The Internet of Things (IoT) is getting more and more prevalent in our daily lives. Smart thermostats allow us to remotely control the temperature in our homes, Philips Hue bulbs light up automatically when we come home and change their colors dependent on the environment. But the Internet of Things is not only limited to consumer products, as research shows that businesses will become the top adopter of IoT solutions. Companies can use these solutions to improve their bottom line in three ways: they can lower operating costs; increase productivity; and expand to new markets or develop new product offerings.
John Deere did the latter, by using the IoT to completely transform their business model. Traditionally John Deere is a manufacturer of farming equipment, producing products like tractors and plows for farmers. In this business model, the revenue is generated at a single point in time, at the moment of the sale. John Deere was looking for ways to change their business model and extend their products and service offering, allowing for a more constant flow of revenue from a single customer. The IoT allows them to do just that.
The ability to connect their products and exchange data between them allows John Deere to create an entire ecosystem of smart products. Farm equipment, irrigation systems, speed optimization systems and weather data systems will be connected to the farm management system through IoT technology. This ecosystem helps farmers to gain insight into their current operations and manage their farms more proactively. Not only do farmers reap benefits from this approach, John Deere does so too. By creating an entire ecosystem, John Deere extends their offering beyond products into delivering services. Moreover, only allowing John Deere products access to the ecosystem creates a buyer lock-in for the farmers. Once they own John Deere equipment and make use of their services, it will be very expensive to switch to another supplier, thus strengthening John Deere’s strategic position.