GlobalSign Blog

02 Dec 2016

Enabling the Outcome Economy in the IoT

We are finally at the stage where we’ve moved on from answering the question: ‘What is IoT?’ and the subsequent question: ‘What can we do with IoT?’ to attempting to respond to the question: ‘What are the real business outcomes in IoT?’

A frequently discussed concept when we talk about monetization of IoT over the past few years is the emergence of the 'Outcome Economy'.

The Outcome Economy represents a shift from competing by simply selling features and benefits of products and services, to competing by selling measurable results relevant to the customer. Buyers are looking to buy an outcome and the sellers are not just selling a promise of an outcome, but are rewarded by quantified real-world results.

An often cited example of a successful early adopter of this approach is Rolls-Royce. Rolls-Royce has made the full transformation from selling engines as a product combined with a reactive service agreement, to an entire outcome-based commercial model.

Rolls-Royce utilizes a suite of predictive maintenance and repair services that monitor engine health and can modify engine's configuration to increase durability.

Their TotalCare® service offering rewards reliability.  Customers, such as Boeing and Airbus have a business model with Rolls-Royce based on a $/engine flying hour basis.  Rolls-Royce takes the entire cost of time-on-wing and shop visits and makes reliability and time-on-wing a profit driver, for both the customer and Rolls-Royce.

Rolls-Royce is a great example of how a typical product-based business model has transformed successfully to an outcome-based business model by applying IoT principles. Further information on this Outcome Economy business model can be found at Rolls-Royce's website.

Today, most product companies sell against features, quality or cost. In a new Outcome Economy, they can compete on their ability to deliver quantifiable business value that matters to their customers, and receive compensation by proving this financial return on investment.

The Role of the Outcome Economy in the IoT

So how will this work?

A vendor, selling against a model based upon achieving a financial goal must ensure they:

  • Have greater visibility into the product or service's use case
  • Can quantify results in real time
  • Make the required adjustments to ensure the meeting of these goals

Within advanced IoT systems, many connected sensors allow the physical world to be quantified and measured. With the use of sophisticated data analytics, systems can be adjusted in real-time to ensure the achievement of the necessary business results throughout the product or project lifecycle. These IoT principles enable the Outcome Economy.

IoT-enabled business models allow the transition from selling a product as a one-off purchase to being able to provide the product as a service aligned to business objectives. The manufacturer must take on the risk of the product performing to the financial requirements.

Therefore, organizations who are wishing to take advantage of the disruptive potential of IoT need to quickly understand how it is transforming their industry, how they will shift to an outcome-based business model, and ultimately how they will re-write their business strategy.

Data is the New Currency of the IoT

If you follow IoT in the press, you’ve no doubt heard the phrase ‘data is the new currency of the IoT’ many times! In fact, many companies are now tracking data as an asset on their balance sheet.

However, data is not just a currency for corporates. As a consumer of IoT technology, it is also your currency with which you can bargain.

A useful analogy is how we consume social media platforms today. Over time, users of social networks have become accustomed to consuming services for no cost. But they are not free. We’ve been giving social networks, such as Facebook, LinkedIn and Twitter, our data - which they monetize. Consumer usage data is the cost to use these systems.

A simple example of monetizing the data from a product is found in an innovative bicycle light that contains many sensors, including location and vibration. This sensor data, when collected from many users, helps build a picture of potholes and road wear which are sold to local authorities who will use it to manage road repair priorities.

Adoption and widespread use of the lights are essential, so their business plan sees them giving the light away for free to get thousands of users. The benefit to the cyclist is that they get an innovative bicycle light that also warns them of danger spots and potholes at no cost. The only requirement is the need to maintain the connectivity and send the data back. If they don't, the light ceases to function.

The above is a very simple example, but a good one that shows how products that we pay for today as consumers will soon be given away for free if we consent to give away our data.

Data is only Valuable if it is Trusted Data

The IoT is massively disrupting business models in how consumers pay for devices or services. Device manufacturers and service providers will need to learn how to build new business models that deliver sustainable business value based upon measured customer outcomes.

However, the new business models of the Outcome Economy fall apart completely if the sources of data cannot be trusted. So vendors and users alike have to ensure devices and sensors that are collecting real-world data are highly secured and trusted.  Security cannot be an afterthought or treated as a commodity. Knowing you can trust your data has measurable business value in itself.

I’ll be diving into this topic in my next post, so stay tuned for tips and strategies on ensuring trustworthy, reliable data in IoT environments.

Want to know more about how the IoT is changing how businesses operate? Check out our post The Challenges and Opportunities with the Internet of Things or visit our solutions page.

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