A Strategist’s Guide to the Internet of Things
The digital interconnection of billions of devices is today’s most dynamic business opportunity.
Humanity
has arrived at a critical threshold in the evolution of computing. By
2020, an estimated 50 billion devices around the globe will be
connected to the Internet. Perhaps a third of them will be computers,
smartphones, tablets, and TVs. The remaining two-thirds will be other
kinds of “things”: sensors, actuators, and newly invented
intelligent devices that monitor, control, analyze, and optimize our
world.
This
seemingly sudden trend has been decades in the making, but is just
now hitting a tipping point. The arrival of the “Internet of
Things” (IoT) represents a transformative shift for the economy,
similar to the introduction of the PC itself. It incorporates
other major technology industry trends such as cloud computing, data
analytics, and mobile communications, but goes beyond them. Unlike
earlier efforts to track and control large systems, such as
radio-frequency identification (RFID), the Internet connection gives
this shift almost limitless versatility. The IoT also opens a range
of new business opportunities for a variety of players. These
opportunities tend to fall into three broad strategic categories,
each reflecting a different type of enterprise:
- “Enablers” that develop and implement the underlying technology
- “Engagers” that design, create, integrate, and deliver IoT services to customers
- “Enhancers” that devise their own value-added services, on top of the services provided by Engagers, that are unique to the Internet of Things
How
will your company build value in this new world? That will depend on
the type of business you have today, the capabilities you can develop
for tomorrow, and, most of all, your ability to understand the
meaning of this new technology.
Evolution and Opportunity
At
present, the Internet of Things remains a wide-open playing field for
enterprises. It’s young, heterogeneous, and full of uncertainty.
Estimates of potential economic impact by 2020 (as tracked by the
Postscapes information service) range from about US$2 trillion to
more than $14 trillion. Companies small and large, old and new, are
scrambling to stake out their territory. Expectations are high: One
in every six businesses is planning to roll out an IoT-based product,
and three-quarters of companies are exploring how to use the IoT to
improve their internal operations and services. Much early work is
likely to focus on boosting efficiency and cutting costs, but the
greatest long-term business value of the Internet of Things will
involve getting to know customers—both consumers and
businesses—more intimately, and providing new digital services and
experiences to delight them.
Rarely,
if ever, has a single technological platform combined this much
complexity, speed of development, global reach, and novelty among
customers. Consider the range of interconnected systems, products,
and services the IoT will enable, from simple monitoring of home
temperature and security to the “quantified self” (the tracking
of personal health, diet, and exercise metrics), to fully networked
factories and hospitals, to automated cities that respond to the
movements and interests of thousands of people at once.
Yet
for all its power, the IoT is still at the early-adopter stage; in
the words of innovation theorist Geoffrey Moore, it has yet to “cross
the chasm” into the mainstream. It thus behooves business
strategists now to figure out the role they want to play, the
capabilities they will need to move forward, and the types of
innovation they should pursue.
The
IoT has its technological roots in the decades-long effort to monitor
and control the physical environment in which people work and play.
Its most basic components are embedded devices that have existed for
years: thermostats that sense ambient temperature and control heating
and cooling systems, sensors that manage braking systems in
automobiles, pacemakers that regulate the heart, airplane black boxes
that track flight paths, and location devices that monitor the
whereabouts of industrial equipment. In the past, some of these
devices were wired together into more complex systems. But it wasn’t
until they were provided with some intelligence, connected to the
Internet, and empowered by a new wave of technological
accessibility—through cloud computing, smartphones, and the
prototyping capabilities of digital fabrication—that the IoT came
into being.
For
example, the Nest Learning Thermostat performs the fundamental
function of an ordinary smart thermostat: It monitors temperature and
turns heating and cooling systems on and off to maintain the
programmed target. But the Nest also senses humidity, activity, and
light, and its built-in intelligence “learns” how and when the
user likes to adjust the temperature. It can even optimize the
house’s temperature for energy efficiency. All this, together,
still doesn’t make the Nest part of the IoT. But when it’s
connected to a utility company or the Nest Account (hosted by Google,
Nest’s parent company) through a home Wi-Fi network, it has far
greater value. That connection allows people to monitor and change
the temperature from their smartphones, modify the heating schedule,
and analyze their home heating activity. It also allows utility
companies to offer incentives for using less power at peak times or
to offer additional services.
