To understand Internet of Things you need to understand Zenefits

Internet of Things is a buzzword in many board rooms in 2015. Enterprises from logistics to construction to healthcare, are seeing IoT as the source of data-driven cost savings and competitive advantage. For example allowing building operators to drastically save maintenance costs or allowing farms to have real-time insights that can systematically increase the yield of their crops. But there is a much bigger business model shift taking place. One that will cause traditional industry boundaries to collide and some to even collapse.


To understand how IoT will change the business world, you need to understand Zenefits.

Zenefits is one of those unicorns media loves to talk about and VCs would crave to fund. Since launching in May 2013, Zenefits reached $20 million run-rate by the end of 2014, and is projected to reach $100M run-rate by end 2015. And it just raised a whopping $500 million series C at a $4.5 billion valuation. Andreessen Horowitz, the famed venture capital firm now lists Zenefits as its largest investment to date.

Zenefits is an insurance broker disguised as free online HR software. The California company offers SaaS HR services to over 10,000 small and medium-sized businesses to help them manage all their HR processes in one place. Best of all it’s free. Zenefits earns commissions on health, dental, vision, life, disability, or any other insurance, every time their SMB customers open up a new health plan or onboard a new employee through its SaaS solution (In the US, every company has to offer their employees minimum health care).


Zenefits adds value in helping small companies manage the complexities of HR. It captures value as an insurance broker.

In essence, Zenefits is an insurance company that offers free SaaS services to acquire customers. SaaS requires low-cost low-touch sales and so Zenefits profits on the delta between the customer acquisition cost (CACs) in the HR and SaaS industries. Of course, Zenefits creates a captive audience which it then can resell into more insurance services and higher profits.

Our ‘low-touch’ online model exceeded our expectations, affirming the continued health of our core business [source]

Wired magazine calls Zenefits’ business model “crafty and unusual”; crafty in using indirect models to profit, but as we’ll soon see Zenefits’ cross-industry business model is not unusual, but relatively unknown.

In fact cross-industry subsidies are business as usual for mobile industry disruptors including Google (providing the Android OS for free), Amazon (providing e-readers at cost), Xiaomi (providing mobile phones at cost) and WeChat (providing communications apps and storage services for free). At VisionMobile we’ve been studying how these companies have disrupted the mobile industry through Asymmetric Business Models (see our earlier report on the topic) a business model that crosses industries, by forcing profits to migrate from one industry to another. And we argued in that paper:

In the digital era, companies can get an unfair competitive advantage by breaking industry boundaries.

The next diagram shows how Google, Facebook, Amazon and Xiaomi have been transferring profits across industry boundaries, and thereby enjoying an unfair advantage.


Apple has an unfair advantage over Nokia by offering a library of over 1 million apps and 40 million songs, while capturing value in premium connected devices. Google has an unfair advantage over Yahoo and Microsoft in Search when capturing value in online advertising by creating value in the free Android that allows smartphone, tablet and IoT makers to compete. Amazon has an unfair advantage over eBay and Wallmart, by offering Kindle tablets at cost while capturing value from that captive audience in e-commerce sales. Xiaomi as unfair advantage over Samsung by offering rock-bottom priced devices and wearables to its fan base, while capturing value in e-commerce services. WeChat has an unfair advantage over telecom operators by offering free messaging and voice calling while capturing value in e-Commerce, brokering anything from branded emoticons to car sales.

Last but not least Facebook. [tweetable]What Facebook lacks in vision it makes up in execution[/tweetable]. Its Facebook Messenger, now at 700 million users, has been copying the asymmetric business model of WeChat by allowing games to be bought and played within Messenger. David Marcus, head of Messaging products at Facebook sees voice calling within Messenger as a platform for much bigger things:

VoIP is just one way that the company hopes to use the messaging app as a platform for much bigger things, including online payments.

IoT is taking industry collision to the next level

What Zenefits, Google and weChat have pioneered, IoT is taking to the next level. Internet of Things is adding connectivity and computing to thousands of everyday products. Today, most of these objects are following a “one device, one app” paradigm – by slapping an app to a thermostat, car or building management system.

Over time, we believe a new paradigm of “one device, apps everywhere” will prevail. In this paradigm, data is not a function of the device, but a product.

