Justifying connected things –  Business models


How come so many Internet of Things (IoT) ventures fail? 

According to data from McKinsey, about 75% of IoT-based businesses don’t make it off the ground. That’s very significant indeed, especially considering all the hype that the technology has received over the past decade. 

Is it because the scope for object connectivity is more limited than we first thought, or is it that companies are jumping into the market with business models that are unsuitable for IoT and don’t maximise the opportunities it offers? 

This latter suggestion wouldn’t be unheard of amongst early adopters for any new technology — but is a particular hurdle in the IoT space which is such a significant shift away from the status quo. Below, we’ll take a look at why this ‘new tech old business model’ is stymying IoT development and explore some solutions that move away from this. 

What are IoT companies doing wrong currently? 

One of the major pain points IoT companies come up against is trying to impose a hardware-based business model onto a technology that centres around connectivity and service provision.

This hardware-centric approach focuses, much like manufacturing has always done until recently, on the traditional design-build-sell process.

The issue with this is that for an IoT business to succeed, it needs to provide continuous value for consumers. The product itself is just the start — companies need to plan for networks on which their products operate as well as service platforms which collect and manage data. The margins here are less clear-cut and, given how young a technology IoT really is, there’s not a huge pool of knowledge on how to do this. 

In other words, it’s easy enough for IoT companies to build something that works, but much more difficult to predict, forecast and follow through with making it profitable. 

Why do connected business models work best for IoT companies?

IoT works at its best when it provides continuous value for customers — and this is achieved through the platforms and networks that allow people to process the data your physical product provides. 

In this sense, the connectivity of the product is as important as the product itself. Business plans which centre this, rather than being explicitly product-focused, are more likely to support the continuous costs associated with IoT technology.

In terms of what this looks like on a practical level, connected business plans should consider: 


One simple way to set up your business for the ongoing costs you’ll face as an IoT company is to use a subscription-based model for payments. 

The good news is that companies are increasingly used to paying for key technologies on a subscription basis thanks to the recent SaaS boom. Key to IoT companies success is transferring this concept onto what people view as a physical product. 

Facilitation of pilot projects

As well as being relatively new as a technology, IoT solutions can take a little while to realise a positive ROI — the nature of the tech means that you’re in it for the long game. 

This means that helping customers set up pilot projects should be central to all connected business plans. Accompanying customers on the first stage of their journey with advice on getting the most of the data they produce could help along an investment that they’d otherwise be hesitant to make. 

Circular, not linear

One of IoT’s biggest appeal points is that it can help companies shift to what we call the ‘circular economy’. This reimagines the traditional product lifecycle (buy, use, dispose, replace) into something much more sustainable. 

The circular economy centres reuse, maintenance and recycling to create a system in which products last longer, less waste is produced and fewer raw materials are needed. As more companies look to a sustainable future, connected IoT products, their ability to self regulate, and potential to assist with key maintenance tasks look to play an increasingly important role.

Look towards the future with your IoT business plan and consider how your product could fit into such a system. 

What connected IoT business models are out there and how do they work? 

The good news is that despite these teething problems, IoT looks set to stick around. 

We can predict this because, despite the issues experienced by many ventures at the moment, there are a number of proven connected business models out there right now which companies use very successfully. 

The most successful of these business models include: 

  • Compliance monitoring: compliance is a huge expense for manufacturers (each year US manufacturers spend an estimated $192 billion on it). Using a connected device to monitor key compliance metrics like emissions is cheaper and more efficient than having someone come to check every quarter — and more transparent too.  
  • Predictive maintenance: we all understand the delays, frustration and losses that broken equipment can cause, even on a small scale. Devices that monitor activity levels, stress and other key metrics can issue automated alerts when they start to underperform, so that supplier technicians can fix the issue before it becomes any bigger. 
  • Remote diagnostics: you can now automate condition monitoring and optimising using smart sensors. Examples here include warehouse temperatures for perishable goods and soil conditions for plants. 
  • Asset tracking: microcontrollers connected to mobile internet can track and monitor an asset from anywhere on Earth. This is an unprecedented level of transparency, and is particularly useful for supply chains looking to reduce loss and theft and improve fleet efficiency and demand forecasting. 
  • Automatic fulfillment: smart devices can be programmed to order certain products automatically when they run out. See the Amazon Dash and ‘smart’ devices (like fridges and dishwashers currently making waves in the consumer space). 

A few final thoughts…

Estimates suggest that the IoT has a potential economic impact of between $3.9 and $11.1 trillion by the year 2025. To realise that, many IoT ventures will need to rethink how they structure their business. 

IoT products are physical products, so to many it would seem entirely natural to treat them as you would other consumer or commercial electronics. Yet because of the nature of these devices and how central the ‘service’ side of them is to customer success, a hardware-based business model will yield limited results in the long term.  

Instead companies should look to centre connectivity in their IoT business models. Ultimately, the appeal of IoT technology is the continuous value it delivers to customers, and business models that capitalise on this will bring the most success.