Similarly,
the Jawbone UP, a personal activity monitor worn around the wrist,
automatically establishes a Bluetooth connection to a smartphone
running the UP app—creating what’s called a “proximity
network”—and provides detailed information on exercise levels,
sleep patterns, and food consumption. Through the Internet, Jawbone’s
users can reach a variety of fitness and nutrition services with
their UP app, enabling them to analyze their levels of activity and
overall health. For these devices and many others, the greatest
potential value of the IoT lies in that connection to the Internet,
and to the many integrated services offered there (see
Exhibit 1).
Technologies of the IoT
To
deliver these products and services requires a combination of five
major types of technological offerings. As you progress up the
technology “stack,” the devices become more complex and their
connectivity increases.
1.
Endpoints are
the single-function sensors and actuators that reach out and touch
the world around them, monitoring for changes and providing feedback
to adjust to those changes. Their connectivity enables two key
capabilities: gathering and analyzing data from the environment, and
reaching out through the Internet to control objects.
2.
Simple hubs are
the devices that connect endpoints to broader networks. When
integrated into products such as vehicle engines; washing machines;
or home heating, venting, and air conditioning (HVAC) systems, the
computing intelligence and storage embedded in a simple hub allows
these products to adapt over time to the user’s behavior and to
optimize for efficiency. The Nest is a good example of a simple hub.
It acts as a joining point for a relatively small number of sensors
and actuators, typically located near one another.
A
single building might have several simple hubs, each controlling one
function: HVAC, electricity, lighting, water, entertainment,
communications, or security. Each of these simple hubs might be
connected to the Internet. For example, electricity hubs that monitor
usage and cost can feed data to electric power utilities, which can
then suggest the best times to use power-hungry appliances. Lighting
hubs can pick up information from multiple window sensors about the
amount of sunlight, and adjust the brightness of the artificial
lighting accordingly.
3.
Integrating hubs that
connect simple hubs and outside connections are relatively complex
devices providing a diverse array of services that fit more or less
seamlessly together. In May 2014, Apple introduced one of the first
truly integrating hub offerings. Called the HomeKit, this platform is
designed to bring together simple hubs from different vendors and
present all of them in a single user interface on a smartphone or
tablet. A HomeKit hub might integrate functions such as electric
power (SolarGuard solar power systems), security (Goji smart locks
and Leviton motion and video monitors), HVAC (the Nest), appliances
(LG smart refrigerators), window shades (QMotion’s electric shading
systems), entertainment (Roku audio and video streamers, which use
set-top boxes as hubs), and personalized lighting (Hue). A family
member might press the “bedtime” button on his or her iPhone, and
the service would then dim or turn off certain lights, lock the
doors, set the security system, close the garage door, and lower the
thermostat, all at the same time.
Apple’s
role here isn’t to provide the underlying HVAC or lighting service,
but rather to offer the software development kit—much like the
guidelines and tools it publishes for developers of iPhone and iPad
apps—that developers can use to connect their services with the
HomeKit platform. The company also debuted what it calls the
HealthKit, designed to integrate all the simple hubs being developed
for the quantified self.
Several
other major companies have begun to develop integrating hubs. Google
recently introduced a collection of standards for the Nest that will
connect to a wide range of home services from other companies. Oracle
has a sophisticated integrating hub, which it may or may not offer
commercially, but which has already helped win the America’s Cup
yacht race, in October 2013. The Oracle-sponsored foiling catamaran
that won the race was equipped with more than 300 sensors and video
cameras that monitored position, wind direction, boat speed, pressure
on the wingsail, and more. While the boat was sailing, the team’s
technology specialists collected data on more than 3,000 variables
per second—a gigabyte of raw data and 200 gigabytes of video
daily—and analyzed it on Oracle servers reached through high-speed
wireless data connections. The system sent the analysis back to the
boat’s controls to improve its performance almost instantaneously.
Integrating
hubs of far greater scope are also under way. The digital city
concept, for example, is being developed by the MIT Media Lab, the
World Foundation for Smart Communities (based at San Diego State
University), and private companies like the LED streetlight
manufacturer Sensity Systems. It would install integrating hubs with
data analytics at a neighborhood or citywide scale to monitor and
control mass transit, traffic controls, streetlights, and many other
services and systems. Barcelona is teaming with Cisco Systems to
develop one such system, which will manage lighting, parking, local
Wi-Fi networks, and other critical city functions.
