The Debonair Commercialist A family friend who works in the automotive industry visited for a week and we spent several pleasant evenings talking about innovation in this vertical…over wine. There is so much happening in automotive, we get bombarded daily with news about autonomous vehicles, drone deliveries, Tesla’s latest car battery technology, you name it. Our friend recommended […] The post BMW Welcomes. Future Mobility at BMW Welt appeared first on The Debonair...

The Debonair Commercialist

A family friend who works in the automotive industry visited for a week and we spent several pleasant evenings talking about innovation in this vertical…over wine.

There is so much happening in automotive, we get bombarded daily with news about autonomous vehicles, drone deliveries, Tesla’s latest car battery technology, you name it.

Our friend recommended a very intriguing event, BMW Welcomes, held at BMW Welt in Munich, Germany, on June 23. BMW Welcomes an innovative event series to give BMW’s special customers unique knowledge about the latest innovations.

This year’s topic was Future Mobility where BMW invited the leading transportation futurists to present on the way we will transport ourselves in the future by significantly increasing range, speed and acceleration.

Some of the Future Mobility top presenters were:

• Frank Salzgeber, Head of Technology Transfer Program Office, European Space Agency
• Daniel Wiegand, Startup presentation: Lilium aviation
• Dirk Ahlborn, CEO Hyperloop
• Mariana Avezum, Startup presentation: WARR Hyperloop
• Oliver Heilmer, Head of Interior Design BMW, BMW Group

Personally I recommend Hyperloop’s CEO presentation – absolute must-see if you are interested in the technology that is going to shape our lives in the next decades. It is 41 minutes long, but well worth the watch.

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The Debonair Commercialist Knowledge@Wharton, Can Verizon Unlock Yahoo’s ‘Hidden Value’? Harvard Business Review,  How Amazon Adapted Its Business Model to India Market Watch,  Pokémon Go shows that augmented reality isn’t ready for prime time   The post Propositions and innovation in the news: 31 July 2016 appeared first on The Debonair...

The Debonair Commercialist

Knowledge@Wharton, Can Verizon Unlock Yahoo’s ‘Hidden Value’?

Harvard Business Review,  How Amazon Adapted Its Business Model to India

Market Watch,  Pokémon Go shows that augmented reality isn’t ready for prime time

The post Propositions and innovation in the news: 31 July 2016 appeared first on The Debonair Commercialist.

The Debonair Commercialist Those days Internet of Things (IoT) is the topic of choice when technology people meet to discuss innovation and the next big idea. Being all-encompassing and omnipresent as a theme, Internet of Things gets injected in all forums around hardware, connectivity and value added applications – from everyday life to the cloud. What is Internet of Things […] The post The old and new business models making Internet of Things tick appeared first on The Debonair...

The Debonair Commercialist

Those days Internet of Things (IoT) is the topic of choice when technology people meet to discuss innovation and the next big idea. Being all-encompassing and omnipresent as a theme, Internet of Things gets injected in all forums around hardware, connectivity and value added applications – from everyday life to the cloud.

What is Internet of Things after all?

Since its beginnings until today, Internet has been a network connecting people to other people, to content and to services. Internet has evolved to allow more devices to access it – first computers, then mobile phones, then wearables, and so on. It is still a network in its core, with its protocols, language and rules.

Internet of Things is not anything different, still a network but this time allowing machines and sensors to track, monitor and relay their data to other machines or to people to fulfil an action – e.g. make a payment, send an alert, do a phone call, start a process.

IoT is so wide-ranging as a concept, that the current approach is to slice it into segments based on its applications. You can see three categories such as

• Home and Personal IoT – this is probably the most prominent segment generating news every day, related to the Smart Home and personal-related care and analytics.
• Industrial IoT – augmented reality, robotics, intelligent supply chains, 3D printing, etc.
• Platforms IoT – all areas covering connectivity and networking, data processing, cloud, interfaces between the machines and the networks, APIs…

…And probably many more segments will appear in time.

Source: The Evolution of the Internet of Things, Casaleggio Associati (2011)

Value in Internet of Things

It is interesting to look out for business models that monetize the value of new technologies, such as IoT.

