INTERNET OFTHING – (R19)

Unit – 4

BUSINESS MODELS

Introduction:

Definition: It is “hypothesis about what customers want, how they want it, and how an
enterprise can organize to best meet those needs, get paid for doing so, and make a profit”.

This definition brings together a number of factors:

 A group of people (customers)

 The needs of those customers
 A thing that your business can do to meet those needs
 Organisational practices that help to achieve this goal—and to be able to carry on
doing so, sustainably
 A success criterion, such as making a profit

Explain the HISTORY OF BUSINESS MODELS.

Gift economies develop where those with the appropriate skills can provide their products or
services and expect repayment of this obligation not immediately but with a gift of
comparable worth later.

Modern business models are resulted from the technology required to move products and
obligations through space and time.

SPACE AND TIME

While neighbouring tribes might have discovered variants in the local area’s resources it is
when trade develops with others from far-off lands that it becomes really interesting.

A merchant might sell silks made in his village to a region where these cloths are rare and in
demand in exchange for aromatic spices which will be highly prized back home. But long-
distance trade brings with it a whole set of problems: merchants have to carry larger
quantities of goods for sale Their goods and food carried will have to last far longer, so they
will need to be protected and preserved. they need to have a reliable means of transport for
themselves and their merchandise Preservation is also a way of transporting goods through
time. A farmer or trader who can afford to not sell all his produce during the harvest can fetch
a better price months later at a higher price. Money, then, abstracted trade further, setting an
easy-to-calculate exchange rate between a fixed currency (a certain size disc of gold or
weight of grain). Ease of calculation which this development brought with it made it easier to
develop new business models, such as the development of interest on loans.

SEAT - NB Page 1
INTERNET OFTHING – (R19)

FROM CRAFT TO MASS PRODUCTION

 When Gutenberg demonstrated his printing press circa 1450, books changed from
being priceless treasures, hand-crafted by monks and artisans, to a commodity that
could be produced.
 The invention laid the foundations for an information culture.
 Information is no longer so rare and valuable that it must be preserved by gatekeepers
but can be so widely spread that everyone can have access to it.
 As the printing press spread to the New World and India via the sea routes that would
be discovered by the end of the century.
 The cost of printing would become ever smaller as the technology spread, leading to
new business models with the rise of newspapers and pamphlets.
 In other areas, the ethic of mass production resulted in new business models such as
supermarkets, which pioneered both “self-service shopping” and the sale of a whole
range of products under one roof.
 Fast-food franchising began in the 1930s and exploded with McDonald’s and Burger
King in the 1950s. Standardized menus, pre-prepared ingredients, and standard
practices for each franchisee to follow meant that you could now eat
 Exactly the same meal in any of a chain restaurant’s stores in your country.

THE LONG TAIL OF THE INTERNET

 From Tim Berners-Lee’s first demonstration of the World Wide Web in 1990, it took
only five years for eBay and Amazon to open up shop and emerge another five years
later as not only survivors but victors of the dot-com bubble. Both companies changed
the way we buy and sell things.

 A physical bricks shop has to pay rent and maintain inventory, all of which takes
valuable space in the shop; therefore, it concentrates on providing what will sell to the
customers who frequent it: the most popular goods.

 In comparison, an Internet storefront exposes only bits, which are effectively free. Of
course, Amazon has to Maintain warehouses and stock, but these can be much more
efficiently managed than a public-facing shop.

 Long tail Internet giants help this process by aggregating products from smaller
providers, as with Amazon Marketplace or eBay’s sellers.

 This helps thousands of small third-party traders exist, but also makes money for the
aggregator, who don’t have to handle the inventory or delivery at all, having
outsourced it to the long tail.

 Yet although Google’s stated goal is “to organize the world’s information and make it
universally accessible and useful”, it makes money primarily through exploiting the

SEAT - NB Page 2
INTERNET OFTHING – (R19)

long tail of advertising, making it easy for small producers to advertise effectively
alongside giant corporations.

