Identifying the role of contracts in driving value cocreation between the internet of things platform and smart product manufacturer

Abstract

In recent years, various digital Business-to-Business (B2B) platforms have been accelerating the promotion of digital transformation in manufacturing. Consider a supply chain setting where an online B2B platform offers Internet of Things (IoT) service and selling channels to a manufacturer, this paper examines digital innovation investments and service pricing decisions under two common contracts: sell-on and sell-to contracts. Firstly, we have identified the impact of demand spillover from IoT platform services and IoT technology on manufacturer innovation and product line decisions. We found that under significant demand spillover, the manufacturer will exclusively produce smart products and discontinue the production of traditional products. Secondly, we find that under sell-on contracts, the innovation investments of the platform and manufacturer are always substitutable as the platform commission rate increases. Also, both the manufacturer and the IoT platform tend to increase innovation provision when using sell-on contracts compared to sell-to contracts. Finally, our results illustrate that the profitability of the IoT platform and the manufacturer is contingent upon the type of contract in place, with the IoT platform being more profitable under sell-to contracts when demand spillovers are small. Our research findings offer a valuable reference point for developing IoT platforms and insights into innovation and pricing decisions for smart device manufacturers in the digital transformation of manufacturing.