The business of IoT – how companies make money from connected things and the risks involved

28 March 2014

Roberto Camilli, Dr. Henriette Picot

The Internet of Things (IoT) has been promoted as the "New Industrial Revolution" promising to revolutionise business, shape new industries, and facilitate and improve our day-to-day lives.

Consumers are starting to see new applications and services being delivered that are “life-enhancing” or time/cost saving, offering more control from any location via their smart devices. However industry and governments are also using IoT to deliver efficiencies, savings, new revenues.

Looking beyond the enthusiasm and high expectations raised by new technology developments, it is important to start focusing on how the IoT revolution can be transformed into a real business opportunity.

Organisations which range from established "blue chip" IT companies through to innovative start-ups are starting to introduce new business ideas which will exploit the significant economic potential that can be derived from the new interconnected world; where everyday objects and infrastructure connects to the internet and is able to communicate or convey useful information and data.

Despite a certain tendency towards consolidation (for example the acquisition of the IoT start-up Nest by Google) the introduction of original projects, concepts and applications continues.  New players are increasingly operating directly or in partnership with established organisations from more traditional industries, including manufacturing, automotive, aviation, logistics or transport.

There is huge potential in connecting industrial, agricultural and automotive products, which the upcoming generation of entrepreneurs are seeking to utilise and exploit. The Information Technology and Communications sectors will find enormous benefit from this evolution, and all operators, including communications providers, will have to adapt to the new challenges these pose and opportunities they bring.

What is already clear is that the real value will not be found in the actual IoT devices, sensors and components, but in the related services, most importantly the management and analysis of the massive flow of personal and machine "Big Data" that will come from these connected devices.

Inevitably, the cost of IoT devices and the enabling technology will fall. While the equipment is likely to become a commodity, the ability to provide added value connected services will justify higher fees and is therefore likely to become the more lucrative part of the business.

However it will not be easy to identify the right value chain and create the right services that can really add value and transform the world as we know it, rendering repetitive functions automatic, and obtaining the right information from a connected environment in a lucrative way. Data management and data analytics will be the key to value added services, services that connect devices or that use connected devices in new and interesting ways.

Systems reflecting the applicable legal framework will need to be created. In particular, data protection concerns will have to be addressed in the development process, taking into account the concept of "Privacy by Design".

The appropriate contractual framework, including automated contracting, will have to be carefully developed and considered during the initial development phases of new connected services. Likewise,cyber-security safeguards will have to be addressed at an early stage and updated on a constant basis in order to render the IOT environment safe and reliable.

Since most new IoT businesses are established before a proper regulatory framework has been put in place, they will almost inevitably have to explore “grey” areas in the existing regulatory environment and take the related legal risks. A sound technical as well as legal analysis and backing of new business models will be indispensable in this situation. Next to studying the existing regulatory framework, however, new IoT players will have to proactively participate in the development and adoption of technical standards which allow interoperability and connectivity.

As such, the key to success in the technology “horizontals” is likely to come from scale and the ability to build national and international platforms, whereas agility and innovation (leading to high margins for specialists) will be crucial to succeed in the “vertical” applications (e.g. in healthcare, energy, aviation).

IoT business opportunities