Gordon Hui (HBR, 2014) discusses the shift of the value mindset due to IoT. He makes a distinction between Value Creation and Value Capture. He refers to value creation as those activities that increase the value of a company’s offering and encourage customer’s willingness to pay. Value capture, according to him, is simply the monetization of value.

One of the key distinctions between the traditional mindset and the IoT mindset is in the product offering. The traditional mindset has a concept of a standalone product versus the continuously updated product in the IoT mindset. We have been doing it for a while in the software development industry. To a certain extent, we have also done in the hardware industry as well. Think firmware updates to your hardware devices. But largely, this concept is just beginning to be adopted in the consumer goods industry.

Another area of distinction is in handling customer data. Traditionally, it was one data points during the purchase and perhaps a few more during the maintenance cycles. In today’s environment, cheaper IoT controllers and near-ubiquitous internet connection provides a continuous valuable stream of data. This data stream not only helps companies to solve customer needs proactively (increased service quality) but also provides a recurring revenue stream (sell value adds).

The following table captures his description of shift in value mindset more completely:

 In my next post, I will talk about monetization models in IoT.