The two IoT business models

As various IoT projects are rolling out, two business models have emerged.

The vertical business model, is the one more frequently used – at least for now. With this model, the same company provides both the gateway and the cloud service (the IoT platform). The advantage of this model is that interoperability of components is guaranteed as the gateway comes pre-integrated with the software platform. Also support and maintenance is simpler, as a single contact person is established for both hardware and software.

The horizontal business model is very different. With this model, the software platform is provided by one vendor, but devices and gateways are provided by a different vendor and in some cases by more than one!

So, which model is better?

The limitations of the vertical business model

Although the vertical business model initially looks more attractive, there are many limitations. The most serious one is the creation of IoT silos, i.e. independent IoT implementations that use different systems, including gateways and software platforms.

Imagine the example of a smart home with IoT enabled security, HVAC and appliance systems, each using its own software platform. This is not user friendly, and introduces also additional maintenance and implementation cost.

Despite these limitations, most of current IoT offerings follow the vertical business model. That’s not very surprising, given that substantial effort and expertise is required to develop an horizontal software platform. But that this is gradually changing.

Advantages of the horizontal IoT software platform and business model

The horizontal model is fostering innovation, as it allows multiple providers to work on a common framework. The idea is by using an horizontal software platform that provides state of the art features, providers can focus on what they do best, design innovative devices and services.

In addition, by using a common software platform, the devices and services can easily exchange information and share resources. For example, motion sensors can be used for more than one applications, e.g. security but also climate control, and the same applies to cameras and more.

An important part of the horizontal business model is an open gateway, that can be easily expanded with new capabilities. But even more important is the horizontal software platform, that allows the exchange of information and sharing of resources and enables a single-pane-of-glass for end users to control all their IoT applications and projects.