations can slow or boost IoT deployment. A study shows that many regulations affecting today's IoT don't fit for machine-to-machine communications specially in the European Union4, for which the regulations are higher and far more complex than those in the United States and China. GDPR and ePrivacy Regulation has far-reaching consequences in IoT as it data cannot be uncoupled. Statistic: 31 separate categories of regulatory requirements applicable to IoT in the EU, whereas China and the United States have fewer than 20 # * Source Salesforce. Accessed May 2019
- Meeting customer expectations Customers have higher expectations than ever, a product that under delivers what it promised, it doesn’t work as expected or delivers a bad user experience can kill even the most innovative solution. IoT products are not meant to work on silos, when a customers buys a device, the customer expects a reliable and easy connection to his own ecosystem and that it works in harmony. Dissatisfied users can complaint very easily on high-traffic cannels and increase or decrease the popularity of the device. Statistic: 64% Percentage of customers that are likely to switch from a brand that doesn’t anticipate their needs* Complying with Governmental regulations With the rise of the IoT and related technologies new regulatory frameworks are deployed. These regulations can slow or boost IoT deployment. A study shows that many regulations affecting today's IoT don't fit for machine-to-machine communications specially in the European Union4, for which the regulations are higher and far more complex than those in the United States and China. GDPR and ePrivacy Regulation has far-reaching consequences in IoT as it data cannot be uncoupled. Statistic: 31 separate categories of regulatory requirements applicable to IoT in the EU, whereas China and the United States have fewer than 20 # # Source Hoganlovells. Accessed May 2019
- Addressing security and data privacy concerns As devices are permanently connected over the internet and to each another, avoiding and containing data breaches and security attacks are one of the most important technical challenges to address. A severe security breach may jeopardise the success of a product. When designing IoT, consider risks such as insufficient (security) testing, brute-forcing passwords, malware and ransomware, botnets, data breaches, small security attacks and others. Statistic: 600% Increase of IoT attacks in 2018* * Source Symantec. Accessed May 2019 Handling skills & talent limitations IoT devices gather a large volume of data and in order to gain meaningful and actionable insights from the data it is crucial for a successful IoT implementation to have the right talent with the right skills. IoT requires the development of skills such as data science, engineering, programming. As explained by Dave Vasko one of the board Members of Internet of Things Talent Consortium (IoTTC) « IoT manufactures don’t have the talent they need with skills in security, cloud, industrial communications and data analytics technology » (Vasko 2016). Statistic: 68% of businesses are struggling to hire talent for IoT#
- Addressing security and data privacy concerns As devices are permanently connected over the internet and to each another, avoiding and containing data breaches and security attacks are one of the most important technical challenges to address. A severe security breach may jeopardise the success of a product. When designing IoT, consider risks such as insufficient (security) testing, brute-forcing passwords, malware and ransomware, botnets, data breaches, small security attacks and others. Statistic: 600% Increase of IoT attacks in 2018* Handling skills & talent limitations IoT devices gather a large volume of data and in order to gain meaningful and actionable insights from the data it is crucial for a successful IoT implementation to have the right talent with the right skills. IoT requires the development of skills such as data science, AI, Security, UX, engineering, programming. As explained by Dave Vasko one of the board Members of Internet of Things Talent Consortium (IoTTC) « IoT manufactures don’t have the talent they need with skills in security, cloud, industrial communications and data analytics technology » (Vasko 2016). Statistic: 68% of businesses are struggling to hire talent for IoT# As of 2017, source Canonical. Accessed May 2019
- Ensuring a connectivity & interoperability IoT devices need to have a reliable & proper connectivity suitable to the context(s) where the device is intended to be used. There are several connection types and each one has its own strengths and weaknesses, choosing carefully the right connection type can have an impact on the success or not of the solution. A device that requires WiFi or that consumes a lot of power may not work properly if the device is intended to be used in the outdoors. Statistic: 48% of EU’s rural household still don’t have access to broadband1
- Will it be profitable? Even when customers do want your product and you can build it, you need to make sure your solution will be profitable in the way you want to build it and for the customers you want to sell it. As well as the other two success factors, there are usually different business models you can explore for the same product. You need to choose the right revenue model that is suitable for you and your customers (e.g. Subscription, bait & hook, etc), explore the different business models by choosing carefully your core activities, resources, partners, customer relationship and channels. You should also be able to define your costs and revenues in order to elaborate your financial analysis (e.g. via a Net present value). In the same way that the other two key success factors, this is not a one-off activity but an iteration to find the right model. Key takeaways Choose the right revenue model Explore the different business models Elaborate a financial analysis
- Nespresso started a business-to-business model in a joint venture with a machine manufacturer that also maintained a sales force. While Nespresso has not failed, their initial financial model did fail and lead the company near to bankruptcy. It was until around 2000, when Nespresso changed its business model which has now proved to be one of the best divisions at Nestlé.