Think of a fitness band that uploads data into a health service, and allows you to run low-cost, daily health check-ups. Think of a door lock whose data is used to make intelligent decisions about the temperature you set your home to. Think of a smart home security system whose data is used to make decisions on home insurance premiums.

Now that we have an understanding on how Zenefits, Xiaomi, Amazon and weChat use asymmetric business models, we can see that IoT will effectively unlock data from connected things in any industry and monetise that data in another industry. Fitness band makers will capture value in health services. Door lock makers will capture value in the energy market. Car makers will capture value in employee productivity management. Telecom operators will capture value in selling insurance.

Effectively, IoT allows hardware vendors to divorce the business model of the device from that of the data that are generated by that device. Once divorced, the business model can “invade” complementary industries.

Naturally, companies who use asymmetric business models will wield an impossible-to-beat advantage to their competitors who are caught unawares by new players that do not plan to make profits in their industry. And as we argued earlier in our post on Commerce of Things, an unconnected object will be a missed business opportunity. At the same time, connected objects can threaten your business with unfair competition from other industries.

Xiaomi is leading this new era of asymmetric business model era by example – far beyond the cost disruption that mainstream press think it is – and is just about to disrupt the home security industry. Xiaomi just launched their first home security solution for 199 RMB, a set of beautifully designed white-coloured products that, can be easily mistaken for Apple China products selling at 199 USD and not 199 RMB. Yes, at a price of about 30 USD for a full set of home security products, that connect and complement nicely other Xiaomi devices from mobile phones to air purifiers, it is obvious that Xiaomi is not looking at making profit on these devices themselves, but on leveraging data collected from their customers (the “Mi fans”) to provide even more valuable services to them over time. If we assume that Xiaomi is selling these products at cost like they do with their mobile devices, they are in effect securing a first entry in the valuable “home IoT” segment at zero cost of customer acquisition. Traditional home security companies better brace for impact.


For those companies in IoT, and even those bringing the IoT and ABM buzzwords in their boardrooms, here’s the recipe for your next executive strategy meeting:

Find any industry with a lower customer acquisition cost than yours (e.g. SaaS). Develop or acquire a product in that industry that is a complement to your core business and wrap it around your business.

And just like in the mobile industry, [tweetable]most IoT devices will eventually be offered at cost, if not below cost[/tweetable], so beware of newcomers to your industry bearing gifts.

Be prepared to challenge the age-old definitions of industries and markets. The world is becoming an unusual meal of business model spaghetti.

Andreas and Nicolas

P.S. For readers in Europe, it can be worrying that US and Asia seems so far ahead in using asymmetric business models, from Amazon and Google to Xiaomi and weChat. If Europe wants to stay competitive, including in the digital era, it needs to use such competitive business models, too.

–Andreas Constantinou
As CEO and Founder, Andreas oversees the growth and strategy of VisionMobile. He has twelve years experience in mobile, having worked with the top brand names in the mobile industry including Telefonica, AT&T, Telenor, Vodafone, Deutsche Telekom, MTS, Nokia, Sony, RIM, HTC, Qualcomm, Ericsson and Microsoft. Over the last five years, Andreas has grown VisionMobile into the leading, most respected research firm on app economy and developer economics, with a client base and reputation that out rivals companies many times the size.
Andreas on LinkedIn

–Nicolas Sauvage
Nicolas Sauvage is a “Software guy”, since first programming at 8 years old, and forever passionate about Software contributing to a better Connected World. He joined the management team of NXP Software in Feb 2011, and took various responsibilities over time including leading the OEM Business Line, worldwide sales, product management, Head of Korea, Head of Greater China. He is an Alumni of TTPCom, OpenPlug, London Business School and INSEAD.
Nicolas Sauvage on LinkedIn

Prize winners from the Developer Economics April-May 2015 survey

We’re happy to announce the winners of the prize draw for the April-May 2015 developer survey – the full email addresses have been obfuscated for privacy reasons.

This was our biggest survey to date, reaching over 13,000 respondents – a big thank you goes out to all participants. We couldn’t have done it without you.

