Integrated Billing Solutions in the Internet of Things

Cost benefit analysis has been used as the main tool for economic analysis. cost
benefit analysis of RFID usage is most often based on best guesses While RFID and
other Auto-ID technologies continue to be major components of the Internet of
Things, there are other technologies, such as sensors, actuators, and networked
infrastructures that will further add to the ongoing cost discussion. The cost for
hardware, software, integration, maintenance, business process reengineering
and data analysis are major hurdles in the process of deploying the Internet of
Things. Costs and benefits are not always balanced between all stakeholders. For
RFID adoption across supply chains, cost benefit sharing has been suggested to
solve this issue.

There are several problematic aspects in cost benefit analysis and sharing:

• Detailed cost benefit analysis can be time consuming

• It is difficult to identify, measure and analyse all costs and benefits associated
with an Internet of Things

• Companies are reluctant to share benefits

• Cost benefit sharing models do not scale, as they are subject to bi-directional
negotiations

An alternative solution to cost benefit sharing could be based on selling and

buying information that is provided through the Internet of Things. For this, a
billing solution is needed to price and bill information. Similar concepts are known
from the telecommunications industry, where billing solutions are an integral part
of the overall infrastructure, allowing billing of different services, such as voice
calls, SMS, Internet access and premium services, across service providers and
different countries.
Cost of RFID and the Internet of Things
There are numerous costs associated with the adoption of the Internet of Things.

The first cost level in the Internet of Things includes mobile devices that are linked
to physical objects. These can be RFID tags fixed to a product, as well as sensors,
actuators (e.g., signal lights, power switches) or smart devices that combine
multiple technologies. The price of RFID tags has been an important issue.
Consequently, the price for the tags should always be compared to the benefit it
generates. However, if RFID is compared with other IT-investments, one has to
bear in mind the reoccurring costs for tags. When we consider the integration of
sensors, actuators and smart devices in the Internet of Things there will be even
more expensive ubiquitous mobile technologies that need to be paid for.
Therefore, the costs of mobile devices and their installation on things will remain
a major topic in the cost discussion for the Internet of Things.

The second cost level includes aggregation devices and aggregation software,
such as readers, antennas, cabling, controllers and other edge hardware and
software as well as the corresponding installation costs. Hardware costs include
hardware portal frames to hold the reader and antennas. Some retailers have
used large metal housings to shield between dock doors in order to avoid false
reads. Newer installations use intelligent filtering mechanisms provided by
corresponding middleware components. The setup of the gates may require
considerable costs for hardware and installation. Controllers and middleware are
used for managing low-end hardware and abstracting these from the applications.
Sometimes the middleware is further divided into solutions interfacing with
hardware (edgeware) and the middleware interfacing with applications. In this
case, middleware may be considered to be part of the integration level.

The third cost level includes all integration costs to legacy systems, middleware
and updates of existing system. The cost for the middleware acquisition is further
increased by the necessary installation cost. Middleware can be based on
freeware. In the Internet of Things, middleware does not only link to internal
applications, but additionally allows multidirectional communication between
companies, end-users and public institutions. Costs for updating applications,
such as Enterprise Resource Planning (ERP), Supply Chain Management (SCM),
and Product Lifecycle Management (PLM) systems, need to be considered.

The fourth level includes cost for educating the project team and end-users as
well as cost of reorganisation. The necessity of training and education for
endusers is quite important, because the Internet of Things requires fundamental
knowledge about different technologies, such as Auto-ID and sensors as well as
knowledge about real-time data handling and analysis. Certain aspects of the
Internet of Things raise privacy and security concerns of workers and unions,
which may lead to a total failure of the project. Training and education help to
provide the corresponding skills and to address technology-related fears. The cost
of reorganising the business processes result from traditional management tools,
such as business process reengineering or newer approaches, like business model
innovation. As a result, further infrastructural investments may be required. It can
be estimated that the cost for the new roundabout exceeded the cost of the RFID
infrastructure. While this example shows an investment in a single process
optimisation, new business models may require extensive organisational changes.

The fifth cost level includes new internal applications, which are rolled out in a
firm to unleash the full potential of the Internet of Things. The costs include
standard software, such as PLM or SCM systems, as well as individual software
and all associated costs for installation, customisation and training. These
applications interface to the Internet of Things and provide tools for data-entry
and retrieval, analysis, planning, forecasting and more.

The sixth cost level considers the fact that an Internet of Things needs
communication and collaboration across enterprise boundaries, non-commercial
stakeholders, such as governmental institutions, and end-users. While
middleware provides some functionality in the Internet of Things for collaboration
and communication, further investments are necessary. Some suppliers,
especially in retail, have to consider an investment into an Electronic Data
Interchange (EDI-) infrastructure, as EDI represents the current state of the art.
Negotiations with partners, suppliers and customers about data requirements and
service level agreements will be necessary. For machine-to-machine
communication, detailed syntax and semantics are required. Finally, trust and
security issues need to be addressed in a networked environment.