LEARNING FROM HISTORY

 What have we learnt that we could apply to an Internet of Things project that we
want to turn into a viable and profitable business?

 First, we’ve seen that some models are ancient, such as Make Thing Then Sell It.

 The way you make it or the way you sell it may change, but the basic principle has
held for millennia

 Second, we’ve seen how new technologies have inspired new business models.

 Third, although there are recurring patterns and common models, there are
countless variations. Subtle changes to a single factor, such as the manufacturing
process or the way you pay for a product or resource, can have a knock-on effect
on your whole business.

 Finally, new business models have the power to change the world like mass
production changed the notion of work itself.

What is the use of THE BUSINESS MODEL CANVAS? Explain each template box.

 One of the most popular templates for working on a business model is the
Business Model

 Canvas by Alexander Osterwalder and his startup, the Business Model Foundry.

 The canvas is a Creative Commons–licensed single-page planner.

 The boxes are designed to be a good size for sticky notes, emphasizing that you
can play with the ideas you have and move them around.

 Also the layout gives a meaning and context to each item.

 Let’s look at the model, starting with the most obvious elements and then drilling
down into the grittier details that we might neglect without this kind of template.

 At the bottom right, we have Revenue Streams, which is more or less the question
of “how are you going to make money?”

 Although its position suggests that it is indeed one of the important desired
outputs of the business.

SEAT - NB Page 3
INTERNET OFTHING – (R19)

 The central box, Value Propositions, is, in plainer terms, what you will be
producing—that is, your Internet of Things product, service, or platform

 The Customer Segments are the people you plan to deliver the product to.

 The Customer Relationships might involve a lasting communication between the

company and its most passionate customers via social media.

 Maintaining a “community” of your customers may be beneficial, but which

relationships will you prioritise to keep communicating with your most valuable
customer segments?

 Channels are ways of reaching the customer segments.

 From advertising and distributing your product, to delivery and after-sales, the
channels you choose have to be relevant to your customers.

 On the left side, we have the things without which we have no product to sell.

 The Key Activities are the things that need to be done.

 The Thing needs to be manufactured; the code needs to be written.

 Key Resources include the raw materials that you need to create the product but
also the people who will help build it.

 Few companies can afford the investment in time and money to do all the Key
Activities themselves or even marshal all the Key Resources.

 You will need Key Partners, businesses that are better placed to supply specific
skills or resources, because that is their business model, and they are geared up to
do it more cheaply or better than you could do yourself.

 Perhaps you will get an agency to do your web design and use a global logistics
firm to do your deliveries.

 The Cost Structure requires you to put a price on the resources and activities you
just defined.

 Helps you determine whether you will be more cost driven (sell cheaply, and in
great volume via automation and efficiency) or more value driven (sell a premium
product at higher margins, but in smaller quantities).

SEAT - NB Page 4
INTERNET OFTHING – (R19)

WHO IS THE BUSINESS MODEL FOR?

 Primarily, the reason to model your business is to have some kind of educated
hypothesis about whether it might deliver what you want from it. the canvas help you
think about the business and give you ways to brainstorm different ideas:

 What if we target the product at students instead of businesses?

 What if we outsource our design to an agency?

 What if we sell at low volume/high value instead?

 The model is also useful if you want to get other people involved.

 This could be an employee or a business partner...or an investor.

 In each of these cases, the other parties will want to know that the business has
potential, has been thought out, and is likely to survive and perhaps even go places.

 Your customers will also be considering whether to invest their time and money in
your product.

 They will ask themselves certain questions about it. some of these likely questions
are:

 Why should I waste time trying out Yet Another Social Network? I think I’ll wait and
see whether all my friends join it first.

SEAT - NB Page 5
INTERNET OFTHING – (R19)

 This first question is about your “Value Proposition” (that is, the product) and a
reasonable concern if you are trying to get into a market that already has good or
popular solutions.