Email Address Country Prize
j*****.****is***@gm***.com United Kingdom Oculus Rift DK2
uy*****le@h****i*.com United States Canakit Raspberry Pi B
*o*ss***1*@g****.com United States Nexus Player
**ma****sm**l@a**.com United Kingdom Amazon Echo
tr****s**ho*****.com Albania Jetbrains editor
****79**@**.com China Wikileaks T-shirt
r*ym***or***@*ma**.com Mexico Wikileaks T-shirt
n*sr***mc***@*o.**.in India Wikileaks T-shirt
**kub.****lo****@li**.com Poland Wikileaks T-shirt
p*ta***re***@*oo**.com Argentina Wikileaks T-shirt
**ee****y*t**4*@**ai*.com United States Cyborg Unplug
**ki***o*d**l@g** South Africa Pencil for iPad
c*****n@ps*****ec***i*.com United States Free Pass to PGConnects SF
v*****ey*****ni9**@gm***.com India Blackberry Z10
**awh*@g****.com United Kingdom Blackberry Z10
****all**8*@gm***.com Canada Blackberry Z10
x*1***@g****.com Mexico Lumia 930
k**lo****@h****i*.com Greece Lumia 930
***d****in***pa**@*ma**.com United States Dell Venue 8
**be*****le@** United States Dell Venue 8
****raj***bat@te*****ind**.com India Dell Venue 8
ch******30@g****.com Indonesia Dell Venue 8
*****ad*@gm***.com Venezuela iPhone6
***gli****@ou*****.com United States Aquaris E4.5
***ier.****e@***on** France Samsung Galaxy S6
an*****n.**n*@so******* Sweden Apple Watch Sports edition

IoT report series: The Industrial IoT Landscape (2015)

In this report we tell the story of two very different engineering cultures coming together: industrial & consumer IoT. We deconstruct the landscape and show you everything you need to know about the new people, technologies, and business models entering the industrial environment today. Industrial IoT might be one of the more saturated IoT markets today, but its current transformation is sending analysts like us back to the drawing board. See what we have to say about this convergence, research drawn from 4,000+ IoT devs.

More info:

Cross-Platform Tools 2015 Report *Out Now*

Wondering what 8,000 developers and 185,000 applications reveal about the future of the CPT market? The recently published “Cross-Platform Tools 2015” examines the pros and cons of top cross-platform tools such as Cordova, Xamarin, and Unity. Get an understanding of which tools are winning, what developers are using these tools for, and why they choose them to begin with. This is a close-up into developer attitudes and a sneak-peak of what’s to come in cross-platform development.

Find out more:


Apple Music vs. Spotify: Don't repeat this common mistake

The media and blogosphere reaction to Apple Music was mixed at best. Bob Lefsetz, who has written about the music business for over 25 years, says:

It’s toast.

Bob is making a very common mistake: He assumes that Apple Music is a product aiming to win market share in the existing music streaming market. Bob’s focus is then on how Apple Music’s features and pricing compare with the competition.

Apple Music provides nothing new other than a live radio service, which is mildly interesting, but never forget that iTunes Radio didn’t put a dent in Pandora.


Spotify and Pandora are services designed to resell music in the existing market structure. [tweetable]Apple Music is a platform designed to create a new market and reshape the music value chain[/tweetable]. The business model playbook is similar to how Google created a new market for small advertisers, Amazon Kindle created a new market for independent book writers, iPhone created a new market for app developers, Uber created a new market for drivers, AirBnB created a new market for apartment owners, Incrediblue created a new market for boat owners and Munchery is creating a new market for chefs.

The 3 types of innovation

Harvard Professor Clayton Christensen explains in “The Capitalist Dilemma” that innovation, comes in three varieties: one is performance-improving (sustaining), another efficiency and a third one market-creating innovation.


A new market for music by connecting artists with users

Apple Music aims to create a new market for digital music by connecting artists with Apple users. The platform will empower hundreds of thousands of less-known artists and break the walls inherent to the current industry structure. Jimmy Iovine says in his interview to The Guardian:

What’s happened to the music industry, from my perspective, is a lot of great music is behind the wall that can’t get through, and therefore a lot of artists are getting discouraged. And we hope that this ecosystem really helps revive that.

And we tried to build something that had enough of each thing to build an ecosystem that just feeds off each other, and gives back to an artist.

The recipe is strikingly similar to the Apple App Store recipe: Connect app developers with users to create a new market for software and services that surpassed anything we knew before it existed.

