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Dec 11, 2019 | 3 minute read

Ecommerce 2020: Enabling new business models with IoT

written by Anatoli IIakimets

IDC predicts that revenue from the Internet of Things (IoT) is expected to surpass $1 trillion USD by 2022 with the majority of the revenue coming from industrial IoT including smart buildings, smart utilities, smart cities, smart manufacturing, smart retail and smart health. This creates an opportunity for manufacturers to introduce new revenue streams by bringing to market IoT-enabled business models.

These business models are represented by a variety of use-cases which can be tailored based on the needs of specific industry and organization, and below are some of the most popular categories:

  • Automated Inventory Replenishment: inventory is monitored through RFID chips, smart shelves or by other means. Whenever the inventory runs low – an order is placed automatically with the manufacturer.
  • Industrial Vending: manufacturer installs vending machines onsite at customer locations. Customer employees can acquire items from the vending machine using their badges or other forms of identification; an automated order is sent directly to the manufacturer. 
  • Usage-Based Consumption: manufacturer provides equipment to customer on “as-a-service” basis and is fully responsible for the equipment operation. Customer only pays for the actual equipment usage which is monitored via internet connection. 
  • Predictive Ordering: sensors installed on customer premises aggregate various information and analyze it in order to predict future usage of equipment and materials. Orders are made proactively and can include inventory replenishment, maintenance, complimentary products and more. 
  • Pay for Result: manufacturer provides equipment to customer on “as-a-service-basis”. The usage is monitored by the sensors installed in the equipment and the customer pays a share of revenues or a share of savings generated by the IoT-enabled equipment. 

Once the manufacturer has figured out which use-case has the most potential for incremental revenue, the next challenge is to build the solution which can support the selected use-case. The business requirements for the IoT-enabled use-cases will differ from the traditional business models:

  • Larger number of transactions will be executed without any human intervention
  • Products and services will become more diversified combining different models
  • For some of the business models number of transactions will increase while the average order size will decrease
  • Multiple backend systems will be involved in business processes ranging from ERP to analytics
  • The value chain will become more complex as a single use-case might involve multiple companies, including partners

This will result in a different set of technical requirements for an end-to-end solution. The solution will rely on a complex ecosystem including IoT components, equipment, connectivity, platform and business applications. 

Enabling-new-business-models-with-IoT_Get Elastic

While some of the solution components can be implemented and owned by different parties including partners, most of the time manufacturer will own the transaction layer represented by the commerce platform. There are several key requirements a commerce platform should meet to enable the IoT use-cases. It should:

  • Be an API-first platform to enable zero-touch automated ordering of products and services based on inputs from equipment and other sources.
  • Offer a comprehensive product catalog supporting diverse products and services including physical, subscription-based and partner-enabled.
  • Have a powerful integration framework to enable interoperability with a multitude of backend systems including ERP, analytics, fulfillment and others.
  • Support for flexible pricing models including bundle pricing, contract-specific pricing, per unit-pricing, tiered pricing and various types of rebates.
  • Enable various types of ordering including ordering through APIs, bulk ordering, quick ordering and in-flight changes to orders.
  • Provide the ability to manage enterprise accounts including complex organizational hierarchies, roles and responsibilities, multiple shipping and billing addresses.

Because of these requirements, traditional monolithic commerce platforms are not the best choice for the IoT-enabled use-cases. To succeed with new business models manufacturers need to move away from monolithic, full-stack solutions and towards API-first headless platforms which can be flexibly configured to fit with the specific demands of an IoT use-case.