- Subscription Model Instead of selling a product or a service as a one-off, offer your IoT services in exchange of a regular fee. Common examples include SaaS or PasS (Product as a Service) models. The advantages to use this model is that it allows you to have a constant flow of revenue and it also allows you to build a more intimate understanding of your customers. Bait & hook The bait and hook pattern (also known as “razor and blade”) works in the way that your basic IoT product is sold at a very cheap price in order to make profit by selling complementary products for a high price. For instance, you can offer monitoring sensors for free or very cheap so you can later offer other services later. Outcome-Based Model One of the advantages of connected devices is the possibility to collect information about its usage. You can use tis data to monitor how customer use it and let your customers pay for the desired outcome and not for the device itself. For instance, imagine a smart pump in which customers pay for the quantity of water pumped and not for the pump itself. Asset-sharing Model Sharing economy means “What is mine is yours, for a fee” (The Economist) and is becoming more and more popular across all kinds of assets, including connected devices. The main features of a sharing business model are that users rent the service rather than buy it and brings together owners and seekers. Think of an smart high-capacity battery where other customers can also benefit it and pay only for what they use. Data-driven The objective of the Data-driven model is to generate revenue from available or, specially for connected devices, real-time streamed data. The data can be combined with other sources, like geodata, weather and usage behaviour, etc. You can sell raw data, processed data or Insights. When collecting, processing and selling user data, it is important to respect data privacy and existing regulations. For instance, the data collected by the connected device can be analysed and used to provide tailored-made offers based on user’s consumption. Service Offering This model is not about providing a product “as a service” but to use your IoT product as a means to provide another service; In other words, you use IoT as an enabler and differentiation to gain customers to sell your real services. For Instance, You can use your IoT product to monitor machinery so it can predict maintenance, and then are able to sell a maintenance services. Have IoT devices in a smart house to measure energy consumption. So you can provide energy optimization services.
- Subscription Model Instead of selling a product or a service as a one-off, offer your IoT services in exchange of a regular fee. Common examples include SaaS or PasS (Product as a Service) models. The advantages to use this model is that it allows you to have a constant flow of revenue and it also allows you to build a more intimate understanding of your customers. Bait & hook The bait and hook pattern (also known as “razor and blade”) works in the way that your basic IoT product is sold at a very cheap price in order to make profit by selling complementary products for a high price. For instance, you can offer monitoring sensors for free or very cheap so you can later offer other services later. Outcome-Based Model One of the advantages of connected devices is the possibility to collect information about its usage. You can use tis data to monitor how customer use it and let your customers pay for the desired outcome and not for the device itself. For instance, imagine a smart pump in which customers pay for the quantity of water pumped and not for the pump itself. Asset-sharing Model Sharing economy means “What is mine is yours, for a fee” (The Economist) and is becoming more and more popular across all kinds of assets, including connected devices. The main features of a sharing business model are that users rent the service rather than buy it and brings together owners and seekers. Think of an smart high-capacity battery where other customers can also benefit it and pay only for what they use. Data-driven The objective of the Data-driven model is to generate revenue from available or, specially for connected devices, real-time streamed data. The data can be combined with other sources, like geodata, weather and usage behaviour, etc. You can sell raw data, processed data or Insights. When collecting, processing and selling user data, it is important to respect data privacy and existing regulations. For instance, the data collected by the connected device can be analysed and used to provide tailored-made offers based on user’s consumption. Service Offering This model is not about providing a product “as a service” but to use your IoT product as a means to provide another service; In other words, you use IoT as an enabler and differentiation to gain customers to sell your real services. For Instance, You can use your IoT product to monitor machinery so it can predict maintenance, and then are able to sell a maintenance services. Have IoT devices in a smart house to measure energy consumption. So you can provide energy optimization services.
