IoT startups have boomed into existence in the past 3-5 years. The multitude of liquidity flowing across the globe has aided the process, and so have the foray of Public and Private Business Accelerators.
If you are developing product ideas in the IoT domain, then the prospects have never looked better. The scene is bullish, and facts support this predicament. Take the acquisition of IoT startup Nest Labs (high-tech thermostats and smoke detectors) by Google that raked in USD 3.2 Billion.
Such events have nurtured interest in the IoT and an increasing number of teams, labs, companies, designers, programmers, entrepreneurs and investors are looking at it as the next best wealth orgy to take a dip in.
Peter Sondergaard, Senior Vice President at Gartner & Global, stated that the incremental revenue generated by the IoT suppliers is estimated to reach $309 Billion per year by 2020.
Consequently, there will be new business opportunities to exploit. Industries leading the charge in IoT include manufacturing (15%), Insurance (11%) and healthcare (15%).
The future of the “Internet of Things” (IoT) is more open than ever for entrepreneurs or startups thinking about getting into the market.
The competition will, however, be stiff. Differentiation will be a key factor in the success of new entrants as companies like GE, Cisco, IBM, oracle, SAP, Apple, Google, Microsoft, Samsung and much more are working on their IoT/M2M strategies.
They will look for market leadership and increased market share. However, such an air of competition is good news for startups and other SMEs looking to enter the scene.
The most important question for entrants is: What approach to follow?
There are two ways entrepreneurs can go about modeling their business:
- Focus on building a vertically integrated product company that offers complete services/products under a unique brand name.
- Concentrate on being an embedded background player that provides high-tech services to established brands.
For our convenience, let’s called the first approach: The Apple Approach
Apple is one the most valuable companies in the world. It has a market cap that exceeds that even of ExxonMobil. Chip companies, screen suppliers and software makers jostle for the company’s business.
Examples of firms that have modeled on the Apple approach include Nest and Fitbit.
Some advantages of this approach are as follows:
- You have complete control over customer experience and relationship
This can help increase revenues and also allows for recurring subscription opportunities.
- You can open up your platform to third parties to facilitate enterprise-level use and thus make the most of the B2B vertical
However, the second approach also has its share of advantages. Ever heard of Micron?
Every time you think about extended flash memory, Micron should pop up because they built it. However, relative anonymity helped them consolidate their business over the course of 20+ years. According to Yahoo, Micron was one of top performing technology stocks in 2013,
Again, for our convenience, let us call the second approach: The Micron Approach
Becoming a facilitator can be more profitable especially when it comes to IoT. The chances of new success are less than the chances of success when you use established brands to integrate your services and benefit from the economies of scale these brands can naturally bring.
The nature of IoT is inherently embedded. Most of the solutions embed into your central console or computer/app environment and facilitate certain operations.
Smart thermostats help you control your room temperature, and irrigation sensors help farmers to provide ideal nutrition to their crops and similarly, all different IoT solutions are inherently embedded, facilitators.
Analyzing both approaches from a Customer Centric Angle
Large industries that have established relations on both sides of the demand and supply equation i.e. with suppliers, as well as buyers, can pose serious challenges to new IoT entrants.
For instance, if you are established restaurant chains, then you must have your own list of verified and trusted suppliers for different cooking equipment like microwave ovens. Now as a new brand, it will be very difficult to upsell your new Internet-enabled variant microwave to you as you already have a supplier.
But imagine, you sell the new ovens to the supplier who then introduces it to already established customers. You will get instant traction!
Most of the IoT services that directly impact consumers will be sold like industrial products. Deals may be struck where B2B channels will lead to millions of end users but only one buyer (the distributing and integrating company).
Factors like price, performance, and tech specs will paly a significant role compared to brand value or brand recall!
The Embedded Approach allows for increased scalability
The nature of the IoT solution you provide critically determines your backend costs and related overheads. For instance, a water dish for pets that sends alerts when it’s empty is relatively easy to design given the right team.
However, designing something like an automated system for insulin pumping that is universally usable is tough. Most startups do not have capabilities to deliver on such scales. Some don’t have the relationships and technical know how to complete such an idea!
Hence, through an embedded model, such overheads can be reduced, finance and team management can be simplified, and ultimately the reach can be expanded to a broader market.
Example of the embedded model success: Google’s Android
Android is clearly a background technology and Google’s masterstroke to offer it as customizable enterprise software to other telecommunication, and mobile companies were undoubted the Micron approach.
By providing the framework to third parties like Motorola, Sony, and Samsung, Android reached a market share that could never be achieved by one single brand!
Ultimately, it depends on your product and how well you peer through the demand and price variables of the market. If your product is something unique that can work independently and offer increased incremental value to the customer, you may follow the Apple approach.
However, the Micron approach is the best-case scenario. This is because most IoT products can be integrated with a central system. Therefore, I would suggest that you follow this approach but after all the due diligence.