Intro

Monetization is about income generation.

Bei der Monetarisierung des Industrial Internet of Things geht es um Einkommensgenerierung.

Generating income from a business is increasingly about the controlling the costs (OPEX and CAPEX) than increasing the capital as market capital describes the size of the organization, while profit margin indicates the operational success of an organization. It is true that the profit margin eventually reflects the image of the company and on the market capital too, as the investors might be enticed to invest in a growing company, still it does not contribute to the size of the business. A small cap business can have the same profit margin as that of a large cap business, since it is all about, ’How much increased money can you make with a given amount of investment, during a definite period of time?’. In other words, Percentages make the headlines.

Mittlerweile habe ich den Text direkt in WordPress geändert und hier jetzt nochmal ergänzt.

_Bei der Erzielung von Einnahmen aus einem Unternehmen geht es zunehmend um die Kostenkontrolle (OPEX und CAPEX) als um die Erhöhung des Kapitals, da das Marktkapital die Größe der Organisation beschreibt, während die Gewinnspanne den operativen Erfolg einer Organisation anzeigt. Es stimmt, dass die Gewinnspanne letztendlich das Image des Unternehmens und auch das Marktkapital widerspiegelt, da die Investoren vielleicht dazu verleitet werden, in ein wachsendes Unternehmen zu investieren, aber sie trägt nicht zur Größe des Unternehmens bei. Ein Small-Cap-Unternehmen kann die gleiche Gewinnspanne haben wie ein Small-Cap-Unternehmen, da es darum geht: “Wie viel mehr Geld können Sie mit einem bestimmten Investitionsbetrag über einen bestimmten Zeitraum verdienen?”. Mit anderen Worten, Prozentsätze machen Schlagzeilen.

Thus, the idea of monetization of IoT has been a lucrative topic of interest in recent times. This is also the main reason behind the hype of all those shared phrases such as, ‘Shared Economy’, ‘Shared Usage’, ‘Shared Systems’ etc., as many believe that the profit margin increases, when the usage increases.

Daher war die Idee der Monetarisierung von IoT in letzter Zeit ein lukratives Thema von Interesse. Dies ist auch der Hauptgrund für den Hype um all diese gemeinsamen Ausdrücke wie “Shared Economy”, “Shared Usage”, “Shared Systems” usw., da viele glauben, dass die Gewinnspanne steigt, wenn die Nutzung steigt.

The concept of Shared Economy

Nonetheless, a few misunderstand the concept of shared economy as ‘Socialist ‚or ‘Communist’ form of economy. Hence, I clarify the misconception with a simple example. Try to think of this concept as sharing of business space. Say for example, a hair stylist shares his/ her business space with her clients. Let’s say she pays $1000 rent for her business building and her CAPEX and OPEX is another $1,000. Hence, she can make a profit only if her earnings are more than $2,000 a month. She charges every client $50/work, which lasts about 15 minutes and then she works 10 to 4 as she is a single mother with responsibility of kids and thus, she makes slightly less than $2,000 per month with her current number of clients. She cannot work more hours because she has parental responsibilities. But to increase her earnings, she can share her business facility with a friend of hers who is willing to run the business from 4 PM to midnight and he is willing to pay $1000/month for using the space and the gadgets, as he gets wealthier clients in the evening hours. In this way, she can increase her earnings and make a profit from her business.

In other words, similar to sharing a building space and hair styling tools with another stylist, an industrial equipment or an IoT device or the data collected from these devices undergo shared usage, it brings more RoI than when used by a single owner.

The five reasons for this being,

• The full onslaught of IoT may result in two hundred billion devices to go online
• These devices are smart lights, smart sensors, smart thermostats, self-driven vehicles, AI driven robots and many Industrial IoT machinery and components including SCADA systems
• Many of these connected machinery and devices are simply too large and too expensive to buy and own for many organizations
• All these components and devices are 5G enabled and holders of extensive electronics and software
• The Return on Investment from deploying these devices might take years if the organizations decide to buy and own.
  

Machine Economy — the IoT form of Shared Economy

Thus, a new economical concept of ‘Machine Economy’ is being introduced where the smart devices, machineries and systems share everything from storage and computational analytics (Cloud storage) to electricity (Smart grid) and sensor data (Edge storage). This idea of sharing is useful in many applications such as agricultural IoT, connected and autonomous vehicles and Smart city initiatives where the amount of data used is extensive to make decisions, as the AI models used in these applications are trained with this vast amount of shared data.

In this type of shared usage and model the operational user will pay only for the usage of the system out of the revenue generated by using the system. The operational cost will be agreed upon as a part of the revenue generated by the system. Say for example, 10 -15% and of the generated income will be paid as the operational cost.