The seventh cost level covers operating costs for maintaining, running, improving
and extending the system. The hardware and software need to be maintained and
updated regularly. Electricity costs, to operate the infrastructure, are usually quite
low in comparison with the other costs involved. However, as Green IT initiatives
are becoming more and more significant Internet of Things is no exception. Above
all, the labour involved to provide high quality product data has to be taken into
account. As these costs are difficult to calculate, they are most often omitted
from any calculations. Besides keeping the technical infrastructure alive, day to
day tasks, such as data storage and analysis as well as overall improvements and
upgrades to cope with growth, are adding up to considerable recurring costs.

There are different options to pay for the costs of RFID adoption. These differ
between implementation and operation.

One of the reasons for this could be the missing technical infrastructure to
measure and bill the corresponding usage. For operation, a usage-based
accounting did receive higher acceptance levels. While pricing based on target
agreements still was preferred, a pricing scheme based on transponder volume,
followed as second preference. It may be assumed that one of the reasons for the
reluctance to use usage-based pricing schemes, based on pay per read, process
times or data volume, may be once more the lack of an integrated technical billing
solution

Benefits of RFID and the Internet of Things

There have been numerous analyses to identify and structure benefits of RFID .
four different approaches towards systemisation of RFID benefits:

• Collecting and grouping – benefits are collected and grouped.

• Layer of impact – benefits are structured to impact layers such as short term
and long term automation, informational and transformational benefits, proven
or potential

• Locus of impact – these studies highlight who benefits, thus it automatically

considers benefits to multiple stakeholders

• Indicator system – established evaluation systems, such as Balanced Scorecards,

are used to structure RFID benefits

Sometimes combinations of these structures are used

Collective benefits can be achieved by all of these stakeholders. These include:

• Reduced product shrinkage: reduction of loss of goods through misplacement,

spoilage, and theft

• Improved information sharing: product related data may be exchanged to

benefit multiple stakeholders, problems resulting from converting paper-based
information to digital information are avoided and manual data-entry is
drastically reduced

• Compensatory benefits: benefits provided through other stakeholders, including

for example cost benefit sharing, funded research, bonus payments, vouchers,
information (e.g. sales data)

Companies in general may benefit from:

• Increased inventory, shipping and data accuracy: e.g., differences between real
stock numbers and assumed stock

• Subsequent fault reduction: inaccurate and incomplete visibility may lead to

false decisions and can be avoided through the Internet of Things

• Faster exception management (agility): capability of responding to unplanned

events in a timely manner before critical problems escalate
• Asset management: better asset utilisation may lead to an opportunity to
reduce asset inventory, reduced asset shrinkage, better shipment consolidation,
reduced energy consumption and improved reverse logistics

• Product rotation: methods of inventory control, such as First In, First Out (FIFO)
can be used more accurately to ensure efficient stock rotation e.g. in time sales
for perishable goods

Manufacturers and suppliers benefit mainly from;

• Production tracking: tracking of raw material, work-in-progress inventory,

assembly status tracking and finished products

• Quality control: ensured quality control in production

• Supply / production continuity: enabled through improved material tracking

• Compliance: e.g., in case of mandates issued for example by large retailers or

legislators and regulators

Distributor and logistics provider as well as internal distribution and logistics

departments benefit from:

• Material handling: time (labour) savings for loading / unloading of trucks,

administrative overhead at the goodsdelivery lead times and reduced delays,
faster inventory, goods receiving, loading and unloading as well as reduced
human errors through Auto-ID

• Space utilisation: achieved through reduced buffers and reduction of product

storage incompatibilities (e.g., placement of hazardous goods), based on better
data accuracy through RFID usage

Retailer benefits include:

• Customer service: RFID can be used to simplify checkouts and payments as well
as for promotion management
• Lower inventory: reduced stockouts and smaller buffer stocks, due to improved
inventory data

• Reduced stockouts: substantially reduced stockouts can be achieved through

RFID if movements to the shop floor can be tracked

• Promotion execution: RFID and the Internet of Things may be used to obtain
better visibility for timely placements of promotional items

• After sales services: in after-sales service, RFID may be used for warranty issues,
repair and goods authentication

Benefits for consumers are:

• Personal access to product specific information: e.g., to be able to access the

product history of a car, based on a vehicle identification number

• Active participation opportunity: e.g., through beta testing, product ratings,

field reports, applications and more

• Interaction with other stakeholders: e.g., automatic updates and repairs,

dynamic safety warnings, product recalls, public applications

• Home automation and leisure applications: e.g., room monitoring, smart

devices, intelligent toys

Benefits to society include:

