Valufication of Internet of Things - Changing Mindset of Value

Gordon Hui (HBR, 2014) discusses the shift of the value mindset due to IoT. He makes a distinction between Value Creation and Value Capture. He refers to value creation as those activities that increase the value of a company’s offering and encourage customer’s willingness to pay. Value capture, according to him, is simply the monetization of value.

One of the key distinctions between the traditional mindset and the IoT mindset is in the product offering. The traditional mindset has a concept of a standalone product versus the continuously updated product in the IoT mindset. We have been doing it for a while in the software development industry. To a certain extent, we have also done in the hardware industry as well. Think firmware updates to your hardware devices. But largely, this concept is just beginning to be adopted in the consumer goods industry.

Another area of distinction is in handling customer data. Traditionally, it was one data points during the purchase and perhaps a few more during the maintenance cycles. In today’s environment, cheaper IoT controllers and near-ubiquitous internet connection provides a continuous valuable stream of data. This data stream not only helps companies to solve customer needs proactively (increased service quality) but also provides a recurring revenue stream (sell value adds).

The following table captures his description of shift in value mindset more completely:

		Traditional Mindset	IoT Mindset
Value Creation	Customer Needs	Solve for today’s needs reactively	Proactively address needs through predictive analytics
	Offering	Stand alone product that cannot be updated	Subscription oriented product refreshes
	Role of Data	Single data point during purchase	Continuous information convergence
Value Capture	Profit Path	Sell more of the same	Recurring revenue model
	Control Points	Feature sets, IP & Brand	Personalization, Context
	Capability Development	Build core capabilities and add improve over time	Use eco-system and customer experience to continuously improve capabilities

In my next post, I will talk about monetization models in IoT.