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Testing the boundaries of the IoT business model

This article was co-authored with Brian Salisbury, vice president of product management at Comtech Telecommunications.

There has been no shortage of predictions regarding how far and wide the internet of things ecosystem will extend in the future. The business opportunities appear to be boundless — new devices, platforms, components, services, etc. Yet, what about the business value of those opportunities? How many IoT solutions or components will fail because the business case has not been thoroughly vetted?

Consider the example of sensors and other chips used in IoT “things” and devices. With unprecedented consolidation ongoing in today’s silicon industry, and the costs of upgrading to the latest technology ranging into the millions of dollars, it’s increasingly difficult for semiconductor companies to capitalize on technology advancements. With razor-thin margins, chip suppliers rely on quantity to make up their profits. This begs the question: How does an innovative startup scale in this environment?

Traditionally, the chip industry’s return on investment has focused on costs. As the enterprise software market is reinvented, the silicon business model will need to change as well.

Differentiate or die

Let’s start with the example of a $0.05 chip designed for an IoT solution. The silicon typically costs $0.01, packaging is $.005 and production costs add another $.005. This means the chip supplier sees a profit of about $0.03 on each chip, with no future revenue from a one-time sale. In this legacy environment, products are differentiated through cost, power consumption and feature richness, in that order.

But why does all the functionality have to reside on silicon? After all, what is the purpose of the silicon itself in a cloud-enabled world? The silicon is purely an observer and manager of the environment with no decision-making role. In our data-driven world, accessibility to large, dynamic databases is critical for decision-making, so decisions are being shifted from the silicon level to the cloud. What if 90% of the functionality is offloaded to the cloud? Instead of the initial chip sale being profitable, what if the party who deploys the IoT device pays the vendor $0.005 for every intelligent transaction it enables?

Many IoT applications — such as automated meter reading and vehicle telematics — have a business model wherein the module remains in service for at least a decade. If the module uses the chipset vendor’s service 10 times per day, it would generate $0.1825 in revenue annually. So in the first year alone, the chipset vendor already makes far more than the $0.03 profit it would have earned under the traditional business model. Assuming a reasonable operating life of five years, we are close to $0.90 in revenue on a cost of goods of $0.02.

This is one example of how we can adopt the software-as-a-service business model for new revenue-generating capability with IoT: call it silicon as a service. This has the effect of ensuring low-cost, low-power, feature-rich silicon in a business model that makes good business sense.

New revenue opportunities

Leveraging the power of IoT, enterprises have a range of new opportunities to gain business insights and improve business processes, as well as enhance and differentiate products and services. The true business value of IoT lies in three areas of differentiation:

  1. Analysis of connected data enables manufacturing processes, business decisions and product design to be improved;
  2. IoT products and services deliver a competitive advantage to drive revenue growth; and
  3. Connected products help improve service levels and reduce costs.

A particularly interesting new IoT business model is a service platform of location-based services tools. As IoT proliferates, you would never want your IoT data to be without a timestamp. But you should never have data without a location stamp either — not only “when” the data was collected but also “where”– for maximum analytical value.

Such technology solutions can provide multisensor hybrid positioning and assistance data services for a variety of IoT applications. The key to this IoT use case is precise location identification. Developed specifically to support the needs of low-energy devices and multinetwork communications, these solutions deliver telco-grade performance in an over-the-top architecture, offering precise, seamless indoor/outdoor location determination across a wide variety of devices and applications cost-effectively.

There are a number of applications where location is a key feature, including:

  • Asset tracking
  • Smart city planning, such as traffic/parking management and infrastructure
  • Connected home applications like security, lighting and temperature control
  • Industrial applications ranging from hospital patient monitoring to warehouse optimization

Working across multiple platforms in multiple configurations, this technology opens up new opportunities in location-centric services, while taking advantage of the cloud and lowering positioning costs. Advantages of a location services platform include the ability to use a range of available signals for positioning, improved power, memory and bandwidth efficiency, and hardware and operating system independence.

Delivering location-based intelligence in a cost-effective manner is a disruptive approach to the IoT business model. To ensure that the business model is all that is disrupted, don’t forget that new IoT use cases such as a location-based services tools platform still require rigorous end-to-end testing of components, algorithms, connectivity and location positioning. Because after you’ve deployed a new IoT solution is a bad time to find out it doesn’t work!

All IoT Agenda network contributors are responsible for the content and accuracy of their posts. Opinions are of the writers and do not necessarily convey the thoughts of IoT Agenda.

This article was co-written by Brian Salisbury. Salisbury is vice president of product management for Comtech Telecommunications, a leading provider of mission-critical wireless communications solutions including the Location Studio IoT Location Platform (ILP). He is responsible for a range of location based services applications and the associated technology platform, which is used by mobile network operators, handset manufacturers and automotive companies.

Salisbury has more than 30 years of experience in the wireless industry, with emphasis on mobile data and location based services. He has worked in many parts of the ecosystem, from semiconductor and device manufacturers, to software solutions and mobile network operators.

Having lived and worked in Silicon Valley since 1993, Salisbury has been actively involved in the evolution of connected solutions leading up to the present Internet of Things. He holds a Bachelor of Applied Science (BASc) degree in Electrical Engineering from the University of Waterloo in Ontario Canada.