• Consumer protection / safety: e.g., food and health safety, environmental

monitoring

• Security: e.g., to avoid terrorist attacks, customs support

• Trade facilitation: comparable with the introduction of UN/EDIFACT in 1988

• Infrastructure optimisation: e.g., roads, public transportation

Cost Benefit Sharing

Cost benefit sharing (CBS) is a method to accomplish process changing

projects in networks. It is based on a stakeholder oriented total cost
analysis of all packages of measures in a project. Based on the achieved
transparency of positive and negative effects a win-win situation is
provided through reallocation strategies for all stakeholders. Therefore
an incentive to a network-wide optimisation is given.

In this definition a cost and benefit transparency between the

stakeholders is suggested to achieve a win-win situation.

The cost benefit sharing process loop can be structured in several

subtasks:

1. Detailed process analysis in the network through auditing

2. Enquiry of weak points through benchmarking

3. Development of corresponding actions to solve or lessen the effect

of the weak points based on overall strategies and goals

4. Cost benefit sharing

a. Calculation of costs

b. Evaluation of benefits

i. Calculate monetary benefits

ii. Calculate qualitative benefits

iii. Evaluate total benefit

iv. Calculate share of benefit

 c. Distribution of costs

5. Implementation of actions proposed in step 3

6. Controlling

7. Feedback loop to adjust the system to external dynamics

One of the fundamental mistakes in the usual cost benefit sharing models is to
look for a ‘fair’ scheme to level cost and benefit, rather than to look for a model
that accepts market forces. Hirthammer and Riha suggest using a mediator to
settle disputes, which does not seem appropriate for highly-dynamic information
sharing processes. An IT infrastructure that supports a self-regulating approach,
based on supply and demand of information and assisting free competition, may
be more promising.

A Usage Scenario within the Beverage Industry

The described integration of a billing solution offers flexible usage for multiple
industries and applications. To illustrate the prototype installation, a scenario
from the beverage industry has been used. There may be different events that
need to be processed for the billing system. Querying information is just an
example. Usagebased fees and deposits for Returnable Transport Items (RTI), or
initial costs for infrastructure could also be handled through the billing system.
Any event where customers are using measurable services may be communicated
to the billing system. The billing mediation process is able to differentiate the
different events and to calculate individual prices, based on business rules.
Business model
Business model can be defined as an abstraction of the complexity of a company
by reducing it to its core elements and their interrelations. It facilitates the
analysis and the description of business activities. . In relation to the Internet of
Things the business model is a major element to unite its technical developments
with its economical business perspective.

According to Afuah and Tucci “a business model can be conceptualised as a

system that is made up of components, linkages between the components, and
dynamics”. Components refer to the elements to be addressed by a business
model. Just like the definitions of the term “business model” the proposed
components vary largely between different authors.

The business model framework includes four main perspectives of the

business model, namely the value proposition, the customer, financials and the
infrastructure. The components are not stand-alone but mutually influence each
other.

The value proposition specifies what is actually delivered to the customer. This
goes beyond the product or service offered. It describes which customer need s
are satisfied and details what other quantitative (e.g., price or speed of service)
and qualitative aspects (e.g., brand, design, cost/risk reduction) contribute to the
offered value. In the Internet of Things consider raw data about physical objects
as well as any aggregated or processed information a core component of the
value proposition.

The customer perspective includes the customer segments addressed by the

company, such as related channels and customer relationships. The customer
segments define the different groups of people that are served. Different types of
customer segments can be distinguished: mass market vs. niche market,
segmented vs. diversified or multisided platforms. Multisided platforms will exist,
if two or more interdependent customer segments are served by the company
(e.g. credit card companies). The company can reach its customers, respectively
customer segments through different channels. These can be direct or indirect
and owned by the company itself or by partners. Channels can be aligned to the
different phases of the lifecycle, such as creating awareness for the value
proposition, evaluation of the value proposition through the customer, purchase,
delivery and after sales. Customer relationships are often determined by the
channels used. Relationships can range from very loose (self-service, automated
services) to highly engaged (personal assistance, communities, co-creation).

The financial perspective comprises the costs as well as the revenues. The
revenue structure depicts the sources and ways of revenue generation. Here, too,
different types of revenue streams can be distinguished: asset sale, usage fee,
subscription fee, lending / renting / leasing, licensing, brokerage fee, and
advertising The cost structure describes the most important costs (variable and
fixed) inherent to the business model. The business model can be rather value or
cost driven (cost leadership vs. differentiation strategy). Companies can use
economies of scale or economies of scope to create a successful business model.

