Author: Daniele Pinto, MBA, PMP

Daniele Pinto


The “Internet of things” plays a key role in the digital revolution, in fact, many sources (e.g. Forbes) agree to state that by 2020 it will generate a turnover of Hundreds of Billions of Euro in the B2B (Business to Business) segment. A significant slice of this market will be in supply chain and logistic.

A simple system

Recognising what is an IoT device is easy because these smarts objects are already part of our lives. Some examples are:

  • The baby monitor camera you use to watch your little baby remotely which is accessible from your smartphone, and that notifies you whenever the baby moves;
  • The smart lights in your living room which you can control with a smartphone app, and that you can use for reproducing the ambience of a sunset or a romantic fireplace;
  • The activity tracker that you use to monitor your sleep and daily activity.

Let’s clarify that a tablet or a laptop is a “connected device” and it works as the human interface for monitoring and controlling “things”. Hence a laptop’s display of the measurements from the sensors is the information that allows us to make our choice.

A “thing” is an embedded device connected to the network. The IoT is about processing data from its sensor. Hence for the examples above:

  • The baby monitor camera: it processes the data coming from the motion or volume sensor and send the information (moving/steady state) through the cloud to the mobile device app.
  • The smart light: the bright/white level, the colour levels and their variations are “actuated” on the LED devices to reproduce the selected mood.
  • The activity tracker: a three axes motion sensor and the beat sensor collect and process the inputs, and the information is then provided to the customer.

IoT Value Chain

Now that we have clarified what is an IoT device let’s examine the IoT value chain. This is a sort of complex ecosystem where companies collaborate to design solutions that can provide the “value proposition” for which customers are willing to spend the money.

The value chain is made of three parts: devices, network connectivity and software. The sensor feeds its data through the network provider, and the software provides the real intelligence. By exploring it more in depth, we discover that a smart device needs to talk with the application software through APIs (Application Platform Interface) and a system integrator glue everything together. The following table provides an idea about the value chain and where the actors are positioned.

IoT Business Models

Due to the nature of the product, several business models have been examined. The simplest proposition to understand is the “one-time product selling”. This is the case of B2C (Business to Consumer) transaction (e.g., activity tracker business).

A much more interesting model is service and outcome. This is becoming popular therefore it is worth to provide an example as the Service Model is a good case for IoT.

Let’s assume that we want to start a business in the printing market: do we need to buy printers, or would be much more interesting “to pay for printed papers “?

In the latter case, you pay for the outcome (printed paper) provided by the machine, while the printer provider takes care of the ink and the machine maintenance. Consider what is involved in the service, it provides a device packed with sensors to assure the correct service level according to the contract. At a high level, you can assume that:

  • Value of the Service = Function (Quality, Performance, Reliability, Cost)

To understand how IoT helps manage all the data let’s take the example of the ink level.

The following data should be available:

  • The initial ink volume in the cartridge
  • The yield per page (percentage of the printed surface)
  • The ink consumed for each printed paper based on the yield
  • The historical data about the print papers per hours (or day)

With these data inputs, an analytic algorithm can provide an estimate to plan the cartridge replacement. The service provider can plan the maintenance window for the customer with almost zero downtime. Notice that you do not need a human intervention from the customer because the machine notifies the need for maintenance to the printer provider.

It is easy to understand that the smart device has a higher cost compared to a simple device, and therefore the value proposition must be well defined to be perceived in a positive way by the customer.

Product Design Strategy

The previous example takes us to the next point of this paper: what is the product design strategy?

A top down approach is used to define and model the product based on three steps:

  1. Define the high-level value proposition (e.g., = high quality and high-performance print machines with best in class reliability)
  2. Define the high level functional model (e.g., inkjet print to paper = function (e.g., printhead position, paper position, nozzle temperature));
  3. Define the system requirements
    1. Sensors, actuators, network elements;
    2. Application requirements (e.g., paper types, print speed, print quality, cost/page);
    3. Analytics requirements (e.g., to control ink levels).

The maintenance window of some components or subsystem can be estimated by measuring and controlling some physical variables that are part of the process, for example in a mechanical system the torque and/or force to move a component.

In Summary

The design strategy and the service business model can be applied to many other IoT products and typical examples are:

  • Production machines
  • Medical diagnostics
  • Jet engines for civil aviation
  • Wind generators
  • Cars

It is important to notice that this service model attributes most of the risks in the hands of the service provider. Hence for this model to be sustainable the business case should consider a 2 parts tariff (e.g., annual fee + cost per unit).

The car sharing service is one example where the customer pays for the outcome but through a 2 parts tariff (annual fee + time and distance), and one can easily imagine that the cars are packed with sensors to trace the distance, to set maintenance intervals and identification technologies to control the access.

One important aspect that this article does not cover is the security in IoT service industry, I will cover this topic in another article.