 Your online document collaboration looks great, but is it worth my moving my whole
business to it? If you stop trading or change the platform, we may have to redo all the
work again.

 Your online document collaboration looks great, but is it worth moving my whole
business to it? If you stop trading or change the platform, we may have to redo all the
work again.

 Such customers may well be interested in the details of your business model to
calculate whether the risk they’ve identified is worth their commitment.

 This free service is fantastic, but why don’t you let me pay for it, so I can get
consistency, receive support, and avoid adverts?

 Lastly, many customers are aware of alternative charging models that they would
prefer and might prefer a different one.

 Not all customers vote for the free option.

 It has been stated about “free” products: “If you’re not paying for something, you’re
not the customer; you’re the product being sold”. several assumptions often made are:

 Not paying means not complaining.

 You’re either the product or the customer.

 Companies you pay treat you better. So startups should all charge their users.

 Powazek suggests that the actual lesson to be learned is that:

 Your business plan cannot be secret anymore. People are too smart for that, too tired
of getting burned, too wary of losing their contributions when a startup dies, and too
annoyed by sudden changes to the terms. Communicate your business plan from the
start and you’ll avoid a thousand problems down the road.

Explain some of the models that Internet of Things companies have used or might
use. MAKE THING, SELL THING

 Adrian sells custom-built Bubblini, and the startup Good Night Lamp is preparing
to ramp up production of its eponymous lamps as an off-the-shelf product.

SEAT - NB Page 6
INTERNET OFTHING – (R19)

 Many small-scale projects take the option of selling the product in “kit” form,
with some assembly required.

 Because kits are assumed to be for specialists and hobbyists rather than the
general public, the administrative burden may be lower.

 However, making a decision to limit your target market may well limit the
potential revenue also.

SUBSCRIPTIONS

 An ongoing service implies costs to the provider—development, maintenance of

servers hosting costs, and in some cases even connection costs.

 A subscription model might be appropriate, allowing you to recoup these costs and
possibly make ongoing profit by charging fees for your service.

 In the future, content publishers may pay for certain premium services.

 People happily pay subscriptions to music services, corporate groupware, and of

course, mobile phones so perhaps Internet of Things products in these spaces will find
subscription more appealing to their consumers.

 In so-called freemium model ( “free” and “premium” ) a smaller or larger part of your
product isfree, while the users are also encouraged to pay a premium to get additional
features or remove limits.

 This model could be combined with our first two models: Buying the physical device
gives free lifetime access to the associated Internet service, but additional paid
services are also available.

CUSTOMISATION

 For a mass-produced item, any customisation must be strictly bounded to a defined menu:
a selection of different colours for the paintwork.

 The websites Facebook, Twitter etc offer small degrees of customisation within strictly
defined boundaries: a selection of (tasteful) colour schemes and background of your
choice.

 Many Internet of Things products have some possibility of customisation:

 Every Bubblino has a name (given to it by Adrian), but the user can also change which
phrases he listens to on Twitter.

SEAT - NB Page 7
INTERNET OFTHING – (R19)

 The new manufacturing techniques, such as laser cutting and 3D printing, should allow
great possibilities for customising even the physical devices.

 MakieLab (http://makie.me) make dolls that can be designed online.

BE A KEY RESOURCE

 Not every Internet of Things business will be selling a product to the mass market.

 Some will sell components or expertise to other companies—that is, component

manufacturing or consultancy services.

 Effectively, in this kind of business, you are positioning yourself as a “key resource”
or a “partner” in somebody else’s business model.

 Small companies such as Adafruit sell electronic components to hobbyist makers.

 On the consultancy side, work will be available either simply providing your skills for
hire or indeed in providing vision and expertise for strategic planning to a company
that wants to engage with the Internet of Things.

