What does an Internet of Things Value Chain look like?
We can get a glimpse of an Internet of Things value chain from the above figure. Note that when talking about the Internet of Things ecosystem, it is important to discuss not just the technical part of it, but also its possible applications. Some say, it is the issue of how to deliver services in the IoT ecosystem.
In the startup community, many people dive into IoT-related cloud services. For instance, they choose to create a variety of services like dashboards and data analysis. Such services are great, but the common challenges they often face are difficulties of delivering services and market expansion. Essentially, the issues of how to get more people to use their services with the support from the business development team.
For the existing hardware makers
Most of the target markets for IoT products and services can be seen as a kind of B2B2C market. But the majority of our hardware makers tend to focus on the B2B market, without cloud services of their own. We can say it's difficult for them to create cloud services of their own. That is partly because their core business is a kind of 'box moving'. Meanwhile, because a lot of Taiwanese hardware makers don't have so-called 'Internet genes,' it's been hard for them to reach end-users. Some even consider reaching end-users as a waste of time and resources, and turn their attention on clients (the other end of B2B). Hence the results represented in the below figure, with 5 to 10 percent of their value share.
Who is it that makes the last mile connection to end-users?
Based on the above figure, application players are the key to reaching end-users. This refers to system integrators. Similar views have been mentioned by industrial computer supplier Advantech Co. Chairman K. C. Liu in a report. Liu explained that the first stage of IoT business development is hardware devices; the second stage, software and SRP; the third stage, big system integrators. Advantech has succeeded in becoming the key player in the global market for the first stage. Now the company is moving toward the second stage, hoping to tap into the second stage with the help of PaaS (Platform as a Service), accelerators, and/or investments in system integrators. Liu thinks that the idea of PaaS is like Windows, iOS, and Android, it is like a digital tool for IoT system integrators and a key to foster IoT innovation. According to Liu, Advantech aims to add software platform services to hardware devices, becoming a SRP provider to system integrators. This move will help the development of system integrators as well as Advantech's goals for second stage development.
The importance of system integrators is that they can make the last mile connections with end-users and establish relationships with them in the field. With this understanding in mind, we can tell why, from Mohit Agrawal's observation, systems integrators can have 10 to 20 percent of the value share.
Here, we learn that the value of system integrators lies in delivering services. Hardware makers and IoT-related hardware devices makers will have to offer what they have to system integrators before it gets used by end-users. In similar fashion, IoT cloud service providers or IoT innovation makers will have to go through different kinds of system integrators in order to deliver the important value of their platforms.
The reference essay we’ve suggested here is a good read. Author Mohit Agrawal first discusses key players of the current IoT ecosystem with an IoT value chain business model angle and then furthers the idea with different perspectives of other values.
Note that ‘Smart Module’ and ‘Smart Object’ capture up to 5-10 percent of the IoT Value Chain in the author's analysis. Many didn't get the idea and assumed that once the old hardware devices add various wireless networking features they’d be in the Smart Object business, which is why many startups were talking about the idea of “connected things” a while ago. But what about the idea that getting our share with our hardware makers’ competitive advantage in this 5-10 percent of value? Or should we put new efforts to capturing the largest value share?
From my observation, it looks like most of companies and startups are eying to become big platform providers in hopes of getting the biggest piece of the pie of the new Value Chain. Now, you have to be careful not to tell others that you're providinga Total Solution or end-to-end IoT solution, because very likely you're not.
Big companies and key players are already playing leading roles with IoT partnerships and alliances. The future development of the IoT ecosystem needs to have more partnerships and collaborations. It is important for Taiwanese IoT startup companies to realize this to reach the potential of IoT.