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Business Models Based on Co-opetition in a Hyper-Connected Era: The Case of 5G-Enabled Smart Grids

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Abstract

This paper aims at introducing a new perspective on devising business models based on the logic of the networked and hyperconnected technological and business environment. The empirical data combines two technological areas: 5G and smart grids. The 5G technology provides rudimentary knowledge about how to create a networked infrastructure for ubiquitous, reliable, and high-speed connectivity. The outcome will enable the utilization of innovative and hyperconnected technologies in the smart grid sector. In the context of the smart grid, we apply a 4C-layered business model that builds on the functional logic of the commercialization of technologies in the 5G era. This eco-systemic business model illustrates how different actors interact in each layer, giving the possibility to identify existing and potential smart grid applications that could be enabled by 5G. We expanded hyperconnectivity into four dimensions, including hyper-connectability, hyper-memorisability, hyper-diffusibility, and hyper-scalability, through an empirical study that can further be developed for a stronger theoretical model of hyperconnectivity.
Business Models Based on Co-opetition
in a Hyper-Connected Era: The Case of 5G-Enabled
Smart Grids
Sara Moqaddamerad
()
, Yueqiang Xu, Marika Iivari, and Petri Ahokangas
Oulu Business School, University of Oulu, Pentti Kaiteran katu 1, 90014 Oulu, Finland
{Sara.Moqaddamerad,Yueqiang.Xu,Marika.Iivari,
Petri.Ahokangas}@oulu.fi
Abstract. This paper aims at introducing a new perspective on devising business
models based on the logic of the networked and hyperconnected technological
and business environment. The empirical data combines two technological areas:
5G and smart grids. The 5G technology provides rudimentary knowledge about
how to create a networked infrastructure for ubiquitous, reliable, and high-speed
connectivity. The outcome will enable the utilization of innovative and hyper‐
connected technologies in the smart grid sector. In the context of the smart grid,
we apply a 4C-layered business model that builds on the functional logic of the
commercialization of technologies in the 5G era. This eco-systemic business
model illustrates how different actors interact in each layer, giving the possibility
to identify existing and potential smart grid applications that could be enabled by
5G. We expanded hyperconnectivity into four dimensions, including hyper-
connectability, hyper-memorisability, hyper-diffusibility, and hyper-scalability,
through an empirical study that can further be developed for a stronger theoretical
model of hyperconnectivity.
Keywords: Hyperconnectivity · Business models · Co-opetition · 5G · Smart grid
1 Introduction
Entering the era of information supported by big data, the Internet, digitalization, and
information and communication technology (ICT) has deeply impacted human society
[5, 17]. Consequently, the demand for technological advancement that can sustain all
the kinds of services needed for people’s lives is growing exponentially. To address this
need, ICT’s evolution created an integrated, fast-moving, ubiquitous, and hypercon‐
nected world in which the temporal and spatial boundaries of doing business are
vanishing through virtualization [1, 17].
Enabling ICT technologies have also facilitated many new opportunities in tradi‐
tional industrial sectors [18, 21], such as utilities and energy, where smart grids have
emerged as an “Energy Internet” [15, 29]. A smart grid can be defined as a two-way
communication infrastructure of information and energy flows, allowing the integration
of distributed energy resources, storage, consumption, and flexible demand [35].
© IFIP International Federation for Information Processing 2016
Published by Springer International Publishing Switzerland 2016. All Rights Reserved
H. Afsarmanesh et al. (Eds.): PRO-VE 2016, IFIP AICT 480, pp. 1–10, 2016.
DOI: 10.1007/978-3-319-45390-3_47
For these industrial energy players, the upcoming fifth generation of mobile networks
(5G) is becoming a pivotal enabler for hyperconnectivity, as it aims to create more
intelligent technologies and integrated networks with real-time control, lower latency,
and a higher data rate [4]. Future 5G networks ought to enable innovative ways of
connecting, sharing, and allocating infrastructure and other resources [23] that—
together with the new smart grid platform and technologies—can open a myriad of new
opportunities for businesses, consumers, and decision makers [15]. This highlights
business modelling as a crucial part of integrated networks such as smart grids [29].
