A holistic approach to visualizing business models for the internet of things

The Internet of Things (IoT) will reshape our society. Our lives will be improved and enriched both materially and spiritually. The Internet of Things allows people and things to communicate with each other person, at the right time and place, with the right service, and at the right price .A symbiotic interaction among the physical and virtual cyber worlds would be implied in the Internet of Things [1]. In the IoT connectivity becomes a commodity that is available to both human users and smart things. Examples already exist in industries such as the power, transport and buildings [2]. Pervasive computing and ubiquitous intelligence will characterize the future and is the subject of significant national programmes such as U-Japan, U-Korea, Sensing China, etc.

In recent years, numerous IoT technologies - including identification technologies, sensor technologies, and embedded smart technologies, are widely used in many industries. But the path to the broader development of the IoT has many challenges ahead – and economic factors might be the biggest stones on the road [3].

Figure 1 shows the three layers of the IoT. Deployment costs of sensing are the most important sensing costs in the sensing layer – they impact data acquisition and utilization since reducing of the sensor costs will enable massive volumes of data to be used economically. The network layer aims at disseminating large quantities of real-time and multitudinous information. Customers can find goods at the highest quality and lowest cost, while businesses can acquire customer behavioral data and control inventory. Information exchange is no longer among people, but extends to between people and things, or among things. In the application layer, intelligence or being smart is one of the most important features, while the data processing center is a central feature of the intelligent in the Internet of Things.

A lack of business models to describe these layers and how they interact is evident in IoT, and answers to simple questions, such as What is the value proposal? What is the cost and benefit? How does a company profit from the IoT technologies?, are currently hard to answer.

This article aims at developing an operable business model based on DNA Model [4] from the perspective of designing a business model in the Internet of Things. We will reveal that business model innovation do hold the potential of reforming existing or creating new business models. Furthermore, they can bring continuous financial or nonfinancial benefit to flourish companies.

Figure 2 shows the design of a business DNA model for the Internet of Things. The D or Design block, which refers to elements of the given system, deals with the question of “How?” The supply infrastructure consists of three elements: Key Partners, Key Resources and Key Activities. The N or Needs block focuses on players in the external environment and deals with the question of “What?” There are three categories of elements for the N-block as the external or demand infrastructure of a business model: Channels, Customer Relationships and Customer Segments. The A or Aspirations-block deals with results and responds to the question of “Why?” The A-block which deals with offer or value consists of three elements: Value Proposition, Revenue and Cost.

These three modules influence and complement each other. In the logical of the DNA Model, the A-block refers to the ultimate “ends” to be achieved by the organization. The N and D-blocks constitute the “means” to achieve the “ends.” In particular, the N-block focuses on the external infrastructure for satisfying needs of the customer, market, and stakeholders. The D-block covers elements of the organization’s internal infrastructure for supplying a product or service.

There are various ways to represent a business model both at enterprise level and industry level. The most common ways at an enterprise level include the Value Chain [14], Strategy Map [15], Four-Box Business Model [16], and Business Model Canvas [12], and at an industry level include Five Forces [17], Value Net [18], Supply Chain [19], and Business Model Environment [12]. Among these models, Value Chain and Business Model Canvas are more widely used in both academic circles and practical circles. The Business Model Canvas provides a very visual approach since it can be printed out on a large surface for people to understand, discuss, create, and analyze their business activities while designing a business model with the four elements of value proposition, infrastructure, customers, and finances.

However, the Business Model Canvas does not illustrate a clear cause and effect linkage between ‘means’ and ‘ends’, and it is complex and time-consuming to develop multi-level business model analysis, design, and management in the Business Model Canvas because the enterprise and industry business models have different visual formats.

In contrast, the DNA Model uses a consistent visual format at both levels. The underlying logic of the DNA Model is a linear cause-and-effect or input-processing-output relationship. The inherent structure of the DNA Model is a linear fractal: the basic visual structure and relationships between the DNA blocks - design, needs, and aspirations - are the same at any level of the business model. This linear fractal structure greatly simplifies presentation, understanding, analysis, design, and planning of business models especially within and across industries.

The article has presented an analysis of business models and business model innovation for the Internet of Things, and examined a case study of smart logistics that illustrates how a business model for IoT can be developed. We believe that this is an easy-to-use approach for practitioners to grasp business opportunities and to present stories, models, and projects for IoT.