4.
Network and cloud services provide
the infrastructure of the Internet of Things. They can either be
public (accessible to the population at large) or private (protected
behind an organization’s firewall). These services deliver the
seamless and transparent connection to the Internet that hubs
require, along with the cloud computing power needed to collect,
store, and analyze vast amounts of data from myriad endpoints. They
can also provide the infrastructure needed to build or connect to
social networks, so that users of the IoT can compare experiences and
share data.
Some
network and cloud services, like RacoWireless, manage
machine-to-machine connectivity. They enable IoT devices to
communicate with one another across a variety of transmission
channels, including Wi-Fi, cellular, and Bluetooth. They also provide
data management services: collecting, moving, tagging, and
aggregating information. Other network and cloud services provide
software platforms, including high-level programming languages, that
can be used for IoT delivery and development. ThingWorx offers one
such platform. It provides endpoint connectivity, networking
capabilities, and data storage and analytics, as well as a software
development kit used to write apps for customers.
5.
Enhanced services is
a nascent category, comprising the most technologically sophisticated
components of the IoT. Enhanced services will make use of the
information collected and analyzed by other platforms and services to
deliver broad-based interactive functions. For example, today’s
single-company telematics systems, like Progressive’s Snapshot
system, are integrating hubs, connecting monitors on automobiles with
software that links insurance rates to driver performance. Enhanced
services for automobile-based monitoring could go much further. They
could collect data on multiple cars, aggregating it all with
historical and actuarial data to create new types of analytics
related to overall insights about auto accidents. The insurers
themselves might not be involved in the collection of that
information, only in making use of it in the services they offer.
Enhanced services could also lead to more sophisticated “connected
car” applications, in which real-time digital connection enables
automobiles to exchange signals with one another and the environment,
thereby reducing accident risk or enabling better traffic
coordination.
These
five technological options, from endpoints to enhanced services,
provide a menu of diverse opportunities for companies building IoT
businesses. Some might start making stand-alone endpoints, and move
up to producing hubs. Others might parlay their expertise at
integrating hubs into providing network and cloud services—or vice
versa.
With
all these possibilities, companies run the risk of moving in too many
directions at once—and thus being overwhelmed by more focused
competitors with more distinctive IoT-related capabilities. Hence the
importance of the three IoT strategic models—Enablers, Engagers,
and Enhancers. Few companies can take on more than one of these ways
of creating value. The Enablers will focus on the underlying
technologies and services, from endpoints to network and cloud
services. The Engagers will make use of hubs and network and cloud
services to provide market-facing offerings. The Enhancers will focus
on value-added enhanced services that extend and enrich customer
engagement (see
Exhibit 2).
Enablers: Building the Technology
Enablers
are primarily technology-oriented companies, such as Cisco, Google,
HP, IBM, and Intel. They build and maintain the critical IoT
infrastructure that allows Engagers to create their own connected
services. Their offerings include the endpoint, hub, and network and
cloud service technologies: devices, connectivity hardware and
infrastructure, computing and data storage systems, software
platforms, and more. (See “Kings
of the Cloud,”
by Olaf Acker, Germar Schröder, and Florian Gröne.) The market for
all these elements of the IoT is exploding. According to estimates
tracked by Postscapes, the sheer growth in the number of
endpoints—expected to reach 50 billion or more by 2020—will push
that market from $6.6 billion in 2013 to almost $11 billion in 2020.
The shift in connectivity and computing intelligence from centrally
located servers to intelligent devices on the edge is creating a
similar boom in the semiconductor business. Revenues from the chips
needed to run intelligent devices are expected to reach more than $70
billion by 2017.
Many
Enablers will remain content with relatively narrow businesses, as
suppliers of endpoints to—or partners with—other players that
have larger ambitions. Estimote, for example, makes tiny “beacons”
that stick to objects and send signals through low-frequency
Bluetooth transmissions. These beacons can communicate with enabled
devices like smartphones and tablets in environments such as retail
stores. It’s up to the Engager companies to develop capabilities in
proximity marketing that incorporate the beacons; for example, a
retailer might use them to augment sales data with information about
what items customers pick up and how long they spend considering a
purchase.
