Business Models and the Internet of Things (Extended Abstract) - Interoperability and Open-Source Solutions for the Internet of Things - page 9

First, the theory and practice of service orientation must be critically examined and
expanded as needed against the backdrop of the characteristics of digital services.
Second, digitalization that extends into the product itself (in contrast to digital support
in the value-creation process) must of necessity lead to an additional service
orientation.
The differing characteristics of physical and digital products are particularly
noticeable in product development. In a world where a bug can be repaired with an
update at almost no cost, even in an installed base running in the millions, and where
right from the start high growth is required due to network effects, speed, early cus-
tomer contact, and aesthetics are of utmost importance in development. In the hardware
business, however, and in the world of embedded computing as well, other terms apply.
Here, for example, an error in a product that has already been sold usually results in an
extremely costly, image-damaging recall action. These differences conditioned by
technology and economics have meant that divergent cultures arose in hardware
compared to those governing Internet software departments and have shaped putatively
incompatible organizational units.
Small units that can and must operate in the tradition of lean startups [ 5 ] are
advantageous in addressing another challenge. Their leanness itself forces them to work
on development together within a network of partners

which include their customers.
This implies not only a lead user approach [ 6 ] but encompasses an entire ecosystem as
facilitator. In the digital world, the one who brings the most developers to its platform
wins. In most instances, hybrid solutions mean that the party offering them must have
access to data that is constantly generated from application of the solution. This is new
for classic production companies and brings with it both many opportunities as well
as risks.

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5 Summary and Outlook

The goal of this essay is to inspire innovators from business and society at large to
develop business models leveraging the Internet of Things. It analyzes the role that the
Internet has played in business models to date, documents the speci

c economic energy
of the Internet of Things, and derives from that the general product/service logic
serving as the foundation for speci c components and patterns of Internet of Things

business models. Finally, it indicates some of the key challenges involved in its
implementation that will confront in particular companies with a successful history in
manufacturing industries.
Maybe this essay raised more questions than it answers. But hopefully some can
now be more speci cally formulated. The Internet of Things remains an academically

and economically fascinating and rewarding phenomenon.

Acknowledgements. The Bosch Internet of Things and Services Lab provided major funding to
HSG for this project. We thank Prof. Oliver Gassmann, Ass. Prof. Karolin Frankenberger,
Kristina Fl ü chter and Stefanie Turber for invaluable discussions and for their support.