The IoT: Why competitors are connecting in coral reefs
Partnerships, open business platforms, consortia, ecosystems – these terms crop up frequently when talking about the Internet of Things. What ever happened to good old competition? Has the IoT made the world a safe and cozy place for entrepreneurs?
Let’s look at what some industry experts say about competition in the IoT:
- Cisco’s Chief Futurist Dave Evans believes “the competitive dynamics of the next decade will fundamentally be shaped by organizations’ efforts to harness network effects through the new (and deeper) connections afforded by IoE (Internet of Everything). In fact, a core construct of the IoE in the context of a ‘connections economy’ is that value will accrue to those who best foster, embody, and exploit network effects. Much of contemporary management thinking, by contrast, focuses on linear responses to change.”
- Volkmar Denner, CEO of the Bosch Group, is convinced that the connected world will change the competitive landscape. He emphasizes that it is important to work together in both interdisciplinary and cross-sector ways. Collaborations between companies with complementary know-how are a major driver of the connectivity trend, as they promise joint innovations and joint successes.
- Karolin Frankenberger, head of the Business Model Innovation competence center at the University of St. Gallen, has stated that she expects competition in the IoT to no longer be based on products, but on business models.
All three make valid points. But what does this mean specifically for an actual industry? Let’s have a look at a business model that may be seriously challenged by the IoT and examine how it handles competition: traditional manufacturing.
IoT creates channel conflicts
Well-established manufacturers 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 being thrust into a wholly new competitive landscape. In the IoT, they are suddenly competing not only with companies like themselves, but also with players unlike any they have ever seen. The arena is full of new competitors, all jockeying for position and attempting to shape the future – and of course trying to win over the same customers.
This new reality is easy to visualize with the help of a simplified representation of a manufacturer’s traditional value chain (see Dave Gray’s sketch below on today’s line of production). The manufacturer relationship may terminate at the warehouse or, at the very latest, the point of sale.The IoT will change this perspective significantly, moving away from a linear approach with clearly allocated roles to what might be termed a ‘sales arena.’ Now suppliers and manufacturers can sell connected devices and also new value-added services directly to the customer. The new sales arena creates channel conflicts when approaching the customer.
Competition + cooperation = Coopetition
In the IoT, competition will take on a new, collaborative dimension. The resulting concept can be referred to as coopetition, a portmanteau of cooperation and competition. This mid-20th-century academic term is being revived in the IoT. Partnerships, open business platforms, consortia, and ecosystems all fall into this category and are useful tactics for coping with competition and the above mentioned channel conflicts.
Stefan Ferber once used the tangible analogy of coral reefs, where one can find diverse species, symbiosis, and shared development. Yet a reef is not necessarily a pleasant place; it has its share of ‘big fish swallowing little fish’ (think of recent examples such as PTC swallowing up Axeda and ThingWorx, Samsung buying SmartThings or Google acquiring Nest).
Nevertheless, the reef infrastructure allows different species to keep each other alive and adapt to changes. Such an ecosystem is home to many participants, decisions are made collaboratively, and competitors are often partners at the same time, with a shared understanding of the market and values. We therefore consider creating and participating in business ecosystems to be vital skills for IoT entrepreneurs.
Here are some real-life Bosch examples:
- Service platform for smart homes (ABB, Bosch, Cisco and LG)
- Industrial Internet Consortium (IIC)
- Working Group Industry 4.0 (acatech)
- Big data partnership
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