The importance of IoT has led to the birth of many startups that want to participate in the Internet of Things market with different devices and services. There are entrepreneurs looking forward to launching new businesses in the IoT area, and that’s why we wanted to write this article with the top IoT business models in the market.
What is a Business Model?
Before delving into the different IoT business models, it is essential to understand what a business model is. A business model is a framework that outlines how a company creates, delivers, and captures value. It includes the company’s products or services, target customers, revenue streams, and cost structure.
This means that if you want to start an IoT business, you need to figure out what is the best IoT business model for you.
Different IoT Business Models
These are some of the best IoT business models that can help a startup to build a new company around IoT devices or services.
1. Product-based Business Model
In a product-based IoT business model, companies manufacture and sell IoT devices. These devices can range from smart home appliances to wearable fitness trackers.
The revenue is generated from the sale of devices and after-sales services such as maintenance and repairs. The advantage of this model is that companies can create unique and customized devices for different target markets.
However, there is a disadvantage for this IoT business model, it is that companies must constantly innovate to keep up with changing customer needs and preferences.
An IoT business model example here can be the smartwatches, they are manufactured by many different companies such as Apple, Xiaomi, Samsung, among others. Each company sells products with different components, IoT sensors, features, and added value.
And these companies need to release new models every year, since they want to keep being competitive in the market, that’s why they are always working on:
On the other hand, they need to be constantly updating IoT devices, not only the physical design, but also the firmware or software of the product.
2. Service-based Business Model
In a service-based IoT business model, companies provide IoT-related services such as cloud computing, data analytics, and security. The revenue is generated through subscriptions and service fees.
The advantage of this business model in IoT is that companies can create long-term relationships with customers and generate recurring revenue. However, the disadvantage is that the market is highly competitive, and companies must constantly innovate to stay ahead.
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3. Data driven model
The data driven model is born because of tons of data generated by IoT devices. Remember that IoT products have the capability to collect and transmit data to the cloud or a platform. That’s why IoT analytics has become so important these days.
The generated data can be used for other products or sold to third parties. An IoT business model example here can be companies that collect data from energy consumption. They can sell such information to utility companies, and they can offer dynamic prices to the people that use less energy at peak hours, or simply offer new IoT devices that contribute to energy efficiency.
Delivery apps have used this model to generate revenue by selling the data they collect to the restaurants that are affiliated to them. Then, with such information, they have opened “hidden kitchens”. This is a strategy for delivering their products faster to specific zones of the city where data has been collected and proved there is high demand for their services.
4. Pay-per-usage model
This business model for IoT products may sound weird, however, many companies have managed to make a profit from the time an IoT device is being used.
This is common with devices that may be too expensive, or that are used in airplanes or cars, and customers aren’t willing to pay a price for it. So, the secret here is to charge the customers based on the amount of time it needs to be operated.
And the company gets insights from the data generated by the IoT devices.
5. Hybrid Business Model
A hybrid IoT business model combines both product and service-based models. Companies manufacture and sell IoT devices while also providing related services.
Then, the revenue is generated from the sale of devices and services. The advantage of this model is that companies can create a more comprehensive and personalized customer experience. However, the disadvantage is that the company must manage both product and service-related operations.
6. Platform based model
This is a platform where customers and clients can interact to exchange products and services. There are some examples like Facebook, Uber, app stores, AirBnB, among others.
The implementation of this IoT business model requires to guarantee integration and interoperability. Think how you could facilitate the interaction between different parties through your platform model, and at the same time ensure low transaction costs.
7. Asset-tracking model
Thanks to the growth of retailers, and logistics companies, there has been an increasing necessity in tracking assets, fleets, and ensuring the optimal performance of the drivers (See IoT fleet tracking system).
This is where a new business model in IoT shows up, that is, asset tracking. Several companies are building IoT tracking devices to help these retailers and other businesses to protect their assets and know where they are located in real time.
Also, the gathered information serves as a way to improve operational processes, improve supply chain services, and to do preventive maintenance on the vehicles before the engines fail.
This IoT business model can be complemented with a custom platform that the customer can pay for in order to get all data in one single place.
8. Service-adjacent model
To explain it in simple terms, imagine a company that creates and offers a service that benefits from a specific IoT device, but they don’t make or sell the device.
Let’s say there is an IoT sensor that can monitor air quality in houses. And you figure out a way to create a service or platform that relies on that sensor, and you provide high added value to customers that receive data from this device.
The interesting part of this model is that you could establish alliances with the IoT manufacturers, they would make and sell the devices, and you would sell the service that complements the use of such a product.
As you could see in this article, there are many ways to start an IoT business. Analyze the opportunities your IoT device or service may generate in the market, and think of how to diversify your revenue streams. Look for innovative ways to reach potential customers.
Finally, if you are looking for IoT product development services, at DeepSea Developments we can provide you with a great engineering team to achieve the goals you have in mind with your IoT device.