Should the Internet of Things platform enter the smart device market?

Abstract

Purpose

The Internet of Things (IoT) platform empowers the digital transformation of the manufacturing industry by providing information technology services. Simultaneously, it enters the market by offering smart products to consumers. In light of different service fee scenarios, this article explores the optimal decision-making for the platform. It investigates the pricing models and entry decisions of IoT platforms.

Design/methodology/approach

In this study, we have formulated a game-theoretic model to scrutinize the influence of the IoT platform ventured into the smart device market on the pre-existing suppliers operating under subscription-based and usage-based pricing agreements.

Findings

Our outcome shows that introducing an IoT platform’s smart device has a differential effect on manufacturers depending on their contract type. Notably, our research indicates that introducing the platform’s own smart device within the subscription-based model does not negatively impact the profitability of incumbent manufacturers, so long as there is a noticeable discrepancy in the quality of the smart devices. However, our findings within the usage-based model demonstrate that despite the variance in smart device quality differentiation, the platform’s resolution to launch their device and impose their pricing agreements adversely affects established manufacturers. Additionally, we obtain valuable Intel regarding the platform’s entry strategies and contractual inclinations. We demonstrate that the platform is incentivized to present its smart device when reasonable entry costs remain. Furthermore, the platform prefers subscription-based contracts when the subscription fee is relatively high in non-platform entry and entry cases.

Originality/value

These findings hold significant practical implications for firms operating in an IoT-based supply chain.

Citation

Li, X., Ma, S. and Zhang, Z. (2024), "Should the Internet of Things platform enter the smart device market?", Industrial Management & Data Systems, Vol. 124 No. 8, pp. 2497-2531. https://doi.org/10.1108/IMDS-12-2023-0969