INTERNET OF THINGS-BASED PRODUCTS/SERVICES: PROCESS AND CHALLENGES ON DEVELOPING THE BUSINESS MODELS

Klein, Amarolinda; Pacheco, Fabiana Beal; Righi, Rodrigo da Rosa

doi:10.4301/S1807-17752017000300009

Amarolinda Klein

Business School, Unisinos University, RS, Brazil

Fabiana Beal Pacheco

Polytechnic, Unisinos University, RS, Brazil

http://orcid.org/0000-0003-0949-9111

Rodrigo da Rosa Righi

Polytechnic, Unisinos University, RS, Brazil

http://orcid.org/0000-0001-5080-7660

Address for correspondence:Amarolinda Zanela Klein, Full Professor, Post Graduate Program in Management, Unisinos Business School, Unisinos University, Brazil. E-mail: aczanela@unisinos.br Fabiana Beal Pacheco, Master in Management, Unisinos University, Brazil. E-mail: fabiana.beal@gmail.com Rodrigo da Rosa Righi, Professor and Coordinator of the Post Graduate Program in Applied Computer Sciences, Unisinos University, Brazil. E-mail: rrrighi@unisinos.br

Author(s)	Year	Goal	Method	Theory/Literature
Bilgeri and Wortmann	2017	Investigates specific barriers to technology-driven IoT business model innovation	Interviews	Innovation stages
Buchener and Uckelmann	2011	Discusses the Internet of Things from an economic perspective, based on the business model concept.	Theoretical paper	Laws of information and B.M.Canvas
ChanChan, H. C. Y (2015). Internet of Things Business Models. Journal of Service Science and Management, 8, August, p. 552-568.	2015	Proposes a business model for IoT that consists of three dimensions: “Who, Where, and Why”	Case Studies	Previous business models for IoT
Diáz, Munhòz and Gonzáles	2017	Business models of public services provided with the IoT and other technologies in smart cities	Case studies (8)	BMC
Dijkman et al	2015	Presents a business model framework speciﬁc for IoT applications	Survey	BMC
Ehret and Wirtz	2016	Explores the conditions for designing nonownership business models for the emerging IIoT (Industrial Internet of Things)	Theoretical paper	Entrepreneurship and Transaction Cost Theories
Ehret and Wirtz	2017	Explores the conditions for designing nonownership business models for the emerging IoT	Theoretical paper	Entrepreneurship and Transaction Cost Theories
Fleisch et al	2014	Derive general business model logic for the Internet of Things and some specific components and patterns for business models	Theoretical paper	HRM, Service-dominant logic/St. Gallen Business Model Navigator
Gerpott and MayGerpott, T. J.; May, S. (2016). Integration of Internet of Things components into a firm’s offering portfolio - a business development framework. Emerald, v. 18, n. 2, p. 53-63.	2016	Provides a foundation for ﬁrms trying to evaluate the suitability of IoT-enhanced offerings against the background of their current portfolio.	Theoretical paper	Product portfolio
Ghanbari et al.	2017	Discuss the relevance of vertical cooperation in the IoT and highlight the need to develop new value networks that leverage this cooperation	Theoretical paper	Value Chain
Glova et al	2014	Applies an originally value-based requirement technique, e3-value, to model value creation and value exchange within an e-business network of multiple business actors	Theoretical paper	Value Model (e3-value)
Hognelid and Kalling	2015	Analyzes the impact of IoT on business models and sources of value creation by applying a proposed framework to empirical illustrations.	Theoretical paper	Value creation for e-business and Porter & Heppelmann’s IoTcapabilities
Ju et al	2016	Develops a generic business model framework for IoT, based on BMC, through literature analysis and interviews.	Interviews, Case Studies	BMC
Keskin and Kennedy	2015	Addresses the need for e-Commerce service models in an IoT-enabled industry by defining players and predicting possible states in which a firm can choose to do business	Theoretical paper	Multi-sided markets and platforms
Leminen et al.	2012	Discusses how the technological advancements and convergence with IoT shape and affect IoT businesses and dynamic IoT ecosystems.	Theoretical paper	BMC
Leminen et al.	2015	Investigates ecosystem business models or “value designs” in the IoT field.	Delphi and Interviews	Value design, ecosystems
