Professional Documents
Culture Documents
LTV
Consumer IoT
Business Models
HBS
LTV
Agenda
Executive summary
Market context
Business model analysis
Implications for future businesses
Open questions
Consumer IoT
Business Models
Executive summary
HBS
LTV
Consumer IoT
Business Models
Funding to startups has doubled in the five years to over $2B in 2015, and
26-30B devices are expected to be connected by 2020
However, the earliest consumer IoT companies (Fitbit, GoPro) to IPO have struggled
Consumer IoT is extraordinarily fragmented, competition in sub-categories is
extremely high- lower barriers to entry have resulted in an explosion of HW
companies
Though a plethora of business models are being experimented upon, true productmarket fit for consumer IoT limited to date
HBS
LTV
Agenda
Executive summary
Market context
Business model analysis
Implications for future businesses
Open questions
Consumer IoT
Business Models
HBS
LTV
Consumer IoT
Business Models
$2,500
250
200
$1,500
150
$1,000
100
15
50
10
$0
2011
2012
2013
Investment ($M)
2014
Deals
2015
26-30B
30
$2,000
$500
25
20
7-10B
5
0
2013
2020E
HBS
LTV
Fitbit has grown extremely rapidly, but its share price has struggled
since its IPO in 2015- opinions on future outlook mixed
Fitbit Summary
Fitbit helps people lead healthier,
more active lives by empowering them
with data, inspiration, and guidance to
reach their goals.
Key Financials
Revenue: $1.85B
25
Consumer IoT
Business Models
Growth Trajectory
20
15
10
5
0
18
16
14
12
10
8
6
4
2
0
HBS
LTV
Consumer IoT
Business Models
Key Financials
Market Cap: $1.75B
Revenue: $1.6B
Growth Trajectory
GoPro Revenue ($M)
$1,800
300%
$1,600
250%
$1,400
$1,200
200%
$1,000
150%
$800
$600
100%
$400
50%
$200
$0
2010
2011
2012
Revenue ($M)
2013
2014
Revenue Growth
2015
0%
HBS
LTV
Consumer IoT
Business Models
HBS
LTV
Consumer IoT
Business Models
IoT startups that rely only on these three factors almost certainly doomed- meaningful differentiated and
sustainable competitive advantages (network effects, economies of scale, etc.) will be necessary for success
HBS
LTV
Consumer IoT
Business Models
Product Description
Petnet
Sutro
Tank
Utility
Sense
OneDrop
Interactive diabetes
monitor
Business Model
HBS
LTV
Consumer IoT
Business Models
HBS
LTV
Agenda
Executive summary
Market context
Business model analysis
Implications for future businesses
Open questions
Consumer IoT
Business Models
HBS
LTV
Consumer IoT
Business Models
Description
Product sale
Sell IoT hardware to
consumers as
primary profit
engine
Sell premium
services to
consumers that
require significant
variable cost to
provide
Low-cost (SW-like)
premium services
Sell premium
services to
consumers or
business that
require no/ little
variable cost
Example
Ringly sells
connected womens
jewelry only,
without recurring
revenue streams
Model Customer
LTV (directional)
Low
Moderate
High
Hardware-as-aservice
Charge consumers a
monthly fee for
access to hardware,
with repair/
replacement often
bundled in to fee
Consumables
Sell higher-margin
consumables as
primary profit
engine to
complement lowermargin HW
Data licensing
Gather and
monetize consumer
data through firstparty use or
licensing to third
parties
Keurig reaps
significant gross
margins (~35%+) on
consumable coffee
pods, Amazon Dash
a similar model.