The use of an ecosystemic business model in the smart grid domain could unlock
five main types of value across the energy industry and society: (1) economic value (i.e.,
value through avoiding unnecessary costs and investment in constructing excess gener‐
ation capacity), (2) environmental value (i.e., value created by retiring the fossil fuel
power plants and integrating renewables), (3) reliability value (i.e., value created by
using next-generation communication technology to improve network reliability), (4)
energy security value (i.e., value created by ramping up distributed generation to reduce
reliance on depleting fossil fuel resources), and (5) engagement and interaction value
(i.e., value created by enabling consumers and prosumers to actively participate in the
energy market) [36].
On top of that, 5G networks should bear multiple services and integrate multiple
technologies to fulfill a wide variety of demands, including user experience enhancement
and rapid business development. It is expected that 5G will remove the barriers related
to connectivity capacity (creating a wireless connected world) and network performance
(information can be accessed smoothly and constantly), as well as to resource optimi‐
zation (by intelligently and dynamically allocating the scare resources such as infra‐
structure and spectrum) [10].
In a hyperconnected context, absorbing and integrating others’ resources leads to
accelerating the development of new products, easy market access, and eventually to
obtaining knowledge and resources that otherwise require strenuous effort and a heavy
cost in order to be achieved without collaboration and sharing [13]. Conversely, the
extent to which organizations have adapted to hyperconnectivity is limited [30, 31].
Additionally, most modern business model frameworks lack such a holistic perspective
on interdependency in the industry [25]. Furthermore, within hyperconnected contexts,
firms do not only cooperate and collaborate but also compete to gain advantage [7, 9],
while the uncertainty, risk, and open competition that characterize the 5G business
environment make sustaining competitive advantage problematic.
The advent of the smart grid can be seen as an evolutionary development from the
traditional, centralized production and distribution energy system to a modern energy
network that incorporates two-way, end-to-end communication and decentralized oper‐
ations of generation, transmission, and distribution [38]. It is argued that when analyzing
the transition of utility-led centralized energy systems to a distributed smart grid system,
the traditional single-actor-focused business model conceptualizations and tools are not
applicable [36]. This research gap is rarely studied in general business model literature,
nor has it been addressed in hyperconnectivity studies. Based on this gap in current
knowledge in empirical and theoretical studies, this study seeks to explore how hyper‐
connectivity within 5G-enabled smart grids affects business modelling in such a
2 S. Moqaddamerad et al.
networked environment. Hence, this study specifically asks ‘How can business models
be applied in co-opetition-based value creation and capture in the context of a hyper‐
connected business ecosystem?’
The study is organized as follows. First, the peculiarities of the hyperconnected
business context are discussed. Then, the concept of a co-opetition-based business model
approach is introduced. The last section presents our framework for a 5G-supported co-
opetitive smart grid, with accompanying discussion and conclusions.
2 Background
2.1 The Context of Hyperconnectivity
Hyperconnectivity can be considered as the inclusion of people-to-machine and
machine-to-machine communications, supporting the development of the IoT [32].
Hyperconnectivity is defined as a state of stimulus associated with the near-constant
contact with others. They view the Internet, mobile technologies (such as smartphones),
and increasingly ubiquitous electronic networks as the key enablers of hyperconnectivity
[14]. The 5G networks aim at revolutionizing the quality and efficiency of hypercon‐
nectivity by enabling higher frequencies, allowing greater device densities; providing
greater bandwidths, and building the utmost base station and antennas which are highly
integrative in comparison with the previous four generations [4].
The territory of hyper-connection expands in two dimensions: (1) hyper-memoris‐
ability, where all the information is stored in huge databases and is accessible anytime
from anywhere, and (2) hyper-diffusibility, where all the thinking and thoughts can be
massively reproduced, communicated and diffused in a network, without physical limits
[17]. The combination of hyperconnectivity, and big data and analytics could empower
economies in three key ways: through the ability to know, the ability to have dialogue,
and the ability to innovate [22]. Thus, hyperconnectivity is the main factor of change
[17], as it has the power to profoundly modify the network of interindividual relations
and society as a whole [31].