 Environmental data consultancy amee (www.amee.com) provides means for not only
consumers but also businesses and government bodies to improve their environmental
impact by getting hard data about their carbon footprint—not just their direct energy
usage but also the energy used to dispose of their waste.

PROVIDE INFRASTRUCTURE: SENSOR NETWORKS

 Sensor data is a fascinating topic in the Internet of Things: There are official data
sources which are expensive to create and hard to access and they can exist only
where a government body or company has chosen to apply its large but finite
resources.

 The long tail of third-party data sensor enthusiasts can supplement or sometimes
outclass the official streams of information.

 What is needed is a platform to aggregate that data, and one of the companies
competing to fulfil that role is Xively.

 They allow any consumer to upload a real-time feed of sensor data.

 Xively was intended to provide a free, public infrastructure for open source data while
also providing enhanced commercial offerings with enhanced capacity and privacy
options and formal service level agreements (SLAs).

SEAT - NB Page 8
INTERNET OFTHING – (R19)

 Sensor data is information, which can be shared freely or might simply be sold. Many
energy suppliers are rolling out “smart meters”, which promise greater efficiency and
therefore cheaper bills but also aggregate huge quantities of information.

 As regards the business model, you need to consider the legality of such collection
and whether it fits with your company values.

TAKE A PERCENTAGE

 In the example of sensor networks, if the value of the data gathered exceeds the cost
of the physical sensor device, you might be able to provide that physical product for
free.

 You could also link devices to advertising to reduce the price.

 Even without charging the end user of your Internet of Things device, there will be
many options to make a profit from somewhere (ad revenues, payment for data
services from companies or state organisations, commission for data bandwidth
incurred, etc.)

 Perhaps future versions of Bubblino could also be triggered for occasional promoted
tweets.

 Perhaps your Internet-enabled fridge will make tutting noises when you fill it and
suggest other (promoted) options for your next shop.

List and explain the possible ways to get funds for AN INTERNET OF THINGS
STARTUP?

 There will most likely be a period when you have only costs and no income.

 The problem of how to get initial funding is a critical one.

 If you have enough personal money to concentrate on your new Internet of Things
startup full time, you can fund your business yourself. For others there are still ways
to kick off a project.

 If the initial stages don’t require a huge investment of money, your time will be the
main limiting factor.

 If you can’t afford to work full time on your new project, perhaps you can spare a day
in the weekend or several evenings after work.

 Many people try to combine a startup with a consultancy business, planning to take
short contracts which support the following period of frantic startup work.

SEAT - NB Page 9
INTERNET OFTHING – (R19)

 Making sure that you don’t need to spend huge amounts on the startup is key.

 You probably don’t need an office in the early stages, and perhaps you don’t need
expensive Aeron chairs.

 You can work from your kitchen table, a café, or out of a co-working space.

HOBBY PROJECTS AND OPEN SOURCE

 If your project is also your hobby, you may have no extra costs than what you would
spend anyway on your free-time activity.

 One way to make a project grow faster might be to release all the details as open
source and try to foster a community around it.

 This approach can be hard work and can benefit from a natural talent, experience, or
luck in attracting and maintaining good collaborators.

 After you have open-sourced a project, you can’t close-source it again.

 Yes, you can probably fork the project and continue to work on it in secret, but the
existing project may carry on if your collaborators are enthusiastic enough about it.

 Indeed, your idea, code, and schematics could be used by others in their own
commercial offering.

 Careful consideration of the license used may be critical here: A more restrictive
license such as the GPL requires those who build on your work to share their source
code also under the same terms.

 when thinking about open source, remember that as the project initiator and owner,
you would be the best placed in forming a company around the project and are more
likely to get benefits from the relationship with the community:

 Many pairs of eyes and hands testing, reporting problems, fixing them, and building
new features

 Many passionate users with real use cases and opinions about the product—better
than any focus group

 The goodwill of that community, with its ready-made network of personal

recommendations and social-media marketing

VENTURE CAPITAL

 Getting funding for a project from an external investor presents its own work and
risks.
SEAT - NB Page 10
INTERNET OFTHING – (R19)

 Startups often concentrate their fundraising activities into rounds, periods in which
they dedicate much of their effort into raising a target amount of money, often for a
defined step in their business plan.