- Subscription model example HP Instant Ink uses IoT to offer replacement services plans. Their plans include automatic ink replacements, shipping, and cartridge recycling. Monthly plans are based on pages printed, not cartridges used. HP also offers to change or cancel your plan online anytime. Bait & hook example PolySync, a company that offers an IoT platform to test autonomous vehicle systems, monetizes via a subscription model. Their model consist on the possibility to start a free, 30-day trial, where you can use all their functionalities, when the trial is over, you may choose a subscription based model.
- Subscription model example HP Instant Ink uses IoT to offer replacement services plans. Their plans include automatic ink replacements, shipping, and cartridge recycling. Monthly plans are based on pages printed, not cartridges used. HP also offers to change or cancel your plan online anytime. Bait & hook example PolySync, a company that offers an IoT platform to test autonomous vehicle systems, monetizes via a subscription model. Their model consist on the possibility to start a free, 30-day trial, where you can use all their functionalities, when the trial is over, you may choose a subscription based model.
- Outcome-based example Some insurance companies are changing their charging models to usage-based or driving behaviour discounts, where your rate is based on how safe you drive. There are two popular business models Pay as you drive (PAYD) and pay how you drive (PHYD) On both models, driving information can be accessed online allowing customers to see & monitor their driving patterns and make needed adjustments to improve their chances for better discounts. Asset-Sharing example Around 2003, Amazon realized they were not only good at retail, they had also become quite good at running IT infrastructure services, they had become highly skilled at running reliable, scalable, cost-effective data centres out of need. Eventually Amazon decided to provide infrastructure services to third-party customers, and the rest is history.
- Outcome-based example Some insurance companies are changing their charging models to usage-based or driving behaviour discounts, where your rate is based on how safe you drive. There are two popular business models Pay as you drive (PAYD) and pay how you drive (PHYD) On both models, driving information can be accessed online allowing customers to see & monitor their driving patterns and make needed adjustments to improve their chances for better discounts. Asset-Sharing example Around 2003, Amazon realized they were not only good at retail, they had also become quite good at running IT infrastructure services, they had become highly skilled at running reliable, scalable, cost-effective data centres out of need. Eventually Amazon decided to provide infrastructure services to third-party customers, and the rest is history.
- Data driven example The jewellery store chain, Alex and Ani, have rolled out Bluetooth sensors to their stores that can track traffic numbers in their stores. It tracks customers movements within the store, similar to a heat map, allowing the company to better organize and display its products. It also pushes specialized /customized, offers to users' phones as they enter the store. Service Offering example Volvo trucks, who has deployed a predictive analytics platform that monitors the truck's usage and the current status of the vehicle's various key components, so to plan maintenance better and also to predict component failure while truck is on the road, lowering the diagnosis and repair time of its customers.
- Data driven example The jewellery store chain, Alex and Ani, have rolled out Bluetooth sensors to their stores that can track traffic numbers in their stores. It tracks customers movements within the store, similar to a heat map, allowing the company to better organize and display its products. It also pushes specialized /customized, offers to users' phones as they enter the store. Service Offering example Volvo trucks, who has deployed a predictive analytics platform that monitors the truck's usage and the current status of the vehicle's various key components, so to plan maintenance better and also to predict component failure while truck is on the road, lowering the diagnosis and repair time of its customers.