Li et al.	2012	Provides a theoretical framework which classiﬁes IoT strategies into four archetypes from two dimensions of managers’ strategic intent and industrial driving forces	Theoretical paper	Resource-based Perspective and IS perspective
Li and XuLi, H., & Xu, Z. Z. (2013). Research on business model of Internet of Things based on MOP. In International Asia Conference on Industrial Engineering and Management Innovation (IEMI2012), 1131-1138.	2013	Proposes a business model for IoT-based on concepts of MOP (Multiple Open Platforms)	Theoretical paper	MOP and business models literature
Novales et al.	2016	Provides an overview of the different terms and identifies five conceptual elements that form the building blocks of digitized products	Systematic literature review	Literature on digitized products
Niyato et al.Niyato, D., Hoang, D. T., Luong, N. C., Wang, P., Kim, D. I., & Han, Z. (2015). Smart Data Pricing Models for Internet-of-Things (IoT): A Bundling Strategy Approach. arXiv preprint arXiv:1512.05075.	2015	Proposes a new pricing scheme for IoT service providers	Theoretical paper	Pricing models
Porter and Heppelman	2014	Deconstructs the smart, connected products revolution and explore its strategic and operational implications.	Theoretical paper	Five competitive forces
Qin and YuQin, Qiuli; Yu, Hao. (2015) Research on the Internet of Things Business Model of Telecom Operators Based on the Value Net. Management & Engineering 21 , 8-12.	2015	Studies the Value Net Model and the elements of the business model for IoT for telecom operators.	Theoretical paper	Value Net Model
Rong et al.	2015	Investigates how IoT could lead to a co-evolving business ecosystem rather than a supply chain.	Case Study	Business ecosystems (3c 36 model)
Saarikko, Westergren, and Blomquist	2017	Discuss value creation with the IoT and the need to form partnerships to develop intricate solutions	Case studies (3)	Value creation/value chain
Sun et al	2012	Proposes the Business DNA Model - a representation of a business model regarding Design, Needs, and Aspirations.	Theoretical paper	BMC
Tesch	2016	Discusses scenario planning as a means for evaluating business models in the IoT context.	Design Research	BMC and Scenarios
Turber and Smiela	2014	Describes the design and evaluation of a model to capture, visualize and analyze firms’ current and future business models in IoT.	Design Research	St Gallen business navigator/dominant service logic
Turber et al.Turber, S., vom Brocke, J., Gassmann, O., & Fleisch, E. (2014). Designing business models in the era of Internet of things. In International Conference on Design Science Research in Information Systems, 17-31 - Springer International Publishing.	2014	Addresses the need for a business model framework in IoT-driven market environments, which recognizes the specific impact digitization.	Design Research	Modular layered architecture, service dominant logic
Verdouw et al.	2013	Assesses how IoT can enhance virtualisation of supply chains in the ﬂoricultural sector	Case Study	Supply chain analysis
Wan et al.Wan, J., Jiang, Q., & Zhu, Y.(2016) Research on Core Essential Elements for O2O Business Model with ANP. In WHICEB 2016. Proceedings. Paper 55 - AIS.	2016	Discusses O2O business model and IoT, identifying 10 core elements with Analytic Network Process (ANP)	Delphi	Value Net Model, ANP
Weinberger et al.	2016	Introduces the concept of high-resolution management (HRM) in IoT	Theoretical paper	St. Gallen Business Model Navigator, HRM
Westerlund et al.Westerlund, M.; Leminen, S.; Rajahonka, M. (2014). Designing Business Models for the Internet of Things. Technology Innovation Management Review, 4(7), 5-14.	2014	Examines networked and more comprehensive ecosystem business models; focuses on the challenges that hinder the emergence of IOT business models.	Theoretical paper	Value design
Wortmann and Flüchter	2015	Discusses Internet of Things Technology and the value added by this new technology	Theoretical paper	Porter and Heppelmann 2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.
Zhang and Wen	2016	Propose an IoT E-business model specially designed for the IoT E-business and blockchain.	Theoretical paper	N/A