2.2 Co-opetition-Based Business Models
Business models covey the logic and architecture of how economic value is created and
captured [12]. As emphasized by [16], a business model entails the value proposition
(i.e., products and services), customer relationship, and the network of partners as well
as cost and revenue structure [40]. Exploiting the business potential of created innova‐
tions requires new organizational activities through which the resources are selected and
arranged [27]. Indeed, firms should identify the ways of managing their resources
beyond their current business model in order to respond to the challenges of today’s
turbulent business environment [11].
Therefore, firms should build up different and actually more complex but beneficial
relationships where they simultaneously cooperate and compete with each other (i.e.,
create a co-opetitive business design). According to [7], as the need for acquiring
external resources increases, those companies that hold a strong position in the industry
Business Models Based on Co-opetition in a Hyper-Connected Era 3
will likely cooperate with their competitors and as a result will adopt a co-opetition
strategy. This strategy leads to enhancing the dynamic development and competitive
advantage of the firm since it can cooperate with one competitor while competing with
another, or simultaneously cooperate and compete with the same partner [8, 9, 19].
A digital, hyperconnected economy creates a specific and unique form of value
creation wherein the firm and its partners generate value for various users in the
networked market [39]. The value proposition offered by companies in the era of 5G
and hyperconnectivity is accessibility-based business models for peer-to-peer (P2P)
markets. In virtual markets, value can be created through the novel integration of infor‐
mation, products, and services; an innovative transaction mechanism; and the recom‐
bination of resources, capabilities, and reshaping of the relationships among the partners,
suppliers, and customers [2] within the value network regarding the focus, locus, and
modus of activities [28]. This P2P collaboration results in sustainability and economic
benefit since the resources can be obtained easily and cheaply.
The focus of innovative 5G business models, for instance, is to create and capture
value and new pricing models through multi-partnerships [23]. Hence, the business
model describes how a focal firm may tap into its value network or ecosystem in order
to perform the activities that are necessary to fulfill the perceived customer needs as the
business model focuses on the activities performed by the subset of actors within the
focal firm’s collaborative network [3]. This builds the theoretical foundations of business
models for a hyperconnected 5G-enabled smart grid. Building on this theoretical under‐
standing, the next section presents our research design and methodology.
3 Research Design and Methodology
This study adopts an action-based research methodology for data collection within two
techno-social collective innovation projects: one studies the P2P technical and market
design of smart grids as part of European Union–level energy innovation research, and
the other one is a Finnish-American research cooperation on 5G networks and how they
enables key sectors such as smart grids.
Referring to [6], an action research methodology in management science leads to
producing scientific knowledge that can serve the action; it enables the formalization
and contextualization of models and tools, leading to the production of new knowledge
capable of facilitating organizational change. The action research approach was
supported by stakeholder consultation, embodied through an ecosystem actor workshop
organized in Finland in 2015. A stakeholder workshop can facilitate the process of
identifying the underlying connections and tensions by creating conditions in which the
participants can “co-creatively meet their individual and collective needs” [24]. This
approach has been employed in a number of techno-economic researches, especially as
described in energy and smart grid literature [20].
To analyze the smart grid business context, we apply a 4C-layered business model
typology (which is appropriate for a 5G business environment) presented by [34]. The
4C typology classifies Internet age businesses through four basic prototypical business
models, each with varying value propositions and revenue models [34]: connection,
4 S. Moqaddamerad et al.
content, context, and commerce. The 4C framework was applied by [37] for spectrum
sharing in the telecom industry. Due to having an ecosystemic feature, the 4C framework
is suitable for the context of a smart grid and 5G. The underlying logic of this model
suggests that the upper layers can be supported and enabled by lower layers, that value
can be offered in multiple layers, and that different combinations of layers can be utilized
for creating value propositions. In other words, the 4C model describes the structure of
the ecosystem and how different layers and models can interact [37].
