How IoT fuels Business Model Innovation

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By Alaa Dalghan, Managing Director at Cognit DX

The Internet of Things boasts many promises: cutting expenses, decreasing operational efficiencies, increasing intelligent insights, boosting productivity, and generating extra revenue streams.

But the most exciting impact of this still-emerging technology is without a doubt the emergence of new innovative and disruptive Business Models that were simply not possible before the rise of IoT.

In this article we will go over 3 stories of companies who leveraged the power of IoT to create a new service, a new bundled product and sometimes an entirely new business line!

The Internet of Diggers

Caterpillar is one of the world’s most recognizable manufacturers of heavy machinery for construction and mining. It builds excavators, bulldozers, graders, loaders and many other heavy equipment.

In 2016, Caterpillar’s CEO declared the dawn of “the Age of Smart Iron”. Every machine would get equipped with dozens of sensors measuring everything from engine temperature to motor vibration to levels of various fluids to the angle of site incline. This data is sent over the cloud back to a central server at Caterpillar equipped with intelligent analytics.

Out of this setup, Caterpillar was able to spin-off 3 new services:

First a subscription service to a web portal where clients can monitor the condition of their machines via dashboards, historical data lines and various visual tools.

But it didn’t stop there. Since they were receiving millions of data points per day sent by tens of thousands of machines, they fed these data points to an intelligent analytics software that told them how clients in different projects and different countries were operating the same machines and what was the impact on the equipment. They ran this stream of anonymized data points through an ML model, generated predictive analytics and sold it back to the clients. Now, an equipment owner can benchmark his machine against other similar ones, avoid the mistakes and embrace the best practices.

Third they were able to offer better finance programs and especially better lease-to-own programs because they had enough data to accurately calculate the cost of insurance premiums. Clients operating their machines within the optimal parameters would see their premium fall, while the poor operators would have to pay more in insurance and they would know why.

The Internet of Drills

Hilti is a Liechtenstein based international company that builds professional tools for construction, and maintenance such as electric drills, demolition hammers and many others.

Few years ago, Hilti embarked on a business transformation initiative by equipping their tools with sensors to monitor them locally and remotely using an IoT software platform. This allowed Hilti to offer their clients 3 new solutions:

  • Tracking: Clients would know the location of their tools on various sites and warehouses
  • Monitoring: Clients can connect to a web portal and monitor the condition of their tools, see the preventive maintenance schedule or request an immediate repair.
  • Tooling as a Service: Hilti was also monitoring the condition of the tools themselves. So they found it easy to start a Tooling Subscription program, where instead of spending few hundreds of dollars to buy a power drill, clients can spend $6-$22 per month to rent it. This Tooling as a Service model (TaaS?) combined the cost of tool + preventive /reactive maintenance + swap and repair in a single smart bundle with easy monthly installments.

Clients benefited greatly by decreasing their total cost of ownership, getting visibility over their monthly tooling costs and the flexibility of tuning up and down the number of tools they’re renting depending on the project condition and status.

Hilti moved from selling drills to selling holes.

The Internet of Cars

I often find myself arguing with my friends about Tesla. They compare it to other car manufacturers such as Toyota or GM, and I argue that this comparison is misinformed: Tesla is not a car company! It’s a tech company, an energy company and more importantly a Data and AI company.

Tesla built a supercomputer equipped with a state of the art Machine Learning system to train autonomous driving AI software. They dubbed it: Dojo.

Dojo is a clever name. It’s the Japanese word for a place where young pupils learn marital arts. In this analogy the Tesla Dojo is the “Sensei” that trains new self-driving AI software using millions of data points. Where are these data points coming from? From the cars themselves!

Every Tesla car is equipped with dozens of sensors, cameras and lidars reading data and sending it back to Dojo. What is this data about? Well, everything: telematics, road designs and conditions, ups and downs, curves and bumps, exits and merges, traffic signals, intersections, road signage in different countries and languages, other drivers behaviors, pedestrian behaviors, and dozens more.

Now picture how many data points are generated daily:

The numbers of Tesla cars on the road grew over the past few years from half a million to more than 2.3 million at the beginning of 2022. So there are at least 2.3 million cars sending tens of millions of data points per day to DoJo, who is using this data to “train” the next version of the self-driving AI software. When a new Tesla car is born it gets this latest, best trained, and most learned version of the software so it hits the road already having the combined wisdom of all of its ancestors.

The same evolved AI can also be pushed over-the-air to all existing cars, so in essence, the entire fleet is learning, exchanging what was learned and contributing to a gradual increase of its collective intelligence.

I predict that Tesla will start selling Data as a Service and AI as a Service to traditional car manufacturers in the near future and that this will become one of its main revenue streams. Remember how Amazon was a logistics and commerce company then became the largest cloud company in the world? Well Tesla will move from a company that builds computers on wheels to a company that sells self-driving data and machine learning models (MLaaS and AIaaS). Mark my words!

These were only 3 examples of how IoT is changing business, but the market is full of many more stories where IoT is Digitally Transforming industries from utilities to manufacturing, transportation to logistics, oil &gas to ready-made concrete and many others.

How To Transform your business with IoT

Such a Digital Transformation journey starts with planning: A strategic, business-oriented and ROI-oriented consultancy of the caliber we provide at Cognit DX. IoT would be one of the components we use to build a comprehensive technology strategy that supports the overall business strategy. Other components are Edge computing, Big Data, Analytics, AI and Cybersecurity. 

The IoT solution architecture itself is multi-layered and companies will have to choose between two approaches: partnering with a different vendor at each layer, or hiring a Master System Integrator (MSI) as an end-to-end Solution provider and a single point of contact. The core of such a solution is the IoT Software Platform that combines Application Enablement, Device Integration, and Data Management capabilities. Cumulocity by Software AG is one of the leading contenders in the IoT Platform market.

Final Thoughts

IoT is changing business, and companies today are faced with 2 options: disrupt their industry or be disrupted by those agile challengers who embrace Digital Transformation and emerging technologies. Digital Darwinism is unkind to those who wait!


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