How the 'Internet of Things' Will Spawn New Business Models

How the 'Internet of Things' Will Spawn New Business Models

How the 'Internet of Things' Will Spawn New Business Models

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people's living rooms thanks to the relaxation of surcharging rules.

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Steve Hershberger was tired of not having enough beer — or too much of it.

Hershberger, an entrepreneur who cofounded Flat 12 Bierwerks craft brewery with some partners six years ago, observed that the business of selling beer was much less precise than he was accustomed to from his background in software and analytics. Beer distributors typically give guidance on what they'll buy from brewers three to six months in advance, but that guidance was typically off by 30-150 percent of the volume of beer made. "It was guesswork at best," Hershberger says.

So three years ago, Hershberger set out to bring the power of analytics to beer. As chief executive of Indianapolis-based SteadyServ Technologies, he had designed a specialized weight sensor for kegs.

The sensor monitors how much beer remains in the keg and communicates wirelessly with a router nearby. An RFID tag on the keg helps track the type of beer. All of the data is then sent to a secure cloud network, with an end result of iKeg, a mobile, cloud-based inventory and order management system viewable on an iOS or Android app.

Now brewers using the system know where their product is, how old it is and how many days it has been on tap. Analytics can be used to forecast next season’s demand, and bars and restaurants can determine the optimum mix of beers.

While Hershberger says the beer industry is like any other in terms of being resistant to change, sales of his product are starting to flow. Since its debut of iKeg last August, SteadyServ is approaching 300 accounts in six states and Brazil, with The Netherlands on deck.

"If something can be measured and that measurement can deliver economic or lifestyle value — securely and in a cost-effective fashion — then you should do it," Hershberger says.

Physical + virtual = actionable data

SteadyServ's iKeg represents how business is seizing on opportunities now offered by the Internet of Things (IoT), a network of physical devices integrated with electronics, software and sensors to extract actionable data for its users. Thanks in part to falling prices for hardware and cloud computing, IoT is changing the way companies conduct business, giving rise to entirely new business models and offering big opportunities in merchant acquiring.

In a sense, IoT has been affecting digital commerce for some time. Google uses smartphone GPS data to provide real-time traffic maps. RFID tags improve supply chain management. Smart meters send electricity usage directly and wirelessly from homes to utilities. Hospitals are starting to install sensors at hand-washing stations to increase staff compliance.

But it's just the beginning.

There are now an estimated 15 billion "smart" devices — ranging from small chips to large machines — connected to the Internet, according to research by Santa Clara, Calif.-based Intel. That is expected to grow to 200 billion by 2020.

"We certainly see a great deal of the infrastructure in place and the right sort of pricing around the potential for these services," says Jonathan Collins, principal analyst at ABI. "More and more businesses are being set up to help build on those foundations."

Disruption, disruption, disruption

SteadyServ is showing that one application can profoundly change how companies do business. Carl Bruggemeier, chief executive of Indianapolis-based CZH Hospitality Group, uses iKeg and hasn’t looked back. Bruggemeier estimates that the percentage volume per keg wasted at the restaurants he advises was in the high teens – as much as 1.7 gallons of beer per keg.

Now, using analytics, he can see which beers sell well – in real time. Beers running low can be replenished faster and automatically ordered. At the Lighthouse Restaurant, an upscale steak and seafood establishment in northeastern Indiana, the new system helped drop the percentage of wasted beer per keg down to single digits, translating to a projected $40,000 boost in annual revenue and $30,000 additional profit for a restaurant with just 10 taps, according to Bruggemeier.

For a merchant such as Bruggemeier, using analytics has become key to his business since most everyone carries a smartphone now. While SteadyServ helps with the flow of beer, the Lighthouse Restaurant also uses RestaurantConnect to monitor table inventory, manage private and group dining, and explore dining preferences of guests.

"We're very interested in everything that a customer consumes," Bruggemeier says. "We're interested in their demographics, how far away they travel to come to us, and how long different party sizes are at the table."

Payments won't be left behind

With mobile devices playing such a role in the Internet of Things, payments are naturally being folded in. Tablets, for example, are used to order and pay for meals in quick serve restaurants such as Chili's. "Payments are going to be something that many computer devices will need to perform as a workload," says Michelle Tinsley, director of mobility and payment security at Intel. In retail, this can also translate to ordering a custom combination of frozen yogurt at a kiosk, or reducing lines at movie theaters, she notes.

And the payments industry sees the potential. In April, Intel announced a deal with Ingenico, a Paris-based merchant terminal and payments company, to develop a payment solution for the Internet of Things to debut next year. The goal is to be able to offer value-added services to devices such as "intelligent" vending machines and kiosks.

For merchant acquirers, IoT innovation means new opportunities. "As an acquirer and ISO in the network, think about your business model," Tinsley says. "Instead of keeping the status quo of selling 50 basis points below the next guy, [think] 'What kind of future services should I be offering?'"

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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