Business models of the Internet of Things
Authors:   National University «Lvivska Polytechnika», Бізнес-моделі інтернету речей Larysa , Daynovskyy Yurii ,   Lviv University of Trade and Economics
Published: March 2021

Aim of the article. The Internet of Things (IoT) is an integral part of the modern Internet. Numerous publications concerning IoT business models (BM) mainly focus on an analysis of the specificity acquired by components of traditional BM templates when used in IoT. BM components, such as the value creation or revenue model, are declared to be IOT business models in general, what leads to a huge number of proposed BM variants actually being just the ways of implementing certain BM components; feasibility and efficiency of combining different realizations of BM components is not investigated. The article aims to systematize the IoT BM, analyse the content of the BM components and identify the effective options for their implementation. Analyses results. The approach to IoT BM design is radically different from that of traditional BM due to the fundamental differences in value creation. The main innovative element of the IoT BM is the digital service supplied by IoT devices. This provides the possibility to consider the IoT business models as a kind of PSS models but requires taking into account the digital nature of IoT services and incorporating models developed for software and cloud technologies. There is a lot of approaches to building the IoT business models, but it is difficult to give preference to any of them. Approaches relying on modified BMC templates and S. Turber / O. Vermasan's three-dimensional model based on a combination of the Magic Triangle and St. Galen's Navigator with the architecture of IoT seem to be the most instrumental. At the same time, when forming a business model at the level of a single actor in the IoT ecosystem, the BMC looks more attractive, while the Turber / Vermasan three-dimensional model is more useful at the ecosystem level. In order to build a business model of IoT, one needs to understand the structure of the IoT device and its ability to provide various services. The functionality of the IoT device directly affects the value component of the BM. At the same time it is necessary to distinguish between the value creation model, the content of the value proposition and the revenue model. The value model is supposed to reflect the structure of the process of value creation and consumption. The value proposition identifies functions performed by the particular proposal to satisfy a particular consumer need. This means that the content of the value proposition must reflect the state of satisfaction of this need and its change as a result of the consumption of the value. Proposed functions are to be based on the loT technological capabilities. The highlighted effecient value propositions, such as Remote Usage and Condition Monitoring, Compliance Monitoring, Preventative Maintenance, Remote Diagnostics, Automated Inventory Replenishment, Information as a Service etc. consider the specific requirements of IoT to the value propositions. The implementation of each proposition is supported by the basic functions of the IoT sensors, which are provided by different types of devices. These value propositions can be implemented within the framework of certain value creation models. On the basis of analysis of numerous publications, 20 typical models of value creation in the IoT BM (Physical Freemium, (Digital) Add-on, Product-as-a-Service, Hardware as a Service, Digital Lock-in, Usage-Based Consumption, Value Co-creation, Performance-as-a-Product, Solution-oriented Model, Product Sharing, Product as Point of Sales, Costs Savings Sharing, Razor and Blades, Object Self Service, Revenue Sharing, Asset Sharing, Data as a Service, Offer a Service, Smart Product as Add-on, White Label), were identified. The possibility of combining them with different revenue models was investigated and the most effective combinations were revealed. The IoT BM employ a variety of revenue models and their combinations, the common feature of which is that at least one of the models in a combination of revenue models is based on permanent or recurring revenue. The development of the IoT BM starts with the identification of the need to be satisfied by the value proposition and of the extent to which the value is capable of satisfying this need, which requires the identification of the current and expected state of need satisfaction and actions to be taken to change this state, i.e. the type and functions of the IoT device to support these actions. Once the necessary type of device functions has been determined, the type of IoT sensor can be selected. After defining the concept of a value proposition, it is possible to develop value and revenue models compatible with the chosen proposal, to identify key resources and partners, ways to promote the product and communicate with the customer. Crowdfunding seems to be a promising way for Ukrainian start-ups to obtain initial resources, and when creating value, in addition to the already widely used models of Digital ADD-on, Usage-based Consumption and Value Co-creation, it is worth considering the "White Label" and "Revenue Sharing" models, which can simplify access to the increasingly saturated market of IoT services for end users. Conclusions and directions for further research. The development of IoT BM should be based on an analysis of the entire life cycle of the product and service provided by the smart device. The BM development should start from identifying the need to be met by the value proposition. The importance of the analysis of the state of satisfaction and other characteristics of this need determines the expediency of introducing the need component, described by a set of specific attributes, into the BM templates. These attributes' values, together with the participant resources, provide the basis for the content of the value proposition and affect the revenue model choice. The chosen revenue model has to comply with the value proposition, value model and the functionality of the IoT device. The IoT business model is to be dynamic and evolve towards increased capitalisation of information value, from the "Digital Add-on as a Service" or "Product as a Service" models to the "Performance as a Service", "Data/Information as a Service" and "Answer (Solution) as a Service" models. Successful participants in the IoT ecosystem can simultaneously apply a system of mutually agreed business models targeting different user segments. The IoT business model reflects the entire IoT ecosystem; accordingly, the formation and implementation of IoT business models in Ukraine should take into account the specifics of the national business ecosystem with the widest possible involvement of stable resources (in particular, IoT platforms) beyond the ecosystem of the Ukrainian segment of IoT. Keywords: Internet of Things (IoT), business model, IoT sensor, value proposition, revenue model.