How the Internet of Things will evolve business models.

At a recent Hardwired NYC meet-up, Tim Chang a partner at Silicon Valley venture capital firm Mayfield, shared where he sees opportunity in the emerging tech company sector: The Device-as-Service business model.

Tim observed “Assume everything in your life will become cloud connected, the nest-tification of things in your life, like night lights and thermostats.” He continued “There will be beautiful, smarter versions of existing devices that will be connected to the cloud, with services so compelling people will be willing to subscribe just to access them, on devices that might even be given away in some cases."

There is a logical link here in what Tim was saying to The Internet of Things (IoT) and his idea seems compelling, if not more than a little out there. It warranted further investigation.

For many years the traditional manufacturing-driven business model reigned supreme. Service after a sale was viewed as an afterthought, of secondary importance for most businesses from a strategic and revenue generation standpoint. 

28 billions reasons to make money.

This conventional view is being upended by the the rapid growth of IoT. For example Goldman Sachs is estimating that over 28 billion "things"  may be connected to the Internet by 2020, ranging from wearable bracelets to cars and even your dog. That number will be more than triple the projected global population in 15 years. 

In “IOT: Making sense of the next mega-trend” Goldman does a great job of giving dimension to the IOT sector. From the early IOT success stories like fitness trackers and thermostats, to the five early verticals of adoption, and IOT building blocks including “enablers” (Wi-Fi sensors) “platforms” (software apps for managing communications between devices, middle-ware, storage and data analytics) to “industrials” (B2C: home automation. B2B: factory floor optimization). 

Tim Chang of Mayfield.

Chang went on to observe that moving forward there could be products so dependent on a service layer that they’d be useless without it. People will be willing to pay for the service, more so than the hardware. He posed: “Is there an emotional connection made through the service layer?” and “Can it be made to be part of the work flow of the user’s life?”

One of Mayfield's portfolio companies is OUYA - a micro-console gaming manufacturer that runs on its own version of the Android OS. OUYA targets people who love to play and make games.  

"The offering is useless without the community,

game store and marketplace" according to Chang. Each OUYA console empowers the user to also be a developer. The revenue tail comes in the form of users purchasing game credits. 

The overall ability to couple products with a wide variety of after market services is emerging as a requirement to stay ahead in business, as well as a fertile ground for innovation. 

Consider AT&T’s “Connected Car” Service. It uses the Audiovox car connection device for $100 that plugs into most cars made after 1996 and sends real time wireless updates to smart phones, tablets and PCs. Then there are the added monthly subscription fees of $10 month for mobile share, and another $10 month for data. 

The "connected car" allows the owner to track the car location, and get walking to directions to where it is parked. It also automatically sends notices for maintenance issues and safety alerts for excessive speeding, and towed or stolen vehicles. It can produce “driver scores” for feedback on driving habits that could be improved. An additional smart phone app is available to discourage or block use of a mobile phone while the vehicle is being driven. Both are suitable for parents who want to remotely manage teen drivers. It can even be used to start the car remotely, just like in a James Bond movie. 

M2M (machine-to-machine) applications are mostly growing in the B2B context, such as equipment manufacturers developing remote services and support tied closely to their equipment and service contracts. Customer support and automation are the key benefits.

Making the dip-stick obsolete.

 ATEK Access Technologies, uses IoT generated data for the oil and gas industry to create a profit-generating service.The technology company uses the IoT to “service-ize” their business in a move that has differentiated them from the entire industry. 

From her office in Eden Prairie, Minnesota, Sherri McDaniel, President of ATEK, can see all of the company’s tank monitoring 
devices with a cloud interface.  

“Look, here are eight devices at
 one site in Nebraska,” she said. 
Sherri pointed to a icon on the screen that represented all the 
locations on a Tank Scan® monitor.

Sherri McDaniel of ATEK

Tank Scan® eliminates
the need for physical inspection of tanks holding liquids in terms of measuring fluid levels. The device in the tank measures fill 
levels from a sensor and sends the data to a gateway, which 
aggregates data from up to 20 tanks, and transmits that 
information to the cloud. 

As Goldman Sachs observed, “The Internet of Things will create new winners and leave in its wake a host of losers based on companies’ abilities to adapt to a world where things are connected.” 

The end benefits of all these connected IoT devices will:

· Help make lives easier (think: turn on the heat before you get home)

· Improve efficiency (think: turn on the washing machine when electricity usage and prices drop in the middle of the night)

· Anticipate the need for services (think full-body health monitors or car care diagnostics) 

At the end of his talk Tim Chang pondered the possibility of an IOT toilet. I did a little research, and in fact it is already in the works. 

This might give a whole new meaning to using “data exhaust” …to feed the “Potty Logger” spread sheet.

At least it might make the "toilet experience" smoother, for people who have the time to worry about such things. All kidding aside, the smart business bet is on the future of IoT.