The IoT is propelling business model transformation in manufacturing, automotive, finance and insurance
Civilisation as we know it is only about 6,000 years old, and the last few centuries have seen an explosion of scientific and technological innovations in relatively little time. The 1800s triggered the first technological revolution with mass manufacturing – factories replaced handlooms with power looms, machines soon replaced people – changing society (working women and children, mass-urbanisation) and the way business (the banking and credit system) was done.
150 years later came the second revolution – when ARPANet, a military safety net – transformed into the civilian internet. Access to information combined with global supply and demand reshaped established conventions and destroyed old world orders. And after less than two decades, we are now experiencing the third revolution – the Internet of Things…
Data, data, data
Today, a ‘digital highway’ has become what water was to early civilisations. Evolutions in the field of connected technologies which commenced with networked computers have now brought us beyond just connected machines, encompassing any physical ‘thing’ and the Internet of Things revolution.
The data this provides – and our ability to analyse it in real time – opens up a plethora of technological opportunities, leading to the development of new services and business models. IoT has given industries the power to meet the demanding need of consumers for instant and personalised services with the creation of a ‘connected product’ wrapped with customer centric services.
This article highlights how IoT is enabling new services and business models, transforming traditional industries with examples from the public domain.
GE and HP champion Product-as-a-Service
Manufacturing companies like General Electric (GE) and HP are already selling their physical products on a Product-as-a-Service (PaaS) model by packaging data and digital solutions around their core offering.
GE introduced Predix in 2013, an IoT analytics platform for managing data produced by industrial machines. Today, the company powers its business with technology, driving improved service delivery and business model transformation in every sector it operates in. As an example, GE jet engines are now priced for some thousands of dollars per operating hour, rather than being sold for a one-time cost of $20-30m. The airline pays only when the plane is flying, and enjoys services that include predictive, condition-based maintenance, fuel consumption analysis, outage management, and more. Another added benefit is the transformation of a large fixed cost into variable cost and reduced downtime. The airline has more available flying hours from the aircraft, which means more business and more revenue.
HP similarly used IoT to transform its ink business into ‘Instant Ink’ – the Ink Replacement Service. This PaaS model operates via internet connected printers, which monitor ink levels and trigger the automatic delivery of new supplies to the customer before their ink runs out. The service starts when the subscriber inserts their first HP Instant Ink cartridge to the IoT-enabled printer, and is already available in the US and more than 14 countries in Europe.
From automobile manufacturing to connected mobility
Historically in manufacturing, automotive companies have been one of the biggest patrons of analytics. An average automobile contains 25,000 plus components, with base parts, subsystems and sub-assemblies. The finished product is fundamentally inter-related, hierarchical, and highly complex, making data difficult to represent accurately.
Today, sensors are used in vehicles to monitor everything from raindrops on the windscreen to reminding us when it’s time for an oil change… In short, they record and monitor the performance and behaviour of critical automobile systems. And the benefits of this technology do not stop there, with IoT transforming the whole automobile ecosystem itself.
Progressive Original Equipment Manufacturers (OEMs) have developed and evolved relationships in the automotive ecosystem by having informed conversations with their customers, dealers and suppliers using IoT. They are ahead of the curve with the ability to deliver new, innovative value-added services, such as infotainment, user-based insurance and even financing, which never existed before.
In the North American region, Volkswagen recently announced the formation of Ventic LLC, a joint venture with its technology partner to launch its next generation of in-car internet (Car-Net). Similarly, MG Motor India announced its partnership with Cisco IoT and Unlimit to develop connected-mobility enabled vehicles.
Embedded telematics offers cost-saving and convenience
Fleet operators, including companies that offer taxi services such as Uber and Ola; on-demand services like Zipcar; car rental companies like Hertz, and even commercial enterprises such as FedEx are focusing more on connected cars because telematics data can help improve passenger safety, keep assets well maintained, avoid accidents, improve route-planning, and optimise supply chain logistics, among many other benefits.
In fact, according to EY, 88 per cent of all new cars in 2025 will feature embedded telematics. Innovative insurance companies have already started promoting their usage-based insurance (UBI) programmes which are based on pay-per-mile, pay-as-you-go or pay-as-you-drive, powered by IoT. It’s a great option for safe drivers or customers who drive less to save on insurance premiums, with the usage-based automotive insurance market projected to reach $126bn by 2027 (up from $24bn in 2019).
As well as saving existing customers money, IoT can help automotive companies to tap into new markets. Most auto financing companies struggle to service a huge segment of drivers made up of people with no credit history. IoT can help identify under-performing assets before they default by keeping track of vehicle usage, and use vehicle location to expedite repossession and immobilisation in the case of repeated defaults.
This is helping many auto-finance companies in gaining the security they need to finance individual drivers or fleets of vehicles to the underserved market. Recently, Aeon Credit Service India announced that its new financing services for commercial vehicles are now equipped with IoT devices. By using IoT for predictive and not reactive credit risk management, the company aims to create economic rationality and build a sustainable business model which will help to resolve social issues such as unemployment.
IoT will continue to disrupt traditional business models by facilitating management boards to make business decisions based on data, particularly as the rise of the machines continues. Progressive companies have already started to monetise the entire supply chain and will win big by creating the right customer experience and edging out the competition with the right mix of products and services.