 Before any official funding round comes the informal idea of the friends, family, and
fools (FFF) round.

 This stage may be the one in which you’ve contributed your life savings, and
persuaded your aunt, your best friend, and a local small business to pitch in the rest,
on the basis of your reputation.

 Although it’s important to consider the possible impact on your personal

relationships, this round of funding may be the most straightforward to get hold of.

 A common next step would be an angel round.

 The so-called angels are usually individual investors, often entrepreneurs themselves,
who are willing to fund some early-stage startups which a more formal investor.

 Though angels take on a lot of risk in investing so early, before companies have
proved themselves, they tend to invest in a number of companies to spread the risk.

 They usually want equity in your company, a percentage of the value of the company,
that will pay back their investment if and when you do well.

 Angels typically disburse sums that are significant for early-stage startups—in the
region of tens or possibly hundreds of thousands of pounds.

 These angels might also demand a place on your board of directors, to oversee their
investment, but also out of interest in helping the company to succeed.

 The venture capital (VC) round is similar, but instead of your courting individual
investors, the investor is a larger group with significant funds, whose sole purpose is
to discover and fund new companies with a view to making significant profit.

 Typically, VC funding will be larger chunks of money, from half a million pounds up.

 In the early stages, would be an accelerator, which might be run by a venture capital
firm.

 In this case, part or all of the money that could be awarded to your company is paid in
kind, in the form of free office space, consultancy, and specific training and
mentoring in areas that the investor believes will make you a success.

 You need to be aware that by accepting investment through venture capital, you are
committing yourself to an exit.

SEAT - NB Page 11
INTERNET OFTHING – (R19)

 An exit strategy is a “method by which a venture capitalist or business owner intends

to get out of an investment that he or she has made”.

 Because your investors will want a return, your long-term goal can’t just be to make
your company successful but to do it in such a way as to pay back the investment.

 Typically, you have only two exits: You get bought by a bigger company: In this case,
the buyer buys out the investors; that is, the buyer pays the investors the value of their
percentage equity of their perceived valuation of the worth of the company.

 You do an IPO (initial public offering)—that is, float on the stock market: This
involves new shares being issued and sold to the stock market.

 Although this option “dilutes” the value of the shares already issued, the existing
holders are able to then sell their shares on the market too, to get back their
investment, or to retain the shares if they believe that the shares will grow in value.

GOVERNMENT FUNDING

 Governments typically want to promote industry and technological development in their

country, and they may provide funds to help achieve particular aims.

 Although governments can and do set up their own venture capital funds or collaborate
with existing funds in various ways, they generally manage the majority of their funds
differently.

 For one thing, they also want to fund existing companies to do new research and
innovation.

 The money provided still has “strings attached”, but they are likely to be handled
differently:

Outputs: Deliverables are the metrics that an awarding body may use to tell if you are doing
the kind of thing that the body wants to fund.

 This metric may simply be a test that you are managing the money well or may be related
to the goals that the body itself wishes to promote.

 You might be required to write regular reports or pass certain defined milestones on
schedule.

 If your funding is given in stages, the later payments may be conditional on successful
delivery of previous outputs.

 You may be required to match funds; that is, if you were awarded L10,000, you would
also have to raise L10,000 yourself.

SEAT - NB Page 12
INTERNET OFTHING – (R19)

Spending constraints: Some funding may require you to spend a proportion of the money
on, for example, business consultancy or web development, perhaps with the fund
facilitator’s company or associates.

 Governments will, however, try to split their pot of money to fund the outcomes that they
are interested in as policy.

 Quite reasonably, this may tend to favour grants for research over grants to help get to
market.