This system is slightly different from the mortgage or the leasing systems in place, where a full down payment is expected at the beginning as an upfront loan and then the rest of the costs will be paid at regular intervals depending on the interest rates agreed upon with the banks or with the leaser. However, this new shared system is like paying for utilities, based on a metered value, which is typically based on how much the device or the machinery or the service is used. The system will be owned by the builders or the service providers and if the user does not use the machine, then the builder will not get paid for that value. Say for example, if an Industrial startup wants to use 10 robots to assemble its machines then the robot builder will come to an agreement with the startup about the number of hours of usage and the typical operational cost per hour, thus relieving the startup owner from a large upfront investment of buying 10 robots, while at the same time, pulling away the builders from the additional risks due to the fluctuating robotic needs and usage due to legal and ethical considerations and improving the opportunities for more builders to utilize this concept and build more machineries.

Business Monetization

Monetization, in a strict sense, means ‘Making Money from your business’ and it can be achieved in four steps.

It begins with business monitoring to understand the possible disruption to be caused through focusing on customers and technology and ends with business sustainability using proper futuristic adaptation techniques. The idea of monitoring any business involves the identification of underachieving areas of business using BI (Business Intelligence) and addressing them to make more profits, without jeopardizing the overachieving areas or departments. Say for example, in a multinational dealing with IT and electronics product, if the cloud business earns the maximum profits and the hardware earns the least profits, then it is essential to improve the performance of the hardware area while promoting the cloud business. This is important if the executives want to continue with their hardware division, because if it is not taken care, it might eventually come to a level where they must shut the hardware department completely and extend the cloud area as their sole business. There is nothing wrong in this scenario too, except, the risk is too high, as the business might be moving from their core field of operations and diversifying into something new. It is similar to throwing all the eggs do not break.

Once the business insights are available in terms of statistics and predictive analytics using data mining tools, the second step is to integrate the insights with the available business processes in order to make them perform better.

The third step is the essentiality to use embedded analytics to optimize certain operations, as the processes are integrated with the insights. Optimization in every sense shout, ‘control’. The effective control of the business processes, devices, and operations to get the maximum performance and productivity is the key idea of making profits. In other words, ‘what’s making loss? And how can it be controlled and made to perform in an improved manner to earn profits?

The last and final stage in the process of monetization is to transform the business into a ‘Currency Dispenser’. In other words, make revenue through selling enhanced products and processes, through creating intelligent products and processes to improve the customer relationships in order to enhance the image of the organization.

Thus, monetization of Smart devices and IoT machineries also involves creating revenue using the products, devices, or the industrial smart systems. The two main reasons for the heavy machinery being owned by the users, in the current IoT arena and lack of the operational usage method are

1) These systems are owned by many equipment manufacturers (OEMs) and it is extremely difficult to keep track of usage payments and using an individual payment method to all these component manufacturers will be extremely cumbersome too.

2) Some components are strictly traded as per the agreement of ’Payment on delivery’ terms. Thus, it is not possible to pay for mere of these components which have already been paid for.

The Proposed ( I2M2) Model

In the new proposed system of I2M2, (check the image above) the first hindrance is removed with a technical standard, which manages the payment for all the equipment used through a centralized cloud-based payment mode. This is similar to a credit card billing service, where the payment is collected one time per payment cycle (one month) from user and this amount is distributed in accordance with the agreed upon costs to all the component manufacturers and the system assembler or system builder.

The second challenge cannot be fully eliminated, because there still will be some components and devices, which might be traded on the ‘Payment on delivery’ terms, however the number of such components can be reduced. The cost of the hardware in the physical components is low due to batch processing used by the hardware manufacturers, compared to the cost of the software which is customized and installed in the IoT devices. The excessive cost of the software can also be slowly eliminated by using payment for operational usage of the software and payment on delivery for hardware items in a single component, thus reducing the cost of the device. Say for example, many cloud service providers charge their clients on usage basis than use a one-time payment model for a huge amount of server space which may not be needed by the individual or the organization in the near future. Thus, the subscription package based on monthly, quarterly, half — yearly or yearly usage, allows the business owner to check their digital storage requirements and accordingly can either increase the subscribed space or cancel it.

The I2M2 business model was thought of by Wibu — Systems and when Wibu systems presented this ‘Payment per usage ‚model to their associates in the Industrial Internet Consortium (IIC), the consortium created an improved universal model to be used in future as shown in the below image, which includes various other actors involved in the monetization process.

For any successful business to continue on its success, the adaptation of new business models to the changing environment is highly essential and hence the St.Gallen Business model navigator is used as a preference in the universal futuristic I2M2 model.

If you have read so far you might be interested in gaining increased knowledge about the futuristic I2M2 model in detail. So watch my space for part-2 with the same title.

References:

I²M² — the Future of Industrial System Monetization Author: Marcellus Buchheit, Wibu Systems Inc, USA.