Know the total opportunity, then define your strategy
By definition, a “smart connected product” operates in an ecosystem. That ecosystem is expanding along with the ability of the product development organization to define the ecosystem parameters. This is evident in simple real-life examples. If you buy a car today, you have few options for service outside the OEM who sold you the automobile. This is likely also true if you purchase a jet engine, tractor, truck, or smart building. However, the ecosystem is different in all cases.
John Deere has a mature view of its Digital Ecosystem as outlined here in Australia. Globally, Connectivity and Digitization are at the heart of a core business strategy. Can this be replicated?
The first step in developing a strategy is to define the entire ecosystem value model, which includes the monetization model. “Monetization” refers to the total cost and payments in the ecosystem; “value” refers to the full view of the digital service for the customer. Understanding the entire model will make participation and monetization more precise.
The example here illustrates how one type of business might map its ecosystem. It would be significantly different if this were a medical device or a connected building. Or, if you are providing an elevator or HVAC solution for a connected building, how might your ecosystem mapping look?
Once the model is created, the Value Threading methodology will walk you through each monetization option to help define the strategy. An OEM would never own the entire ecosystem, but each OEM must define ownership and monetization of the most strategic elements.
Partners are an essential part of the model. Partners could use your data or APIs, similar to an ISV in the SaaS world. Or, they may have a stand-alone solution that is part of the ecosystem but not connected. The impact on strategy is quite different between the two. The obvious example of Apple comes to mind.
Finally, I am introducing a new part of the model that may be a future “game changer.” This is the idea of “business transaction” model ownership. Depending on your business, this could be an optimal revenue share model, especially for integrated products or tier #2 suppliers.
EY and others have commented on how Financial Services can participate in the ecosystem. The path for product companies to participate in the transactional side of financial services is uncertain, but it should be included in the ecosystem mapping. Banks have taken note of the upcoming competition of big tech companies like Tesla, Alphabet, & Meta.
In a future article, the Value Threading program will introduce an AI Modeling solution to help define each ecosystem’s revenue opportunities and monetization potential. This critical piece (the Monetization thread) is one pillar of a complete strategy.