Key partners, key activities and key resources can be referred to as the
infrastructure components. The key resources are the assets required to make the
business model work. Key resources can be physical, intellectual, human or
financial. The key activities describe the most important actions to be performed
by the company in order to create, offer and market the value proposition. These
can be producing, problem solving or developing and maintaining a platform,
respectively network. Key partners are the network of suppliers and collaboration
partners (strategic alliances, outsourcing partners, co-creation) the business
model depends on

Population model
Information cascade

When people are connected by a network, it becomes possible for them to

influence each other’s behavior and decisions.
As a first example, suppose that you are choosing a restaurant in an unfamiliar
town, and based on your own research about restaurants you intend to go to
restaurant A. However, when you arrive you see that no one is eating in
restaurant A while restaurant B next door is nearly full. If you believe that other
diners have tastes similar to yours, and that they too have some information
about where to eat, it may be rational to join the crowd at B rather than to follow
your own information. To see how this is possible, suppose that each diner has
obtained independent but imperfect information about which of the two
restaurants is better. Then if there are already many diners in restaurant B, the
information that you can infer from their choices may be more powerful than
your own private information, in which case it would in fact make sense for you to
join them regardless of your own private information. In this case, we say that
herding, or an information cascade, has occurred.

A cascade then develops when people abandon their own information in favor of
inferences based on earlier people’s actions.

direct-benefit effect is different from the informational effects: here, the actions
of others are affecting your payoffs directly, rather than indirectly by changing
your information

Bayes’Rule predicts a model that cascades will form, with probability tending to 1
as the number of people goes to infinity.

the two possible states of the world as G, representing the state where the
option is a good idea, and B, representing the state where the option is a bad
idea. We suppose that each individual knows the following fact: the initial random
event that placed the world into state G or B placed it into state G with
probability p, and into state B with probability 1 − p. This will serve as the prior
probabilities of G and B; in other words, Pr[G] = p, and hence Pr[B] = 1−Pr[G] =
1−p.

i) Cascades can be wrong. If, for example, accepting the option is in fact a
bad idea but the first two people happen to get high signals, a cascade
 of acceptances will start immediately, even though it is the wrong choice
for the population.

(ii) Cascades can be based on very little information. Since people ignore their
private information once a cascade starts, only the pre-cascade information
influences the behavior of the population. This means that if a cascade starts
relatively quickly in a large population, most of the private information that is
collectively available to the population (in the form of private signals to
individuals) is not being used.

(iii) Cascades are fragile. The previous point, that cascades can be based
on relatively little information, makes them easy to start; but it can also make
them easy to stop. One manifestation of this is that people who receive slightly
superior information can overturn even long-lived cascades.

Network Effects

Direct-benefit effects, also called network effects: for some kinds of decisions,
you incur an explicit benefit when you align your behavior with the behavior of
others.

A natural setting where network effects arise is in the adoption of technologies

for which interaction or compatibility with others is important. For example,
when the fax machine was first introduced as a product, its value to a potential
consumer depended on how many others were also using the same
technology. The value of a social-networking or mediasharing site exhibits the
same properties: it’s valuable to the extent that other people are using it as
well. Similarly, a computer operating system can be more useful if many other
people are using it: even if the primary purpose of the operating system itself
is not to interact with others, an operating system with more users will tend to
have a larger amount of software written for it, and will use file formats (e.g.
for documents, images, and movies) that more people can easily read.
Network Effects as Externalities. The effects we are describing here are called
positive externalities. An externality is any situation in which the welfare of an
individual is affected by the actions of other individuals, without a mutually
agreed-upon compensation. For example, the benefit to you from a social
networking site is directly related to the total number of people who use the
site. When someone else joins the site, they have increased your welfare even
though no explicit compensation accounts for this. This is an externality, and it
is positive in the sense that your welfare increases.

Not everything is an externality — the key part is that the effect has to be
uncompensated. For example, if you drink a can of Diet Coke then there is one
less can of Diet Coke for the rest of the world to consume, so you decrease the
welfare of others by your action. But in this case, in order to drink the can of
Diet Coke you have to pay for it, and if you pay what it costs to make another
can of Diet Coke, then you have exactly compensated the rest of the world for
your action. That is, there is no uncompensated effect, and hence no
externality

Each consumer wants at most one unit of the good; each consumer has a
personal intrinsic interest in obtaining the good that can vary from one
consumer to another. When there are no network effects at work, we model a
consumer’s willingness to pay as being determined entirely by this intrinsic
interest. When there are network effects, a consumer’s willingness to pay is
determined by two things:

• intrinsic interest; and

• the number of other people using the good — the larger the user population,
the more she is willing to pay.