New business models for music

It used to be that the only way to monetise software was to sell licenses to use it. Who says that the only way to monetise music is to sell licences for downloads or collect streaming royalties?

As I wrote in “To understand Beats you need to understand Lady Gaga”, the economics of abundance inherent in digital music open new ways to monetise music. Troy Carter, who discovered Gaga and was her manager until November 2013 summed it up nicely in his interview with FastCompany:

It was more about building a platform on top of music—because music, we realized, sells everything but music.

Will digital music, like apps, become predominantly free? Apps have become a channel to reach and engage users. Will the same thing happen to music? What role will Apple Pay play in this transformation? Time will tell, but Eddie Cue thinks it’s a possibility. In his interview with The Guardian he said:

Our viewpoint was very simple: let the artist and label control it. They can put it up on Connect for free if they want to, or they can put it up behind the [subscription] paywall, or they can make it available on the iTunes Store for sale. They’re in control of their music and how they want to distribute it.

Don’t repeat Bob Lefsetz’s mistake

[tweetable]Apple Music is more than a differently-packaged version of Spotify[/tweetable]. Google AdWords is more than a less-expensive advertising agency, iOS is more than a nicer-looking version of Symbian, Uber is more than a digital version of a Taxicab stand, AirBnB is more than renting mattresses to strangers and Munchery is more than a bigger restaurant kitchen. These are platforms having very different economics from traditional products. As Marshall Van Alstyne said:

Platforms beat products every time.

Platforms disrupt industry after industry: telecom, computing, watches, automotive, consumer electronics, banking, education, food, transportation, hospitality, healthcare, and more. When you see a new idea in the market or a new competitor, ask yourself: “Is it a market-creating platform?” and “What will it mean for my business if the platform reaches critical mass?”

Connected car: A catch 22 for the car industry

More and more car makers understand that “digital” will bring profound change to the industry. Audi chairman Rupert Stadler recently said at CES Asia in Shanghai:

“We are experiencing a digital revolution that is having a faster and stronger impact than the industrial revolution. This is the new normal. It will not stop.”


The challenge, though, is that the industry often sees connected cars as a linear extension of its legacy business model. This reminds me of how Nokia in 2007 saw the iPhone as competition for better phones. The trends – and history – point in a very different direction. The connected car will be a completely different ball game with new competitors and business models.

Connectivity opens the car to Internet companies, which create, deliver and capture value in completely new ways. Software already disrupted many industries. Today there are clear signs of how the encounter with the Internet can become a catch 22 for the car industry as well.

A smartphone accessory on wheels

Car makers are busy adding connectivity to their cars. Software companies take a very different approach – they instead focus on people, “the connected driver”.

For software companies it’s not about connecting the driver to the car. It’s about keeping drivers connected to their digital lives through their smartphones. Google’s Android Auto, Apple’s CarPay and numerous startups like Automatic, Carvoyant, Navdy, Vinli, Dash, WayRay, Zubie and many others work to turn the car into a smartphone accessory on wheels.

Google’s Fabian Tamp says in the video introducing Android Auto to developers:

“Your car is by far the most complicated accessory we’ve ever attached to an Android phone.”

On that rare occasion Apple agrees with Google:

“The accessory ‘Toyota’ uses an app you do not have installed”

“The accessory ‘Toyota’ uses an app you do not have installed”

The strategy seems to be working pretty well for Google and Apple. Joanna Stern writes in the Wall Street Journal:

“After a week cruising around with Android Auto, I’m convinced this is the future of in-dash technology. Taking the software design out of the hands of car makers and putting it in the hands of phone makers should have happened long ago.”

Developers: From podcasts to disrupting after-sale services

Apple, Google and startups like Automatic and Carvoyant bring proven app paradigms together with legions of developers to the service of the drivers. [tweetable]The goal is to turn the car into a platform allowing startups to experiment with new use cases[/tweetable] and business models.

VisionMobile surveyed 4,000+ Internet of Things developers for our IoT Developer and Platform Landscape 2015 report. It turns out that 61% of connected car developers make apps for Google’s Android Auto or plan to do so, versus 50% for Apple’s CarPlay. Compare that with 22% of developers pinning their hopes on the car-maker-friendly MirrorLink platform.

