IoT Platform: Build or Buy?

Building an IoT business has many challenges: new business models, new support models, technical hurdles, and security to name a few. To oversimplify the core premise of IoT, it is to connect all the “things” in our lives to make it better. When a product company starts down the path of IoT-enabling an existing product, one of the first business hurdles encountered is the fact that you now need to bundle in connectivity and all the IoT-related capabilities into the cost of the unit. Or to put it in business terms, you have a traditionally capital expense product that has operational expense features. How do you justify the cost of the subscription fees of the underlying components?

To answer this question you have to go back to the beginning to when a product company first makes the strategic decision to IoT-enable the next-generation version of their product. This endeavor will mandate a reevaluation of everything from the business model to the underlying technology. In the pre-IoT product days, manufacturing costs were a lot more straight-forward: materials, fabrication, distribution. Now in the days of IoT new cost considerations must be made: network, servers, cloud, etc. This is a tough riddle to solve because these new costs are inherently subscriptions (operational expense) as opposed to one-time upfront fees (capital expense).

The first big decision is one of build versus buy. Does a product company build the entire solution in-house or purchase an IoT platform and build their next-generation product on top of it? How do you justify the cost of subscription fees for an IoT platform? A common thought process is, we have most of the skills in-house so why not have more control by doing it in house? And that is how product companies start to get themselves into big trouble. Building the entire IoT solution stack in-house requires a diverse set of skills and a large budget to back it up. Here are the high-level building blocks of your typical IoT product:

• Development team to build and maintain the product
• Connectivity agent
• Cloud-side software
• server and hosting infrastructure – to host the cloud-side software
• staff to monitor and manage the server infrastructure
• DevOps competencies
• 24/7/365 support

The real killer is not only the army of staff necessary to build and support your next-generation IoT product but the TIME to build the teams, competencies, and product. This time factor will not only bleed your budget from an HR perspective but also your window of opportunity.

An IoT platform will provide all the infrastructure you need to focus on building your next-generation product immediately. Your next-generation product is going to monetize your vertical-specific differentiation, the infrastructure is just a prerequisite. The cost of building the entire solution in-house will exceed your platform subscription fees the moment you hire your first developer. Invest that money into your vertical-specific differentiators and let the platform companies figure out the infrastructure problems.