In the 5G-enabled smart grid context, the use of a 4C ecosystemic model gives a
comprehensive view on how the value of smart grids and hyperconnectivity is created
through collaborative, competitive, and co-opetitive activities. The layers are organized
into four horizontals and four verticals. The horizontals start from the connection layer
on the left and end in the commerce layer on the right. The connection layer, for instance,
is described as the infrastructure of the business. The verticals cover four technological
layers including infrastructure and hardware, platforms and data, equipment and devices
(plus user interface), and applications and services, as proposed by [38]. This framework,
shown in Fig. 1, is elaborated in the following section.
Fig. 1. The 4C ecosystemic business model for P2P smart grids.
Business Models Based on Co-opetition in a Hyper-Connected Era 5
4Results
4.1 The Context of 5G and Smart Grid Projects
The aim of the 5G project is twofold: technology-wise it aims at investigating and
improving the technologies related to spectrum and content sharing; and economics-
wise it aims at creating transformative business models and regenerating the future
market for mobile operators. Therefore, we attempt to design creative models that
encapsulate both technology and business/economic performance. The assumption is
that the success of 5G technological applications rests on the economic value that it
brings for a wide variety of stakeholders—including content providers, regulatory agen‐
cies, service providers, and users—by enhancing the interaction among them. The
experimental data has been collected from an ongoing joint Finnish-American project
(JointMacs). In this paper, we applied the theoretical basis of the 5G networks derived
from the literature, as well as the business model that we designed for the 5G ecosystem.
Future smart grids require 5G-based infrastructure design to perform safely and effi‐
ciently; therefore, the same business model design that is applicable to 5G ecosystem is
needed for the smart grids to create economic value.
For the smart grid context, this study utilizes data collected from ‘P2P SmarTest’, a
European Horizon 2020 project researching a smarter P2P-based energy system inte‐
grated with 5G communication, regional markets, and innovative business models. This
project builds upon an ecosystemic perspective, incorporating the technological and
social-economic components of smart grids such as ICT for the energy sector, micro
grids, and power system economics. The P2P concept proposed by this research project
can find its applications in both large-scale distributed energy generation and smaller
energy systems, such as micro grids. To develop a holistic view on the potential business
models, services, and applications that can be supported by a 5G-enabled P2P smart
grid, the ecosystemic business model was adopted.
A smart grid is one of the 5G-enabled energy use cases. Information brokerage for
the content, context, and connection layers can be affected by 5G; besides, it provides
continuous connectivity and lower latency. Smart generation and the application of a
large amount of data are empowered by 5G; it builds a unified and flexible infrastructure
to ensure the deployment of virtual network functions, technological performance, and
a reliable communication solution for the services in smart grids. For instance, in urban
areas 5G can provide dedicated communication for smart meters [33].
In spite of the value that can be created through a 5G-enabled smart grid, a number
of barriers may pose challenges to the adoption of smart grids. These barriers can be
classified into four groups: the lack of regulatory framework and open standards, tech‐
nology and infrastructure immaturity, low public awareness and behavioral barriers, and
commercial risks and market uncertainty [26].
4.2 The 4C Business Model Framework for 5G-Enabled Smart Grids
The role of an infrastructure business is to build and manage facilities for high-volume
operations, such as maintaining data networks, back-office transactional services, and
6 S. Moqaddamerad et al.
communications through a 5G network. The requirements of an infrastructure business
are about the economics of scale, reliability, and security, thus 5G plays a critical
enabling role. As ascending upwards along the smart grid technical layer in Fig. 1, there
is a trend among the ecosystem actors to move from collaborative oriented activities to
competitive activities. It is especially interesting to point out that although smart home
device businesses are currently focusing on creating complementary value and service
offerings, there is an emerging movement steering towards more co-opetitive and
competitive directions as the market gets saturated.
The content layer presents concrete offerings provided by different parties, including
power quality, renewable energy integration, grid control, and monitoring and consump‐
tion feedback, none of which would happen without a communication network with
ultra-reliability and ultra-low latency to facilitate the safety, control, and monitoring
aspects of wireless automation applications. Balancing energy supply and network
constraints are the prime focus, and therefore the ecosystem needs to exhibit more
collaborative behavior. However, as customer usage data is becoming crucial to the
further development of smart grid services and applications, a high degree of competitive
activities can be observed in this layer.