[tweetable]These are still the early days of the connected car developer ecosystem[/tweetable]. Developers are still experimenting with a wide range of car-specific use cases: From listening to podcasts, expense reporting and teen driving to trying to disrupt the most lucrative part of the car business – after-sale services.

[tweetable]Dealing with repair shops and dealerships is the most annoying part of car ownership experience[/tweetable]. A growing number of startups try to change that with the model of on-demand services, which works so well for Uber.

For example, YourMechanic in the US connects car owners with independent certified mechanics in their local neighborhood. The service helps you find the right mechanic at a fair price, pay for parts and services, and get your car fixed conveniently at your home or office. YourMechanic created an app for the Automatic app store that allows the service to collect real-time diagnostic information from your car, making the service much more useful.

The writing is on the wall

The writing is on the wall for the automotive industry. [tweetable]The connected car, as it turns out, is much more than adding connectivity to cars[/tweetable]. To compete in this new market car makers will need to learn how to think and act as a software company, leaving behind the comfort of their traditional business model.

Android Auto, CarPlay, Automatic, Carvoyant and other ecosystems are leading us to the future where the key purchase criterion for the car is not “what the car can do”, but “what you can do while in the car”. This is much like smartphones evolved from “what the phone can do” in the Nokia era to “what you can do with the phone” in the iPhone/Android era. It will be rather unfortunate, but predictable if car makers repeat Nokia’s mistakes.

The Commerce of Things

You might be forgiven for thinking that Internet of Things stands for adding apps to a watch, or connecting a thermostat to the internet.

This is where IoT stands today. More broadly, IoT is about adding computing capabilities to a physical object, and allowing it to interact with the world around it. But this is only the beginning. As we argued earlier, IoT is fast escaping both Internet and Things. And it’s about to change e-Commerce in ways we never expected.


An unconnected ‘thing’ is a missed business opportunity

Today, it’s well understood that adding computing and Internet to a car, a watch, a thermostat, or a chair can allow the manufacturer to capture value beyond the purchase of that object and into data-driven business models. Car makers can now offer post-sales services, like vehicle diagnostics that alert you when it’s time to have your car serviced by a dealer. Or smartwatch apps that alert you when you’ve forgotten to put your seatbelt on. Watchmakers can create stickiness as you can now use your watch to unlock your front door, or control your thermostat without leaving the couch. Thermostat makers can now expand into energy management. Office furniture makers can now extend their business into productivity management.

[tweetable]Makers of connected ‘things’ can subsidise them to make money from data-driven services[/tweetable]. We suspect that new norms will form in industry after industry, as goods manufacturers and services vendors experiment with these new business models. What is clear is that selling unconnected ‘things’ will increasingly look like a missed opportunity.

Amazon’s wake up call

But there is a much bigger revolution at play. We believe that [tweetable]IoT will fundamentally change the shape of e-Commerce[/tweetable].

With IoT, washing machine makers can now not just deliver detergent just in time by knowing when your supplies run out. They can also recommend the right detergent, based on your usage, type of clothes, on demand. Car makers can recommend where you buy your gas, by understanding your drive journey, availability of gas stations, pricing on-demand discounts, and gas station commission. Watchmakers can command a commission from health insurers, as they can monitor your heart rate, temperature, fitness habits and determine what risk zone you are in. In short, IoT makers can now afford a negative BOM (bill of materials) “a la Dell”, by subsidising the cost of hardware with the revenues from bundled e-commerce services.

Internet of Things will allow any connected “thing” to become an affiliate for e-Commerce goods that are consumed together with the “thing” – what in economics are termed complements. Any connected object could become a distribution surface and customer acquisition channel for e-Commerce goods and services of every kind and description. IoT extends e-Commerce affiliate and user acquisition schemes beyond websites, mobile and apps, into every physical object.

Amazon’s Dash offers an early glimpse of this model. Place a Tide button on your washing machine, a Huggies button next to your baby’s changing room, or a Gillette button in your bathroom and pronto, your supplies are at your door the following day. More importantly, Dash acts on your intention to buy before you change your mind and pop over to the 7 Eleven convenience store. Similarly, Amazon’s Echo, allows you to order anything from the comfort of your living room, and without lifting a finger. What’s interesting is that nor washing machine neither FMCG companies are directly involved in Amazon’s effort. Amazon’s moves should be a wake-up call for the white goods industry.


