Infographic: Capitalizing on the Internet of Things
Three industrial revolutions that have brought epic changes to the world of business are steam engines, mass production, and internet technology. Today, we are in the midst of what is often called the fourth industrial revolution – the convergence of physical things with the world of the internet: The Internet of Things. Let us give you three figures that show why the IoT creates challenges both long-term and immediate. First, consider the number of IP-enabled devices such as cars, heating systems or production machines. Based on research by the analyst firm Machina Research 14 billion of those things will be connected by 2022. Second, the ITU predicts that by 2015, 75 percent of the world’s population will have internet access. And third, the omnipresent mobile revolution: according to the mobile forecast from Cisco’s Visual Networking Index, more than 3 billion smartphones and tablets will be in use globally by 2017.
Your biggest competitor: Do nothing
The internet has transformed the communications business, the media landscape, retailing, and the music industry. Digitization and new technological developments have made big, unprepared players disappear – even market leaders and long-standing companies. As consumers, we have all seen how quickly things change, and how new technologies appear that challenge well-established products and standards. Nobody carries a Walkman and cassettes these days; instead, we stream music with our smartphones.
Three major challenges for existing business models and business functions
For many companies, the mere prospect of remaking traditional products into smart and connected ones is daunting. But embedding them into the digital world using services-based business models is much more fundamentally challenging. The new business models impact core processes such as product management, operations, and production, as well as sales and channel management.
1) Product and lifecycle management:
For manufacturers in particular, the overall challenge in the IoT is securing and extending their existing hardware business: This means first IP-enabling their products and then providing new services based on these connected products. The industrially manufactured product is no longer the focus, but rather the web-based services that users access through the device itself or by using smartphones and tablets. The focus is also on developing solutions that enhance the quality of life instead of providing pure technology.
2) Competition and sales channels:
Imagine an arena full of new competitors, all jostling for position and attempting to shape the future, and of course, trying to win over the same customers. Well established producers in traditional industrial fields – whether they make coffee machines, cars, air conditioners or home fitness equipment, or run big vehicle fleets or even electric utilities – are suddenly not only competing with companies like themselves but are also confronted with players the likes of which they have never seen before.
3) Customer interaction:
The points where customers and companies come together change. Instead of ‘meeting at the point of sales,’ it becomes a continuous interaction as long as the customer uses a product or services. When a product becomes an agent interacting with humans and providing multiple services over a lifetime, it provides a new perspective on business.
Market size and number of devices
Based on the Machina Research database, we are expecting approximately 14 billion connected devices worldwide by the end of year 2022. These numbers are based on the assumption that a device connected directly or indirectly with the internet is a connected device.
That means a connected car is one connected device, which can itself consist of numerous connected things such as sensors, entertainment or navigation units and so on. Furthermore, the number is based on the assumption that smartphones and tablets are not connected devices. Even if smartphones and tablets are connected to the internet, they are interfaces integrating the user into the IoT ecosystem. Based on this evaluation, we assume that the highest amount of connected devices will be concentrated in four industries in 2022 – intelligent buildings, automotive, healthcare, and utilities.
IoT business model innovation
Enterprises are continuously looking for ways to sharpen their existing business models or even develop completely new ones. Sooner or later, most enterprises will therefore evaluate the opportunities based on IoT technologies. The question is how to benefit from connecting devices and how to measure the return on investment (ROI), which is multidimensional: ranging from cost savings to increased or even new revenues generated by improved customer satisfaction and brand differentiation.
To expand and intensify the relationships with existing customers is one of the main objectives for most companies. Value-added services and new business models are important methods for achieving this objective and are bringing fundamentally new opportunities for enterprises. IoT technologies create new ways for companies to enrich their services, gain customer insights, increase efficiency, and create differentiation opportunities. Business models based on ‘connecting things’ bring companies closer to their customers and deliver real ROI.
However, the majority of successful business models in the IoT will not follow the pattern: ‘A vendor sells a physical item to a customer.’ Also, conventional Web 2.0 business models – advertising being the most outstanding – don’t have the potential to scale or work for the IoT. The IoT connects non-physical items such as data and services to physical things. This is why more sophisticated (‘evolutionary’) and maybe even completely new (‘disruptive’) business models will play a major role.
But how do you come up with these business models? Good news: it’s not the Quest for the Holy Grail. For us, an executive IoT skill set rests upon three pillars: joint innovations / ecosystems, systematic tools for business model innovation, and entrepreneurialism.
- Developing business ecosystems comparable to a coral reef, where we can find diversity of species, symbiosis, and shared development
- Systematic, tool-based business model innovation as value-added services are bringing fundamental new opportunities for enterprises
- IoT entrepreneurs need to be ready to deal with high-speed change very much like in the start-up world and follow exploratory approaches
This post is the first of a six-part series on IoT strategy. So stay tuned!