Google widely
believed to
monetize/ reap noncash benefits from
gathering and
analyzing Nest
thermostat data
Moderate
High
Variable depending
on data actionability
Product
sale
High cost
premium
services
Low-cost
premium
services
HWaaS
Consumables
Data
licensing
HBS
LTV
$60.00
$ for returns, other costs
$ to distributor
50%
$ to retailer
40%
30%
20%
$ to HW company
$100.00
10%
0%
Consumer IoT
Business Models
Product
sale
High cost
premium
services
Low-cost
premium
services
HWaaS
Consumables
Data
licensing
HBS
LTV
20
20
18
14
16
12
10
8
6
4
2
Key implications
18
16
14
12
10
8
6
4
2
Units
n
9
10
High fixed cost, very low variable cost businesses result in very
low unit costs as quantities increase
Key examples include app stores and other software sales, or
additional key generation for Kevo locks
CLTV much higher than high variable cost premium services,
but may be difficult to demonstrate clear value to customers in
some cases (i.e., Kevo additional keys may result in customers
feeling cheated)
Units
n9
Consumer IoT
Business Models
10
Product
sale
High cost
premium
services
Low-cost
premium
services
HWaaS
Consumables
Data
licensing
HBS
LTV
Consumer IoT
Business Models
*: Tile sells $12 product with no recharging capability that lasts ~1 year- in practice, Tile essentially sells tracking for $1/ month
Source: http://readwrite.com/2015/10/13/hardware-subscription-business-model/
Disadvantages
Product
sale
High cost
premium
services
Low-cost
premium
services
HWaaS
Consumables
Data
licensing
HBS
LTV
Consumer IoT
Business Models
Disadvantages
Managing customer
satisfaction and behavior
crucial to success- Keurig
customers often dissatisfied
with higher-priced pods go to
off-brand pods with no
revenue cut to Keurig,
defeating model. Though
Keurig has fought back to
attempts to prevent this
through DRM-like
measures, many customers
upset
Product
sale
High cost
premium
services
Low-cost
premium
services
HWaaS
Consumables
Data
licensing
HBS
LTV
Consumer IoT
Business Models
Source: http://welcome.libertymutual.com/nest/
Disadvantages
HBS
LTV
Agenda
Executive summary
Market context
Business model analysis
Implications for future businesses
Open questions
Consumer IoT
Business Models
HBS
LTV
Consumer IoT
Business Models
Similarities to PC,
Mobile
HW Is Not Enough
Selling products
alone is not
enough - IoT
companies must
build recurring
revenue streams
Platforms and
operating
systems for IoT
are attractive, but
only a very few
will succeed
Incumbents will
have key
advantages in
several significant
areas of IoT
Incumbent
Advantages
Chase High
Interaction/
Transactions
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
1.
2.
3.
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Building recurring revenue crucial to success of consumer IoTthree key models are leading the way
Embrace consumables
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Fitbit and GoPro market cap are 28% and 13% respectively from peak
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Target Description
Acquirer
Transaction Value
MyFitnessPal
Nutrition-tracking
Under Armour
$475M
MapMyFitness
Run tracking
Under Armour
$150M
Fitstar
Fitbit
$17.8M
Nutrition tracking
Jawbone
$2.7M
Nutrition tracking
Jawbone
Undisclosed
Massive
Health
Nutrivise
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Proliferation of devices and competition at both the low- and highend will increase importance of sustainable competitive advantages
Dividends of smartphone + IoT
Component prices to
continue to decline for
several years
HW startups to continue to
proliferate for a few years,
most successful to eventually
consolidate (similar to mobile
evolution)
Price competition in
consumer IoT inevitable,
especially in product
categories dominated by
commodity smartphone
components assembled by
outsourced third-parties
Brand-building to continue to
increase in importance,
implying increased spending
on advertising and branding
by IoT
Even greater need for
building recurring revenue
streams to fund brandbuilding efforts
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
2005
Evolution of mobile OS
Windows Mobile
iOS
RIM
Bada
Palm webOS
MeeGo
Android
iOS
Windows Mobile
RIM
2015
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Many platforms competing to be the OS for the Smart Homeexpect extremely few winners to emerge
Contenders for the Smart Home
Google / Nest
Flex
Samsung
Apple
Amazon/Alexa
Microsoft
Comcast, Time
Warner, and others
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Mix
Echo / Alexa
Source: Frost & Sullivan, Report on Voice Recognition Technology
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Similarities
to PC,
Mobile
HW Is Not
Enough
Platforms
Are Hard
Incumbent
Advantages
Chase High
Interaction/
Transactions
HBS
LTV
Consumer IoT
Business Models
Some of the strongest businesses in consumer IoT will be those that win
in home/ work areas with frequent interactions or high value transactions
High value transactions
Frequent interactions
HBS
LTV
Agenda
Executive summary
Market context
Business model analysis
Implications for future businesses
Open questions
Consumer IoT
Business Models
HBS
LTV
Consumer IoT
Business Models