According to ABI Research which assessed the value chain for IoT, only 3% of its value lies in the connected hardware, 20% is in the connectivity, while 77% of the value will be in value added services. This is not a surprising split given that the potential revenue from sending data from a machine to another machine would be a fraction of a penny, and the margins will be even less.

I am intrigued how IoT will enable commercial innovation with the aim of providing customers with greater levels of flexibility and peace of mind.

So far, most of the monetization models discussed by service and hardware providers are fairly common and well tested by time. Undoubtedly, these will be rejuvenated but also superseded by new approaches to generate revenue. So which the core business models, that will drive monetization of IoT products and services?

Business models making Internet of Things tick

Usage based, also known as Pay-as-you-go

A very well-known model where the customer pays only for the amount of service used in a given period, with no commitment attached such as being locked into a subscription contract. It is easy to envisage how personal use of smart devices where the consumer does not want to own the device or industrial use of connected machines that are temporarily hired is linked to usage-based revenue models.

Do it for me (DIFM)

In my book, this model is going to experience an absolute renaissance as IoT matures. Businesses in all segments of IoT will compete to offer services to install, maintain, customise and repair the smart devices connected to the network. Given the sophistication of those devices, customers will be increasingly willing to use specialists to upgrade and maintain their devices plus further customise their gadgets.

In addition, the DIFM model will also cover Remote monitoring where companies and consumers may delegate the monitoring of their smart estates in order to prevent glitches and to cover support. This will further increase customer stickiness.

Freemium

No business model attracts more customers than free! In IoT world, any basic version of the connected product may be given away for free in the hope of eventually persuading the customers to pay for a premium version carrying more features and functionality. Skype is a good current example of that. Its free version attracts highest volume of customers, while the smaller number of paying ‘premium’ customers generate the revenue, cross-financing the free offering.

Leveraging customer insight using data analytics

As security of personal and corporate data is more paramount than even, we can see even today ventures where data aggregation is used to predict or recommend a set of actions to an end customer. Given how many sensors with collect, store and pass on data from connected devices, there will be enormous amounts of domain data that can be used to create insights that help consumers improve their lives – e.g. energy efficiency tips or companies to meet business targets – e.g. supply chain efficiency.

Product as a service

An interesting report I found from Deutsche Telecom (see link below) says that “75 percent of new cars are now purchased through a finance agreement, with customers essentially paying for the personal experience of ‘owning’ a car rather than paying the one-off, upfront price”. Fast forward to the future, IoT will make this model even more mainstream. Instead of purchasing the smart hardware, companies and consumers may only pay for the experience of owning it for a set period of time before replacement with a newer model. Judging from leasing margins today, this may be a lucrative model for revenue generation.

Transactional

This is the oldest trick in the book. You buy a product or a service, you pay for it and both sides in the transaction go on their merry ways. Just as you buy your Apple phone or Surface tablet, nothing can be compared to owning a new gadget….until the new model arrives. I believe manufacturers and device brands will try to skim the market for as long as possible selling smart devices as their novelty and exclusivity may drive higher margins.

Although this list covers some of the main revenue generation models, it is far from exclusive! If you work in IoT areas and you deal with its monetization and product strategies, I will be interested to lean which model will work for your company.

Meanwhile, some relevant articles on IoT business models:

Tech Crunch: “What can a toothbrush teach us about IoT business models?”

Deutsche Telekom white paper: “How to Create Growth from the Connected Home”

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on LinkedIn, Twitter or Facebook.

Don’t forget to sign up for my monthly newsletter too. Thank you!

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The Debonair Commercialist Why Prime Day Was a Big Win for Amazon — and for Other Retailers The challenge of selling technology experiences Time to Accelerate in the Race Toward Industry 4.0 The post Propositions and innovation in the news: 24 July 2016 appeared first on The Debonair...

The Debonair Commercialist

Why Prime Day Was a Big Win for Amazon — and for Other Retailers

The challenge of selling technology experiences

Time to Accelerate in the Race Toward Industry 4.0

The post Propositions and innovation in the news: 24 July 2016 appeared first on The Debonair Commercialist.

