Building a Healthy IoT Ecosystem and Thriving in a Rapidly Changing Business Environment Ecosystems, business models and servitisation.
The phrase “together we stand, together we fall, together we win and winners take all” has long been the motto of many sport teams. In business, one can imagine the same expression being used within an organisation, motivating the staff to stand together and move forward as one team. Over the years, businesses shaped by digitalisation gives a new meaning to the concepts “team” and “togetherness”. Companies seek partnerships as they form various business ecosystems in order to thrive in the rapidly changing business environment, some more successfully than others. The trending ecosystem approach paves the way to new ways of working, new ways of thinking and new ways of doing business together.
In this article, we focus on the trending ecosystem approach and how to manage it. We consider the perspectives of Alicia Asín Perez, CEO and co-founder and David Gascón, CTO and co-founder of Libelium. Together, they share with us their views on why they believe in the ecosystem approach and how their company has thrived. This is their success story and the obstacles they had to overcome to get there.
Libelium is a Spanish company that specialises in sensors and wireless sensor networks (WSNs) for the Internet of Things (IoT). Among their projects are multiple Smart City applications ranging from environmental and traffic applications to house keeping through intercommunicating appliances. Libelium has spawned some of the most exciting, disruptive and innovative business opportunities in the IoT industry. Today, Libelium caters for more than 10,000 developers and deploys in 120 countries. Their clientele includes NASA, IBM, Boeing, and Philips, to name just a few. How do they do it?
IT’S NOT ABOUT ONE COMPANY . . .
More than ten years ago, when it all started for Libelium, both David and Alicia saw an opportunity in the hardware side of IoT, where not so many companies focused in because it was not an easy task. The motivation to move into sensors was derived from wireless distributed communications, which was the main focus of David’s degree. His final project led them to the notion of connecting objects to the internet through sensors.
During that time, they were both young computer engineers in Spain and were very new to the business world. They pitched their idea to several investors and got turned down multiple times – not because their idea was bad (on the contrary, it was brilliant!) but because the prevailing trend at that time dictated otherwise. Many of the investors felt that going horizontal with hardware in IoT was not wise, and told them to pick one vertical market and focus on that instead: Normally when you start a business you target a niche market and expand from there. At the time, the notion of IoT was only just beginning. The IoT landscape was young and most companies that were horizontal were software companies like Amazon and Google. A lot of hardware companies stayed vertical as they were very specialised.
Dissatisfied by the lack of support for their idea of going horizontal with hardware, they sought counsel from their mentors and senior advisors, but they were told the same thing. However, the pair envisioned a great opportunity in their idea and decided to go ahead despite the advice they got. They were both young and daring -in fact, Alicia recollected, “we were so naïve then, if I had known how difficult it would be, I would probably not have gone through with it.” She strongly believed that for IoT to work, devices must be connected and that required hardware. Moreover, she envisioned a horizontal and transversal solution.
Alicia and David ended up bootstrapping the company and never took any investor money, something they are very proud of even today. By doing so, they were able to pursue their own direction with their ideas and plans. David compares their company to the first railway: “We are the ones who place the tracks and the trains. We are building the infrastructure. Hardware is like the tracks right now. And the readier the tracks, the more everyone wants to be a part of it.” Alicia relays how glad she was that she did not share her advisors’ and mentors’ opinions of IoT. “When I meet them again today, they tell me, you were right, it’s not about one company, it is happening everywhere in the market…”
David and Alicia believe in the ecosystem approach and the one thing that has been important in this ecosystem approach is that Libelium is a small company. They focus on hardware and sensor devices. “When you are a small company, you try to think about what holds you back, why are you not selling more?” At first, Alicia and David just knew what they wanted to focus on; it was only later in their journey that they grew to understand the nature of the market and what people really needed.
For example, the company did not have software solutions, which are the focus of most companies in the IoT industry. This led customers to wonder where they could see the data generated by the hardware and collected by the sensors. The company quickly realised what they were missing. On top of that, they also found out other shortcomings e.g. systems integration: Customers did not want to start putting things together – a turnkey solution was preferred.
LESSON: THE REAL WORTH OF AN ECOSYSTEM IS TO OFFER WHAT THE MARKET DEMANDS.
As the company moved on to fulfil their customers’ needs, they became more aware of the potential of the market, hence gaining relevant partners for their business. Libelium realised that if they wanted to do something like that, they would need a compelling program. They needed to make it so that everyone connects in the same way. So, they created the cloud partner program.
This means that when someone gets a cloud gateway from Libelium, they can connect to all the partners that the company has on the cloud, regardless of device – be it a traffic camera, a weather sensor or a heart sensor. In other words, as the name suggests, in the “cloud partner program” you gain access via the cloud gateway to other companies that can complete your product and enhance your business. The turnkey solutions come in after that by entering data in the user interface gateway and you can make things work automatically out of the box.
Today, 20% of the company’s revenues come from the ecosystem, either in direct sales or channeled through the network. Both Alicia and David believe that when you reach 20% of something, the market gets serious: it is an inflection point. “Two or three years ago, we were not as open,” they recall. “It is a result of changing our minds and not limiting ourselves to what we already had.” This way of thinking has allowed the company to embrace their position in the ecosystem and give space to others. “It is smarter to accept that someone with a vertical approach is savvier and better equipped than you,” Alicia admits. Although it has not been easy, the company has learned from their experience as they struggled to get attention and build a reference database. They managed to convert competition to partnership and get big vendors aligned with them.
