So, You Want to Build a New Internet of Things Business?

I often help companies I work with evaluate the best pathways—build, buy or partner—to follow when pursuing new growth opportunities. With the growing excitement around Wearables and Internet of Things (IoT), many CPG companies are interested in tapping into opportunities enabled by IoT. For such non-high tech companies, the IoT space is all the more challenging because the technologies can be different and complex and the number of market players needed to bring a solution to market can be large.

The questions that clients bring to us typically are: How do I play in this new space? Should I build smart, connected products and solutions on my own? Should I partner with a company that makes these devices, apps and interfaces? Or just buy that cool startup that pitched to us?

My colleagues and I have noticed that traditional business models and build or buy frameworks that worked well even a few years back may no longer help. To forge a new path to winning in the IoT space, we recommend that it’s critical to first identify where the value lies in the new business and then decide what you might want to own and how (build / buy / partner). Here are key steps that we have successfully applied across different challenges in the IoT space along with a hypothetical simple example.

Step 1: Build your product ecosystem or value chain map.
The first question to ask is, “What inputs and processes will we need to build & deliver the product / solution (eg: materials, technologies, data, manufacturing, designing, etc)?” Of course, this will be tied to how you envision your business model. So, we recommend building maps for each of the different business model options under consideration.

step1

Step 2: Identify the strategic, valuable elements on your ecosystem map.
You would then have to think about where the strategic value lies. Ask questions like:

  • Which inputs and processes are critical to our solution?
  • Which ones are of greatest value to customers?
  • Which competencies would give us the best differentiation from competitors?
  • Which elements would lead to additional revenue streams?
  • Which competencies or technologies have platformability potential?

step2

Step 3:  Identify value drivers that are important to own
The next question is to decide which of these strategic elements are important for you to own, as they are the value drivers in your ecosystem.

step3

Step 4: Assess build, buy, partner options for these value drivers
Now that you have identified the strategic assets that are not current capabilities but are important to own, think about how you might own those assets. Think through build, buy or partner options using criteria such as:

step4

  • What is the cost of building internally vs. cost of acquiring & integrating vs. partnering & integrating?
  • What is the time to market? Is it important to be first to market? Time to build vs. buy vs. partner?
  • How familiar are you with the strategic technology and market to enter?
  • What is the IP potential? Does the functionality already exist and someone else holds the proprietary knowledge?

Step 5:  Manage ecosystem risks
At this stage, you can start thinking through how to get the ecosystem going. Be aware of co-innovation and time-to-market risks with strategic partners. Because the success of your solution is dependent on other ecosystem partners, you will need to manage your strategic partners’ product innovation risks and integration delays.

Ultimately, the key to success is how well you understand where the value lies in this new business for you, your customers and your partners. Don’t be afraid to explore different business models to compare & optimize valuable assets and build / buy / partnership options.

Feel free to email me at mekhala@4inno.com if you have any questions.

If you want to read more, dig in here!

  1. R Adner, Matching your innovation strategy to your innovation ecosystem, HBR, 2006
  2. EB Roberts, CA Berry, Ally or Acquire – How Technology Leaders Decide, MIT Sloan Management Review, 2001
  3. M Chui, M Loffler, R Roger, The Internet of Things, McKinsey Quarterly, 2010

Mekhala Raghavan, PhD

Senior Associate

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