The Debonair Commercialist Over the years working in proposition development, I have developed a hobby to scout profitability data across different industries. I find the comparisons between industries quite interesting, especially for the Technology and retail verticals I work in – software, information services, and telecoms. Apart from wider professional interest, margin data and analysis help greatly when […] The post High profit margin, low profit margin – a view across 90...

The Debonair Commercialist

Over the years working in proposition development, I have developed a hobby to scout profitability data across different industries. I find the comparisons between industries quite interesting, especially for the Technology and retail verticals I work in – software, information services, and telecoms.

Apart from wider professional interest, margin data and analysis help greatly when developing a new proposition as these serve as a benchmark to improve the business, but also to explore different business models and commercial tactics.

I find the question on “what’s a reasonable margin for my business” a bit strange, as any business operates in a larger framework which more or less gives the settings, yet any company is empowered to create a unique business model in order to extract higher profit margins.

High profit margin, low profit margin – a view across 95 industries

I recently came upon a quite comprehensive update on Profit margins per industry from Stern school of business across 90 odd industries, which covers net margins, pre-tax/after-tax operating margins as well as EBITDA.

The dream of every business – big or small – is to grow profit but also profit margin that give freedom for growth.

Some industries are simply subscribed to higher margins

Naturally, the divide between service-based businesses and those producing and selling physical goods meets the eye first. Almost all verticals that drive 15% plus net margins belong to services space – think investment management, banks, real estate.

When Forbes published Sagework’s ranking of the top 15 industries generating the highest profit margins, it was no surprise tax accounting services, real estate, dentist and legal services topped the list.

For most service companies, the profit equation is quite simple.

profit = revenue – cost of people – general expenses

Service industries command higher margin as their key differentiator is human capital that creates highly specialised output in the form of advise or intangible products, for which customers pay a premium. Their overhead and ‘keeping the lights on’ costs are relatively low and predictable over time, so service businesses do not need to spend cash on costly capital investments or high recurring costs.

Another parameter of high-margin businesses is the perception of exclusivity they create around the goods they sell. Exclusive products are difficult to compare or replicate, so like-for-like competition is difficult. Jewellery and fashion are good examples of industries whose end product maintains high margins. In technology, a mention on Apple’s products is enough to illustrate what ‘exclusive’ products mean in terms of design and customer experience.

Why a higher profit margin is better than lower margin?

We know that profit margin is absolutely key for company growth, but growth is a complex construct as it is dependent on many variables. Higher profit margin allows businesses to:

• weather the storms of economic decline. A low margin may be easily obliterated in a downturn, dragging the company into bankruptcy
• attract more customers – always a good thing!
• attract better talent, as employees prefer working for growing companies
• attract more investors, who value how the company keeps taps on costs to generate a higher profit

Profit margin that is higher than your competitors’ is something that catches the eye of investors and analysts. Amazon’s recent Prime Day is a good example of how the biggest online retailer zooms into items from the Fashion category, to diversify its product mix and increase its minimalistic margins.

A really good article on that is “Why Prime Day Was a Big Win for Amazon — and for Other Retailers” from Knowledge@Wharton.

Useful reading on profit margins

• Margin analysis: PWC Tech News paper. It is from 2011, but I still use it as a training material!
• Profit margin in service-based industries: A good post from Carl Erickson, the CEO of Atomic Object.
• Driving higher profitability – The 1% Windfall: How Successful Companies Use Price to Profit and Grow by Rafi Mohammed – one of the good books on the topic.

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on LinkedIn, Twitter or Facebook.

Don’t forget to sign up for my monthly newsletter too. Thank you!

The post High profit margin, low profit margin – a view across 90 industries appeared first on The Debonair Commercialist.

The Debonair Commercialist WhatsApp Grew to One Billion Users by Focusing on Product, Not Technology The Future of Television: Where the US Industry Is Heading Why Clearista Is The CIA’s Favorite Skin Care Product The post Propositions and innovation in the news: 10 July 2016 appeared first on The Debonair...

The Debonair Commercialist

WhatsApp Grew to One Billion Users by Focusing on Product, Not Technology

The Future of Television: Where the US Industry Is Heading

Why Clearista Is The CIA’s Favorite Skin Care Product

The post Propositions and innovation in the news: 10 July 2016 appeared first on The Debonair Commercialist.