Categories	Challenges	Sources
The IoT Ecosystem
	Find a value proposition to all actors involved in the ecosystem.	Buchener and Uckelmann (2011) Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.); Leminem et al. (2015); Ghanbari et al. (2017Ghanbari, A., Laya, A., Alonso-Zarate, J., & Markendahl, J. (2017). Business development in the Internet of Things: A matter of vertical cooperation. IEEE Communications Magazine, 55(2), 135-141.); Saarikko, Westergren, and Blomquist (2017Saarikko, T., Westergren, U. H., & Blomquist, T. (2017). The Internet of Things: Are you ready for what’s coming?. Business Horizons, 60(5), 667-676.).
	Increasing complexity in coordinating all the partners involved in IoT.	Buchener and Uckelmann (2011); Glova et al. (2014Glova, J.; Sabol, T.; Vajda, V. (2014). Business Models for the Internet of Things Environment. Procedia Economics and Finance, 15(14), 1122-1129.); Leminem et al. (2015); Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.), Verdouw et al. (2013Verdouw, C. N.; Beulens, A. J. M.; Van Der Vorst, J. G. A. J. Virtualisation of floricultural supply chains: A review from an internet of things perspective. Computers and Electronics in Agriculture, v. 99, p. 160-175, 2013. ), Wortmann and Flüchter (2015Wortmann, F.; Flüchter, K. (2015). Internet of Things: Technology and Value Added. Business and Information Systems Engineering, 57(3), 221 -224.), Bilgeri and Wortmann (2017Bilgeri, D. & Wortmann, F. (2017). Barriers to IoT Business Model Innovation, in Leimeister, J.M.; Brenner, W. (Hrsg.): Proceedings der 13. Internationalen Tagung Wirtschaftsinformatik (WI 2017), St. Gallen, S. 987-990.), Ghanbari et al. (2017Ghanbari, A., Laya, A., Alonso-Zarate, J., & Markendahl, J. (2017). Business development in the Internet of Things: A matter of vertical cooperation. IEEE Communications Magazine, 55(2), 135-141.); Saarikko, Westergren, and Blomquist (2017Saarikko, T., Westergren, U. H., & Blomquist, T. (2017). The Internet of Things: Are you ready for what’s coming?. Business Horizons, 60(5), 667-676.).
	Define the control over hybrid solutions, the hardware, and the software side.	Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.)
	Security in the transactions between business partners.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.); Keskin and Kennedy (2015Keskin, T. and Kennedy, D. (2015). Strategies in smart service systems enabled multi-sided markets: Business models for the internet of things. In System Sciences (HICSS), 2015 48th - IEEE.); Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.), Rong et al. (2015Rong, K., Hu, G., Lin, Y., Shi, Y., & Guo, L. (2015). Understanding business ecosystem using a 6C framework in Internet-of-Things-based sectors. International Journal of Production Economics , 159, 41-55.), Verdouw et al. (2013Verdouw, C. N.; Beulens, A. J. M.; Van Der Vorst, J. G. A. J. Virtualisation of floricultural supply chains: A review from an internet of things perspective. Computers and Electronics in Agriculture, v. 99, p. 160-175, 2013. )
The Product/ service development
	Higher complexity in product design - servitization and products as-a-service demand new capabilities in traditional products.	Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.), Tesch (2016Tesch, J. F. (2016). Discovering the role of scenario planning as an evaluation methodology for business models in the era of the internet of things (IoT) In Twenty-Fourth European Conference on Information Systems (ECIS) - AIS.), Wortmann and Flüchter (2015Wortmann, F.; Flüchter, K. (2015). Internet of Things: Technology and Value Added. Business and Information Systems Engineering, 57(3), 221 -224.)
	Synchronizing the processes of software and hardware development.	Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.), Wortmann and Flüchter (2015Wortmann, F.; Flüchter, K. (2015). Internet of Things: Technology and Value Added. Business and Information Systems Engineering, 57(3), 221 -224.)
	Keep simplicity of product design/user experience.	Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.)
The Value proposition
	Define the value proposition for clients - services with real aggregate value. Customer demands and expectations are still hard to discern.	Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.); Leminem et al. (2015), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.), Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Verdouw et al. (2013Verdouw, C. N.; Beulens, A. J. M.; Van Der Vorst, J. G. A. J. Virtualisation of floricultural supply chains: A review from an internet of things perspective. Computers and Electronics in Agriculture, v. 99, p. 160-175, 2013. ); Bilgeri and Wortmann (2017Bilgeri, D. & Wortmann, F. (2017). Barriers to IoT Business Model Innovation, in Leimeister, J.M.; Brenner, W. (Hrsg.): Proceedings der 13. Internationalen Tagung Wirtschaftsinformatik (WI 2017), St. Gallen, S. 987-990.), Ghanbari et al. (2017Ghanbari, A., Laya, A., Alonso-Zarate, J., & Markendahl, J. (2017). Business development in the Internet of Things: A matter of vertical cooperation. IEEE Communications Magazine, 55(2), 135-141.)