NURTURING A HEALTHY ECOSYSTEM
Alicia and David believe that transparency is critical. “You need to have very clear rules and you need to have a certain relationship with everyone in the ecosystem”. In recent years, the company has established a structured ecosystem. This means that they have common revenue coming every year and everyone in the ecosystem makes sure that happens. If the partners offer the company revenue, the company must offer the same.
Libelium has structured their revenues in three different levels: bronze, silver and gold. This helps keep the relationships healthy and enables the company to have transparency when relating to partners. It also prevents one partner’s domination over others. For example, when a partner wants to have exclusivity with the company, they can decline and instead give them a path to become closer to the company through the revenue levels.
It has not always been easy. Alicia and David had to work hard to chase the first alliances. The relationships with partners started organically. They understood that they needed to work hard with the first alliance. The first 10 alliances were critical. Once they had 50 alliances, everyone wanted to be the 51st. Today the situation is reversed and they always receive incoming leads.
WHAT’S HOLDING US BACK?
A couple of years ago, after reading a survey on IoT frustration, Alicia sought to understand and come up with a solution to people’s main problems. “The survey pointed out that most people were frustrated because they did not know who should be their main contractor for an IoT project,” Alicia remembers. IoT is a very fragmented market due to the lack of standardisation. There is no single dominant ecosystem, leading provider or technical model to set the standards. This also presents certain risks: while the standards are being developed, many vendors and ecosystems may fail, bringing down ongoing IoT projects and ventures.
After realising that the customers needed interoperability in the whole value chain, Libelium’s solution to people’s main frustration was to create an IoT Marketplace. The IoT Marketplace allows developers to be connected to everything. Once they are connected, they can leverage the existing connections from other developers and create package solutions as well as co-create with other developers.
As a customer, the IoT Marketplace offers ready solutions and packaged kits related to e.g. health, environment and smart cities, to mention a few. David also stressed that their solutions are not all Libelium branded but they see themselves as host to different solutions that may not contain their products. “We first launched 17 kits, today we have 72 and counting.” he says. “That’s one of those things that creates traction, and it also gains traction.”
The IoT Marketplace was very low-key to start with. Their objective was to speed up the introduction of IoT to a wider audience and tried to do so by creating easy to access IoT solutions, i.e. sell boxes with materials ready. They were not trying to monetise on it at first. However, sometime during October 2015, the Marketplace exploded. They have built up quite a lot of reference and got attention in the Mobile Congress 2016. Alicia commented, “It was tough to convince the market, but now we are building up momentum”.
The company continued to leverage on the ecosystem approach. As they gained momentum, they launched a partnership program which opens the other side of the IoT Gateway: When before they were focused on sensors and IoT connectors that are only sending data, now they also enable receiving data. This entails building an ecosystem with other hardware companies that will eventually become competitors. They are open to the idea of making it easy for anyone to jump on board.
When asked what they thought about the upcoming competition, Alicia smiles and says,
“You accept that those are the rules of the game. In an advanced market like IoT, where you have multiple software systems and protocols, it is difficult for you to offer a full solution. We can deliver a very good smart city solution, but we don’t have all of it. We need to be compliant with full sensors in the public network, we cannot have vendor lock-in. So, we show transparency and we want our partners to stay with us because we are the best. And when the moment comes, they can choose another more suitable partner.”
THE FUTURE OF IOT AND ITS BENEFITS
IoT’s primary benefits are efficiency and cost savings as well as process optimisation. Then there are things like new business models that can be generated and new jobs that can be created. Both David and Alicia consider data analysis as a secondary benefit: “Up until now, analysing tons of data was not possible because such data did not exist.
Additionally, nowadays, speed of connectivity is different and the market has changed.” Alicia referred to examples such as how Amazon changed the face of retail, appliances having a relationship with their customers, using sensors for preventive maintenance and the way one can analyse big problems, based on big data in the world and solve them.
Libelium can be regarded as having a big impact in shaping the IoT industry. In Europe, the level of problems solved is totally different than in developing countries. Therefore, the impact Libelium’s solutions has is also different. Take for example in Asia, the impact is quite big. They give as an example, “We analysed the fish water ponds in Vietnam and Taiwan”. Controlling water quality in fish farms reduces the number of lost animals and improves product quality. Alicia and David believe that IoT will drive a new form of society, with more transparency and more democracy. A society based on data can optimise many things, e.g. the way we use parking spots, when all data is available. They therefore believe that the biggest legacy of IoT will ultimately be more democracy.
A MARKET LEADER? A KILLER SOLUTION?
In conclusion, IoT is happening everywhere in every market and there is no one single killer application. Alicia and David are both in agreement when they state that
“You cannot regard one vertical market saying that they lead; everyone is in a proof-of-concept phase. There is no leading segment, no leading protocol or technology. The only way to grow is through an ecosystem. “
- There have been clear benefits for Libelium in building an ecosystem even though they are exposing themselves to potential competitors. Transparency has been critical to their approach.
- Their ecosystem allows them to better offer what the market demands.
- Building the ecosystem has not been easy for Libelium, especially adding the first ten partners.
The author is Elena Van Leemput.