In our electronically dominated world, technology has made the seemingly impossible, possible. From smartwatches that track your heartbeat to thermostats you adjust through an app, as technology continues to evolve, we become ever more connected, and this is only increasing.

By 2025, Strategy Analytics projects that the number of IoT devices dispersed throughout the world is set to reach 38.6 billion. This jump equates to almost five IoT devices per every single human being. The IoT market continues on an upward trajectory over the next five years, with a predicted compound average growth rate (CAGR) of 21%.

Along with the uptick in the number of devices and the insights that can be gleaned from the data collected is a 25% increase in the number of businesses that are leveraging IoT technology. Through the implementation of IoT technologies, ample opportunities exist for enterprises to streamline operations, reduce costs, and help employees maintain a high level of productivity and engagement.

Consequently, all businesses—start-ups and tech behemoths alike—are faced with the challenge of incorporating IoT into their existing business models, eyeing the market to determine which entry points have the least risk with the most return on investment (ROI).

These considerations are all-important because, at the consumer level, almost everything we touch is becoming an IoT device—from cars, refrigerators, and home security systems to fitness trackers, watches, and more. But the IoT universe extends beyond the direct consumer. There are many more customer touchpoints available for IoT in manufacturing and industry, to mention just two other areas, and, in turn, more opportunities for businesses to boost their revenue generation channels.

The various IoT business models are essential frameworks that help businesses answer the questions of strategic, technical, and operational feasibility for IoT.

Market-Based IoT Business Models

An IoT business model focuses on leveraging IoT as a value-added service for internal and external stakeholders. A one-size-fits-all IoT business model does not exist. Your industry, including any compliance regulations and your targeted end-users, impact the design and deployment of your IoT initiatives.

The IoT supply chain has several layers: devices, connectivity, data processing and analytics, and applications. Unless you’re a device manufacturer or planning on manufacturing devices later, it’s highly likely that your IoT business model focuses on providing a service through one of the other layers.

IoT Device Hardware and Software

Device manufacturing is a significant capital investment. So, this IoT market-based business model isn’t feasible for most enterprises. A majority of businesses are the end consumers of IoT devices. For example, in the industrial internet of things (IIoT) scenario, sensors and tablets are used to monitor the equipment. However, the devices and sensors are purchased from a vendor rather than being manufactured in-house.

It follows that other than your general IT infrastructure asset management and service management considerations, the IoT device manufacturing business model won’t usually be the focus of your enterprise. It is a component of your overall IoT implementation plan (device sourcing and acquisition).

IoT device software development is a revenue generation stream that focuses on creating the operating system and relevant software applications (slightly different than the consumer apps, but frequently overlapping). At times, these are done by the same enterprise. Or, vendors are contracted to work with hardware engineering on the client-side.

Connectivity

Without connectivity, our IoT devices have limited functionality. Connectivity encompasses the hardware required for signal transmission and reception, but also the software needed for the devices attempting network connection and communication.

Given the hardware needed for the infrastructure aspect of the connectivity layer, and the various national and international regulations for connectivity services, market entry isn’t as easy as the app development market (more on this below).

The connectivity IoT business model centers on offering several different services tied to a package of connectivity types (satellite, WiFi, cellular, for example) tailored to enterprise needs. These revenue generation streams can range from “as a service provider” models to enterprise consultation on designing their IoT infrastructure.

Cloud Services, Data, and Analytics

The cloud services, data, and analytics layer of IoT include data processing and storage. IoT devices expand enterprise data collection capabilities, which, in turn, increase storage and computational demands. The increased data collection poses a challenge of deciding what to do with, and how to store and manage data.

For all services within this layer, the IoT business model is geared towards providing customers with subscription-based services for data computation and storage. Amazon, Google, and Microsoft are significant competitors in this space. However, small niche markets may be a point of entry, e.g., specialty analytics software or application integrations at each stage of data collection, storage, and analytics.

An IoT data collection, storage, and analysis strategy are essential for companies, as it establishes a focus on determining which data are valuable and which are not. The data transferred from IoT devices and sensors are used to create business models, learn about your customers, and uncover new opportunities previously overlooked.

Applications

Application development is the most easily accessible IoT layer, but, at the same time, is also the most crowded. There are millions of apps available through Google, Apple, Amazon, and Microsoft. But, enterprises frequently need customized solutions whose value depends on the expected outcomes of the app.

With that stated, there are two IoT business models when it comes to app and device software development.

The first is generating revenue from a customer-driven (external stakeholder) app. Diet and fitness tracker apps such as MyFitnessPal are a prime example of subscription-based revenue streams. Users download an app, can decide to pay the monthly fee for additional value-added features, or continue to operate on the free tier.

A subsection of customer-driven app development is offering an app as a convenient way to access another service. The myriad of banking apps or Uber and Lyft are examples of leveraging an IoT revenue stream but as a non-subscription based app.

The second is business app development for internal users such as employee time tracking or point of sale data collection and analytics dashboard displays. Typically, the goal of creating a business app is to facilitate faster insight into key performance indicators (KPIs) and quicker, more accurate decision making.

The IoT business model for app development tends towards a consultative model rather than the ever-popular subscription-based or “as a service” model. Niche or targeted markets include building apps that integrate enterprise software data from different sources, e.g., manufacturing, shipping, storage, point of sale systems as examples.

As long as technological innovation continues, the IoT market continues to expand. New opportunities for customer reach and cost efficiency materialize as new devices come to market at both the consumer and enterprise levels. Whether your enterprise is planning IoT market entry or your process improvement plan includes an IoT adoption initiative, mapping your cost-benefit analysis to each of the IoT stack layers is essential to your success.