	Privacy issues need to be considered in the value proposition.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.); Keskin and Kennedy (2015Keskin, T. and Kennedy, D. (2015). Strategies in smart service systems enabled multi-sided markets: Business models for the internet of things. In System Sciences (HICSS), 2015 48th - IEEE.); Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.)
The firm’s internal capabilities
	Chance of new entrants and nontraditional competitors increase as smart, connected products become part of broader product systems; it challenges the firm’s capabilities.	Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.)
	Identify speciﬁc organizational capabilities to support the strategic implementation of IoT based products/services.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Li et al (2012) Li, Y. et al. (2012) Towards a theoretical framework of strategic decision, supporting capability and information sharing under the context of Internet of Things. Information Technology and Management, 13(4), 205-216. ; Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.)
	A realistic assessment of which capabilities should be developed in-house and which new partners should develop is key.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.)
The Technology Infrastructure
	The high complexity of technology components and IoT infrastructure.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Ehret and Wirtz (2017Ehret, M., & Wirtz, J. (2017). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130.); Ju et al. (2016Ju, J., Kim, M.S.; Ahn, J.H. (2016). Prototyping Business Models for IoT Service. Procedia Computer Science, 91, 882-890.), Leminem et al. (2012); Novales et al (2016Novales, A., Mocker, M., & Simonovich, D. (2016). IT-enriched” digitized” products: building blocks and challenges. In AMCIS 2016 Proceedings - AIS.); Porter and Heppelman (2014Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, November, pp. 64-88.), Tesch (2016Tesch, J. F. (2016). Discovering the role of scenario planning as an evaluation methodology for business models in the era of the internet of things (IoT) In Twenty-Fourth European Conference on Information Systems (ECIS) - AIS.), Wortmann and Flüchter (2015Wortmann, F.; Flüchter, K. (2015). Internet of Things: Technology and Value Added. Business and Information Systems Engineering, 57(3), 221 -224.)
	Definition of interfaces, interoperability protocols, and standards.	Burkitt, (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.), Buchener and Uckelmann (2011); Hognelid and Kalling (2014)Hognelid, P.; Kalling, T. (2015) Internet of Things and Business Models Empirical Illustrations of How the Business Model Concept Helps Us to Understand Strategic Implications of Internet of Things Investments. In IEEE 9th International Conference on Standardization and Innovation in Information Technology.; Leminem et al. (2015), Verdouw et al. (2013Verdouw, C. N.; Beulens, A. J. M.; Van Der Vorst, J. G. A. J. Virtualisation of floricultural supply chains: A review from an internet of things perspective. Computers and Electronics in Agriculture, v. 99, p. 160-175, 2013. ); Ghanbari et al. (2017Ghanbari, A., Laya, A., Alonso-Zarate, J., & Markendahl, J. (2017). Business development in the Internet of Things: A matter of vertical cooperation. IEEE Communications Magazine, 55(2), 135-141.)
	Large volumes of data need to be kept and analyzed	Burkitt (2014Burkitt, F. (2014). A strategist’s guide to the Internet of Things. Strategy+ Business, 77, 1-12.)
The generation of Revenues	Forms of monetization of data are complex/difficult to define/forecast	Tesch (2016Tesch, J. F. (2016). Discovering the role of scenario planning as an evaluation methodology for business models in the era of the internet of things (IoT) In Twenty-Fourth European Conference on Information Systems (ECIS) - AIS.), Verdouw et al. (2013Verdouw, C. N.; Beulens, A. J. M.; Van Der Vorst, J. G. A. J. Virtualisation of floricultural supply chains: A review from an internet of things perspective. Computers and Electronics in Agriculture, v. 99, p. 160-175, 2013. ); Bilgeri and Wortmann (2017Bilgeri, D. & Wortmann, F. (2017). Barriers to IoT Business Model Innovation, in Leimeister, J.M.; Brenner, W. (Hrsg.): Proceedings der 13. Internationalen Tagung Wirtschaftsinformatik (WI 2017), St. Gallen, S. 987-990.)

