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: