The IoT Business Model in the telecom industry
The Internet of Things (IoT) is going to represent a lot of changes in the business model of the telecommunications operator. To take advantage of new IOT-based services, like cloud services, smart cities, interconnected devices and business intelligence, telecom companies will need to fundamentally rethink their ideas about value generation and create different value chains for the telecom industry.
Value creation involves activities that increase the value of a company’s offering, encourages the customer’s willingness to pay, and increases the lifetime of that value. As a consequence, value creation means identifying enduring customer needs and softwarizing well-engineered solutions over the telecom network.
During the 90´s the competition in telecommunications was largely feature versus feature. When feature innovation eventually proved to be essential for providing services, price competition ensued, and services became commodities. It was the moment when OTT content providers became the biggest competitors of the telecom operators, and the industry began to be defined by companies such Google, Uber, Netflix and Skype.
In a connected world, telecommunications services are no longer one-and-done. Thanks to over the air updates, new features and functionality can be pushed to the customer on a regular basis. The ability to launch new services understanding customer behavior using the information that the operator can generate with its own services, such CDRs (call detail records), social media information, and others, are going to keep this stream of services running.
Digital innovations are a key enabler for meeting the objectives of the operator in the new economy and the era of Internet of Things can generate important and innovative changes in the following areas:
🔹 New services: Driven by the development of the Internet of Things, the further integration all types of machine and artefacts offers a wide range of opportunities for growth and can create a new business ecosystem supported by start-ups, integrator and consultant companies. This can help the operator offer new services in different sectors of the economy and also include the development of markets like the connected car, smart home and smart city appliances.
🔹 Telecommunication processes: the full integration of simulation and data analytics in processes and supply chains are bringing substantial gains in productivity and resource efficiency over the full cycle from service design to lifecycle management.
🔹 Business models: by redefining the value chains in different sectors, e.g. Smart connected services, customers adopt new roles and behavior such as ownership, co-creation, and sharing (the apps economy). The impact of adding these to the services portfolio can considerably increase the operator’s revenues.
IoT technologies are key enablers of the digital market, which will have a potentially significant impact on the growth of the telecommunications business, along with providing opportunities for IoT stakeholders in deployment and commercialization. Combining digital transformation and virtual technology with physical objects requires collaboration and cooperation between partners from different industrial sectors and domains, and also the co-creation of services with the customer.
IoT’s disruptive nature requires the assessment of the requirements for future deployment across the digital value chain in various industries and applications, considering even better exchange of data, the use of standardized interfaces, network virtualization, interoperability, security, privacy, safety, trust that will generate transparency, and more integration in all areas of the Internet
Also, IoT will probably generate even more data that can be processed and analyzed, and the IoT applications will require new business models and product-service combinations to address and tackle the challenges in the digital market.
With all these elements, the challenge of the IoT ecosystem is how to create value for individuals or businesses: Individuals can perceive value as something “improving” their life, generating emotions and bringing them new user experiences. Businesses perceive value by ROI (return on investment), that is translated in saving company money directly, either by lowering costs, or indirectly, by improving efficiency of existing resources.
In order to define the new business models, there is a need to address the IoT challenges for adoption. In this context, the challenges that are focusing on platform, developer community, business ecosystem for the formation of IoT-based ecosystem business models, come in addition to the challenges identified in:
🔸 Device Providers: They capture an important part of the value generation by developing hardware, software and services based on the IoT model, e.g. Ford, GM and BMW no longer just making vehicles and focusing on innovative solutions for global mobility.
🔸 Operators: The operators are very critical as they provide the connectivity and have had a head start over others with M2M. The operators need to take the leading role in any IoT partnership/alliance. For that they must generate a complete ecosystem supported by different partners once they go to market.
IoT will drive greater data usage and it needs to be used for business proposal and it is due to commoditization, connectivity itself in a non value-added component for value generation. The risk of operators being reduced to just the pipe to the cloud is very real. For the operator it is necessary to adopt important changes like transforming its network into an “open network” or open platform.
🔸 Platform Providers: Platform is the heart of IoT and brings together the hardware, connectivity, service and the vertical applications to provide specific IoT solutions. Most of the bigger telecom operators such as AT&T and Verizon, are eyeing to become platform providers, but their success depends on their ability to generate innovation, build alliances and develop partnerships towards this common goal.
The perfect combination is a platform capable of interconnected device management and offer cloud based storage, analytics, data visualization, and the ability to integrate different systems via API to be able to take advantage of legacy systems as well as a wide variety of other IoT hardware and software.
🔸 Application Providers: The startup companies supporting the operator providing different services and solutions for customer operator.
As the IoT ecosystem continues to expand, companies are reinventing their identities and transforming themselves.
How to be innovative designing solution and services will determine the future of the operator