Moving beyond the content layer, contextual value is created and captured in the
context layer. Flexibility is the key concern, this requiring hyperconnected actors and
coordination of activities among the ecosystem stakeholders. When reaching the
commerce layer, the data from P2P smart grid project depicts a high degree of compe‐
tition along all the technological layers. However, it is noteworthy that the smart meter
market shows more cooperative behavior. This is largely due to the adopted policy as
in many countries (especially in the EU member states) smart meter rollout is mandated
and driven by policies and regulations.
By looking at the 4C model as a whole, hyperconnectivity dimensions can be
observed in the technological layers or horizons of the ecosystemic model. Clearly,
hyper-connectability, enabled by 5G (as one of the key components of hyperconnec‐
tivity), has presence in all four technological layers of the smart grid. Hyper-memoris‐
ability and hyper-diffusibility are highly associated with how energy information is
communicated, diffused, and stored in the data infrastructure in order to improve the
distribution network-balancing capability of a smart grid as opposed to the traditional
grid. At the same time, hyper-scalability plays a key role in the case of Automated
Demand Response such as ‘OpenADR’, enabling highly scalable responses to network
peak reduction events.
Overall, the smart grid ecosystemic model shows different dynamics across the
layers, where the development of smart home devices, smart meter and storage instal‐
lation, big data businesses, and renewable generation show a clear co-opetitive pattern.
At a systemic level, the P2P smart grid as a whole can be seen as co-opetitive.
5Conclusions
A critical understanding of hyperconnectivity and its implication for the new generation
of business models is not possible without taking into account an ecosystemic perspective.
Business Models Based on Co-opetition in a Hyper-Connected Era 7
Assuming that hyperconnectivity is a fundamental aspect for the organization of
networked industries. This study conducted an empirical investigation on the 5G-enabled
smart grids in hyperconnectivity contexts. One theoretical contribution of the paper lies in
the discovery of four dimensions of hyperconnectivity (hyper-connectability, hyper-
memorisability, hyper-diffusibility, and hyper-scalability) through an empirical study that
can serve as a starting point and overarching theme when developing a stronger theoret‐
ical model of hyperconnectivity. One of the practical implications of the study relates to
the typological proposition of hyperconnectivity’s four dimensions, which could support
system design in various hyperconnectivity enabled domains, such as industrial internet
and smart energy systems.
Hence, the research contributions of this work relate mainly to the literature on busi‐
ness models, smart grid innovation, and system design but they also have implications
for the literature on business ecosystems and strategic management from a co-opetition
perspective. One possible limitation is that the P2P SmarTest project could only evaluate
5G’s potential in existing and known smart grid applications, thus the unforeseeable
applications that might emerge cannot be covered in the project’s scope.
Acknowledgments. The authors would like to acknowledge and thank the support of JointMacs,
P2P SmarTest, TINTTI, and Core++ project consortiums.
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... In parallel, business model analysis discussion has focused on the design of successful business models. Viability [13], sustainability [23], scalability [24] and profitable growth [25] are essential to business model success. ...
... The advent of the smart grid can be seen as an evolution from the old, centralized production and distribution energy system to a modern network incorporating two-way, end-to-end communication, and decentralized management of generation, transmission and distribution , covering four technological layers, infrastructure/hardware, platforms/data, equipment/devices (with user interface), and applications/services. (Moqaddamerad et al., 2016). The European Union (EU) and the United States (US) define the functions of a smart grid as enabling new products, services, and markets while operating and optimizing assets efficiently (Amin, 2011;Gajic and Eli, 2013). ...
... Other streams of business model discussion have focused on the discovery or design of successful business models. Literature shows that viability (robust performance [21]), sustainability (technical-, social-and environmental-oriented [22]) and scalability (scalable deployment capability [23] and profitable growth [24]) are essential to business model success as "a better way than the existing alternatives" [25]. ...
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