Business Models for the Internet of Things: An In-Depth Categorization, Design and Innovation Tools, Challenges, and Solutions

The swift expansion of the Internet of Things (IoT) has brought about a fundamental transformation in the functioning of enterprises, leading to the emergence of groundbreaking offerings in various industries. As this disruptive technology persists in reshaping sectors, comprehending the essential business models responsible for its prosperity becomes ever more essential. This investigation primarily aims to provide a thorough categorization of IoT business models with eight classes of business models, encompassing paradigms such as Product-oriented, Service-centric, Outcome-based, Pay-per-usage, Data-driven, Subscription, Compliance, and Testbed. Subsequently, challenges inherent to IoT business models are analyzed, accompanied by corresponding solutions. The study further provides an extensive overview and comparison of primary business model innovation (BMI) tools tailored to the IoT landscape, comparing those tools and investigating the primary features and usability of each BMI tool.

I. Introduction

There is no constant definition for business model. However, on the one hand, the early statement on the definition of a business model defines it as the following statement: “A business model outlines the composition, organization, and management of transactions crafted to generate value by leveraging business opportunities” [1]. Moreover, a business model refers to how an organization intends to generate revenue efficiently, taking into account the assumptions on how it will create and capture value to benefit the enterprise. It involves the organization’s strategy for balancing costs and benefits while ensuring a profitable operation [1]. According to Lai et al., value creation and value capture are the two primary functions of a business model. In a similar vein, it is defined in their paper that the business model is the core representation of how an enterprise provides value to its customers, persuades them to pay for that value, and then transforms those payments into profits [1]. IoT business models are no exception. IoT is considered critical to the fourth industrial revolution. The usage and popularity of IoT have rocketed, such that the number of connected devices to the Internet has risen significantly [2]. This development will lead to massive opportunities for firms to employ this technology in their business models, services, and products to strengthen their competitive advantage [2]. Because of its ability to collect detailed data on customer product usage, IoT has attracted significant interest from both practitioners and scholars. They are particularly intrigued by its potential to enable the development of novel product and service offerings as well as the reevaluation and improvement of existing business models using this useful information [2]. The rise of IoT and its transformative potential across industries necessitate a thorough understanding of the novel business opportunities it brings forth and the innovative business models tailored to operate within the IoT landscape.