The Physical Affiliate

e-Commerce affiliate sales can happen in two ways: firstly, by pre-sales hardcoding of the e-Commerce service into the physical object. Think how Mozilla was able to make over $200M annually by preloading the Firefox browser bar with Google search, before moving to Yahoo. Affiliate sales can also be dynamic. Think how BMW can recommend a different brand of oil for the maintenance of the car based on price, oil efficiency observed on the car and many other similar cars, and the driver’ analyzed behavior on the road. Naturally, makers like BMW who can create value by tracking user behaviour will also be able to capture more value as an e-Commerce affiliate.

White goods manufacturers can now extend their business models across the product lifecycle. They can also own the device real-estate that offers e-commerce discovery and distribution, and act as a customer acquisition channel for e-commerce goods and services. More likely, this customer broker role will be seized by more agile e-Commerce players.

And all of this while adding value to the customer. Think: I’d like to buy a watch and improve my fitness at the same time, and get better health insurance cover. Or I’d like to buy a car and save money from fuel, every time. Or I ‘d like to buy a thermostat and have the peace of mind that I’m never spending more on energy bills than I need to. All these Jobs To Be Done are not for the few, the wealthy or the early adopters. In this smarter world, they are for the many.

Closing the attribution loop

More importantly, [tweetable]Internet of Things will allow e-Commerce to stretch across the breadth of the customer journey[/tweetable]. Consider how limited e-Commerce is today in understanding the customer journey: you search on Google for something to buy, click on what fits your purchase intent, including advertisement link, then lead to a purchase on the device being used. Along that path, Google receives a kickback (typically on a cost-per-click, CPC) from the advertiser on the assumption that a small percentage of those clicking the link will buy, making the business case for paying the CPC. There is no way for advertisers to know when a real purchase was made in a brick-and-mortar shop, let alone make someone with purchase intent visit that physical shop in the first place. This is the holy grail of advertising business, i.e. being able to track consumer behaviour from awareness to intent to purchase to purchase, and across web, mobile and increasingly number of physical connected touch points. By embedding the e-Commerce discovery and distribution surface on physical objects, and more connected touchpoints across the customer journey, you are now able to cross the last mile from awareness to purchase intent to purchase.

Put simply, connected devices will become the optimum point-of-sale for e-commerce, search boxes and app stores for services, at the ideal place and ideal context of a purchase intent.

The rise of programmatic e-Commerce

Moreover, consider billions of “things” doubling as e-Commerce points of sale (PoS). This will result in the unbundling and extension of PoS for e-commerce outside the web (think, app and product (think Kindle) silos controlled by e-commerce players. It will lead to programmatic auctions for e-Commerce Call To Action (CTAs), as the most market-efficient way for matching demand with supply. This will mean that the programmatic, real-time bidding (RTB) for ads today will carry over to e-commerce and into the real world.

More importantly, by retaining attribution across the customer journey and touchpoints, programmatic e-Commerce will be able to monetise by Cost-per-Action (CPA) in the physical world while providing enhanced value experience beyond what the comparable but unconnected appliance could ever bring. We can clearly expect a major reshuffle of the advertising industry and a further cycle of VC investment and consolidation that it will entail.

–Andreas Constantinou
As CEO and Founder, Andreas oversees the growth and strategy of VisionMobile. He has twelve years experience in mobile, having worked with the top brand names in the mobile industry including Telefonica, AT&T, Telenor, Vodafone, Deutsche Telekom, MTS, Nokia, Sony, RIM, HTC, Qualcomm, Ericsson and Microsoft. Over the last five years, Andreas has grown VisionMobile into the leading, most respected research firm on app economy and developer economics, with a client base and reputation that out rivals companies many times the size.
Andreas on LinkedIn

–Nicolas Sauvage
Nicolas Sauvage is a “Software guy”, since first programming at 8 years old, and forever passionate about Software contributing to a better Connected World. He joined the management team of NXP Software in Feb 2011, and took various responsibilities over time including leading the OEM Business Line, worldwide sales, product management, Head of Korea, Head of Greater China. He is an Alumni of TTPCom, OpenPlug, London Business School and INSEAD.
Nicolas Sauvage on LinkedIn