 After all, after the product is proven, the company should be able to afford to fund it by
itself or get VC funding.

 It is perfectly normal for companies to work through multiple sources of funding.

CROWDFUNDING

 we can think of crowdfunding as the long tail of funding projects.

 Getting many people to contribute to a project isn’t exactly a new phenomenon.

 Over millennia many civic and religious monuments and constructions have been
funded at least partly by the public.

 However, such projects have been mostly sponsored and given focus by some
influential person or body.

 The main options for crowdfunding are Kickstarter (www.kickstarter.com) and

Indiegogo (www.indiegogo.com).

 Historically, Kickstarter was available to use only for funding projects based in the
US, whereas

 Indiegogo set itself up to be “the world’s funding platform”.

 Appealing text, slick videos, and great design may make the difference between yours
and a competing project.

SEAT - NB Page 13
INTERNET OFTHING – (R19)

 Because even some successfully funded projects may fail, older and wiser
crowdfunders may be more likely to fund projects in which they see some attention to
the business model or a track record for successful completion by the project team.

 Our funders are real people and will have all the variety of concerns that any group of
real people have.

 This interaction with a large and diverse group is a key part of the interest of this
method of funding:

 It is far more than just the money.

 Crowdsourcing allows you to know the customers interest in your product.

 Assuming that the aggregators (Kickstarter, Indiegogo, and the rest) are doing their
job well, they will reach a good segment of the potential customers for your Internet
of Things product.

 If there is no interest, perhaps the product is not a winner as currently specified and
advertised.

 If the project goes viral, as happens occasionally, and gains far more than the targeted
amount, you know you have a potential hit on your hands.

what are LEAN STARTUPS?

 The concept of a “lean startup,” pioneered by Silicon Valley entrepreneur Eric Ries,
springs from this idea (The Lean Startup: How Today’s Entrepreneurs Use
Continuous Innovation to Create Radically Successful Businesses, Crown Business,
2011)

 Many lean proponents suggest setting up a landing page for a project with a simple
form to register interest.

 This is quick and simple to do, especially as numerous startups do exactly this.

 These simple pages allow you to propose many projects and focus only on the ones
that have most feedback.

 In many ways, this “laziness”—doing the minimum now and putting off the hard
work till later— is also the reason that we have split the prototype from the final
product.

SEAT - NB Page 14
INTERNET OFTHING – (R19)

 There is a time to market your project, a time to ensure that the idea works, and a time
to build a sellable product.

 If you are thinking “lean”, you should be applying this idea at all stages.

 For example, at the first stages of production and marketing, you should be working
towards the “Minimum Viable Product”.

 This is still a sellable product rather than a prototype, but with all extraneous features
removed, it may feel like a prototype of your final vision for the product.

 All the initial efforts are towards making this product because it can be sold.

 If you have time and money afterward to add additional enhancements to the product,
service, packaging, and so on, this will add more value.

 But adding those enhancements to an incomplete prototype would not result in a

working business model.

 The essence, then, of lean is to be able to iterate, performing the tasks that are
required to get things moving at this stage, without investing time upfront to make
everything perfect.

 You can tweak in response to the feedback you get from iterating your product in the
real world.

 Such tweaks are known as pivots and usually work by changing one part of your
model—think one of the boxes on the Business Model Canvas.

For instance:

Zoom-in pivot:

Focus on what was only a part of the value proposition, and turn that into the whole
Minimum Viable Product.

Customer segment pivot:

 Realise that the people who will actually buy your product aren’t the ones you
were originally targeting.

 While you can continue to make exactly the same product, you have been
marketing it to the wrong people.

Technology pivot:

 Accomplish the same goals as before, but change the implementation details.

SEAT - NB Page 15
INTERNET OFTHING – (R19)

 This pivot would be a business decision, made to improve manufacturing costs,

speed, or quality.

SEAT - NB Page 16