Power struggle

A value loop is sustainable when both parties capture sufficient value, in ways that respect important non-financial sensibilities. For example, retailer-specific and independent shopping apps can use past browsing and purchasing history—along with other behaviors—to suggest targeted products to particular customers, rather than showing everyone the same generic products, as on a store shelf. Customers get what they want, and companies sell more. There are four possible outcomes to the value-capture question:

All’s well: Sufficient value is created, and that value is shared between customers and companies sufficiently equitably such that both parties are better off and feel fairly treated.

Hobson’s choice: A Hobson’s choice exists when you’re free to decide but only one option exists; thus, it is really no choice at all. A famous example is that of the Model T, for which Henry Ford stated, “Any customer can have a car painted any color that he wants so long as it is black.”

Gridlock: In their quest for value capture, both sides are pulled in opposite directions, with neither able to move toward an optimal outcome. Here, both parties recognize IoT enablement as something that should lead to success, but neither party is able to reach it, since their competing interests or different value drivers are working at cross purposes.

Customer is king: Although particular IoT deployments might make economic sense for companies, customers end up capturing a disproportionate share of the new value created, pulling this outcome more in the customers’ favor; Craigslist is an obvious example.

The road to balance

In the IoT age, information is a powerful value-creation tool: It offers customers the ability to make more informed decisions, and it offers companies the opportunity to differentiate themselves from competitors. One way to begin developing an economically sustainable and mutually beneficial result is to examine how a company is using IoT technologies using the Information Value Loop. Identifying where the bottlenecks lie, how each party is motivated to respond, and seeking to shape both incentives and the value loop itself puts companies more in control of their destinies. Second, taking a hard look at who benefits most from each IoT-enabled transaction, understanding when a lopsided value-capture outcome tips too far and becomes unsustainable, and taking steps to correct it may also lead to long-term success.