Session/Activity	Place	Duration (hours)
Session 1 - Understanding the company and needs	University	1:50
Session 2 - Team mobilization and planning	Company	1:30
Sessions 3 and 4 - Designing the business model	Company	2:15
Session 5 - Designing the business model	Company	0:45
Session 6 - Discussion of the technological aspects of the model	University	0:55
Session 7 - Validation of the business model and evaluation of the process	Company	1:45

Challenges	Practical recommendations
Ecosystem	The business model needs to be thought considering the IoT ecosystem and not only the individual firm The firm needs to define what role it will play in the IoT ecosystem (for instance: Enabler, Embedder, Engager; Enhancer)
Product/ service development	It is fundamental to understand that the level of complexity in product development increases; partnerships are essential to deal with the complexity Several channels to interact with customer and monitoring their user experience for constant improvements are important
Value proposition	Is important to define clear value propositions considering customers’ needs, profile and level of familiarity with the technology The convenience provided by the services related to smart products is a key aspect Experimenting on specific pilot projects of IoT-based products is a good way of learning and understanding the complexity of business modeling for the IoT It is essential to consider privacy issues related to the data services provided by smart products
Firms’ Internal capabilities	The firm needs to make a realistic assessment of its assets and capabilities to develop the IoT-based product/service It needs to reevaluate what are the potential competitors and partners in the offering of smart products
Technology Infrastructure	This element is underestimated in most of the “generic” business models frameworks and needs to be carefully considered in business modeling IoT applications because it strongly influences the value proposition and the forms of value capture The firm needs to develop technology partnerships and the capacity to manage them Interoperability is essential and an open platform can be generative and profitable in new business models based on the IoT
Revenues	The range of possibilities of revenue generation related to smart products can be explored, including value captured through data services and the provision of flexible, additional, on- demand services

[1] Address for correspondence:Amarolinda Zanela Klein, Full Professor, Post Graduate Program in Management, Unisinos Business School, Unisinos University, Brazil. E-mail: aczanela@unisinos.br Fabiana Beal Pacheco, Master in Management, Unisinos University, Brazil. E-mail: fabiana.beal@gmail.com Rodrigo da Rosa Righi, Professor and Coordinator of the Post Graduate Program in Applied Computer Sciences, Unisinos University, Brazil. E-mail: rrrighi@unisinos.br

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INTERNET OF THINGS-BASED PRODUCTS/SERVICES: PROCESS AND CHALLENGES ON DEVELOPING THE BUSINESS MODELS

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