The new business models of the Machine to Machine Economy

• The Economy of Things enables the establishment of new business models.

• Machines can make decisions autonomously in the future.

• This opens the door for new business models in a wide range of industries.

Ever more networked and ever smarter – what do machines need us people for anyway? Currently, for example, to buy spare parts or consumables. But that could soon change, because the machines are being given proxy powers: Within the foreseeable future they will be allowed to conclude contracts themselves. This Machine to Machine Economy offers exciting opportunities in very different industries and markets.

The Economy of Things – machines that will conclude contracts with one another – what could this look like, and what are the tangible benefits? A video from Volkswagen and IOTA from the end of 2017 demonstrates this very clearly: Autonomous vehicles decide independently where to recharge and wait for their driver. The vehicles make their decisions within the framework of predefined parameters on the basis of which they can conclude legally effective contracts – for example, with car park operators and electric charging points.

The vision of the Machine to Machine Economy goes even further in a recent video from Jaguar/Landrover. In this scenario, vehicles sell information on potholes and traffic flow that they have collected while driving. Conversely, they can pay for electricity and tolls themselves. The central idea: a decentralised platform facilitates a data marketplace for new data-driven business models. This creates an ecosystem of vehicles, road operators, traffic information services and electric charging points.

When will the Machine to Machine Economy arrive?

In reality, of course, we are not quite there yet, which will become clear as soon as you try to charge an electric vehicle in any large German city. But all the same, the machine to machine economy is no longer too far away. An important reason for this: the technology for decentralised platforms is developing rapidly. In our view, a very promising approach in this field is IOTA, with its Distributed Ledger Technology (DLT) – an IoT backbone that can process high volumes of microtransactions cost-effectively and securely. So will the Machine to Machine Economy come now? And where will we experience it first?

New business models in the Economy of Things

We discussed these questions, among others, in our camp at the beginning of May. Our assessment: particularly in the consumer goods market segment, there are parallels with the applications outlined above for Volkswagen and Jaguar/Landrover. This is where we see the highest chances that the Machine to Machine Economy will soon take hold.

On the one side, there are the manufacturers of appliances – for example, high-quality capsule-based coffee machines or kitchen appliances – who want to make it possible in future to reorder consumables such as cleaners, filters or food directly at the appliance. On the other side are the manufacturers of those consumables or Fast Moving Consumer Goods (FMCG), who only offer a piece of equipment so as to promote the use of their products (following the razor / razor blade principle).

Very large suppliers have the market position to establish a platform for their own ecosystem – one example of this would be an internationally successful manufacturer of coffee capsules. Smaller suppliers, on the other hand, would have to use central trading platforms such as Amazon and thus hand over their business ideas and margins to the platform operators. For these suppliers, enormous potential is offered by decentralised platforms that enable very inexpensive or even free microtransactions between consumers and various suppliers.

New partnerships in the Economy of Things

One promising approach, for example, could be to bring together the suppliers of household appliances with the food trade and the manufacturers of consumables and operating materials. This might result in completely new offers for consumers - or even new payment models. For example, in the future consumers could finance their household appliances by regularly using the associated consumer goods.

Technically, for example, it would be possible for the suppliers of espresso beans to finance the espresso machines via microtransactions for each pack consumed. Consumers would be "given" a household appliance as a gift, on condition that they drink an espresso every day. Particularly for suppliers who do not have the market "clout" to establish their own closed ecosystems, we see a great need for these new, open ecosystems, which enable completely new business models for all participants.

One result from our camp sessions: many colleagues would very much welcome a Machine to Machine Economy that makes our lives easier. We would be happy to give a washing machine the authority to select the detergent itself from various suppliers on a decentralized platform.

Popcorn machine with IoT

At our camp, and in parallel with our workshops, some of our colleagues implemented aspects of the Machine to Machine Economy, with microtransactions and Distributed Ledger Technology. During the four days they created a popcorn machine with an IoT connection and an accompanying App. Using the App, it was possible to select different flavours and to initiate production from the living room.

But to implement the microtransactions, the colleagues in the camp did not use the IOTA protocol – at present probably the best-known example of Distributed Ledger Technology. Instead, they implemented a Lightning Node on Embedded Linux. This would enable a user to order and pay for corn and extras such as flavours or colourants, for example.

We are very excited to see what other ideas and business models will emerge from the technical possibilities of blockchain and other distributed ledger technologies. Early adopters in particular have the opportunity to shape newly emerging ecosystems right from the start – and in that way to not only secure a competitive edge, but also actively shape their own market environment.

What will your business model of tomorrow look like? We would be happy to help you with our technical expertise and cross-sector experience.