The
larger Enablers will fight over the enormous opportunities in
integration. The systems they produce—intelligent endpoints, hubs,
cloud services, and platforms—must not just provide connections,
but manage and bill for those connections, and allow users to
customize and develop their own services. Already, IoT opportunities
are driving some hardware companies to expand in unprecedented ways.
For example, Intel, traditionally a maker of semiconductors, is
developing soup-to-nuts IoT systems that include not just chips but
development platforms that will enable others to develop their own
IoT services.
Bundles
of IoT-related hardware, software, and connectivity may be tailored
to specific marget segments, such as particular industries. The IoT
platform developer Arrayent, for example, focuses on the consumer
products industry. It recently teamed with appliance maker Whirlpool
to provide the technology needed to connect refrigerators and washing
machines to the Internet. Homeowners can be alerted via their
smartphones when appliances need maintenance, and they can order new
supplies automatically. The key to such deals is the partnership.
Whirlpool has limited expertise in connecting its appliances to the
Internet, but Arrayent provides the means to do it.
Each
Enabler must decide the appropriate scale and scope for its business,
based on the capabilities it can muster. Should it spread its efforts
horizontally, becoming a broad-based supplier of IoT technology to
all industries? Or should it become the primary Enabler for a
specific industry, bringing together the endpoints, hubs, network and
cloud services, and enhanced platforms needed in that vertical? If it
collaborates with other enterprises, should that be with other
Enablers, to broaden their technology platform? Or should the
enabling enterprise seek to codevelop a customer-facing offering with
the right Engagers and Enhancers?
Every
Enabler should base its strategy on the most distinctive capabilities
it can offer. Estimote, for example, currently doesn’t have the
capabilities needed to move beyond its current endpoint and
connectivity products, so it focuses on those. Arrayent has found an
appropriate scalable business in providing an IoT-oriented cloud
platform for consumer goods. GE develops IoT systems for hospitals
and factories because those offerings make use of its
well-established capabilities in healthcare and manufacturing.
Engagers: Connecting to Customers
These
companies provide the direct link between the IoT and the market.
They use the endpoint, hub, platform, and service offerings created
by the Enablers to produce services for consumers and businesses.
Though most of them did not begin as IoT companies, and many come
from non-IT industries—appliance manufacturers, automakers,
insurance companies, and retailers are prominent among them—they
expect enormous opportunities as the IoT gains traction.
Engagers
tend to be most active in hubs and connected services. Systems like
the Nest and Apple HomeKit, for instance, provide services to
customers, while collecting a rudimentary amount of data on customer
usage and maintaining a high degree of customer contact. Other
Engager services, based on increasingly sophisticated IoT cloud
services and platforms, are more complex. Wearable devices such as
Google Glass can provide a wealth of location-specific information to
users while collecting data about their movements (in the real world
and on the Internet), their purchases, and their conversations.
Already,
Engagers are competing to control nodes of human activity: the smart
home, the quantified self, the connected car, the digital retailer,
the intelligent factory, the next-generation hospital, and eventually
the city of the future. The winners won’t necessarily have the most
sophisticated technology or the biggest cloud; they will have the
right capabilities. They will know how to gain insight into customer
needs and expectations, and how to use human-centered design to
develop compelling services that change how customers behave. Apple
and Google, for example, are both seeking to apply their existing
prowess—in design and consumer insight for Apple, in data gathering
and analytics for Google—to create compelling user experiences that
will attract people to their integrating hubs.
For
Engagers, the benefits of gaining a strong foothold in hubs and
connected services include continuous and sustainable relationships
with customers. Consider appliance makers like Whirlpool and Haier.
In the past, these companies would capture only basic information
about the purchaser of a washing machine: his or her name, address,
email address, phone number, and perhaps some static demographic
data. At most, the companies would then use that information to
manage the warranty and send periodic notices about new products.
Now, by linking the washing machine to the Internet, the appliance
maker captures a wealth of data about how the device is used—how
often, at what temperature, and with what kind of soap, as well as
what kinds of clothes are washed. It can offer value-added services
based on that knowledge, including status reports on the machine’s
condition, suggestions for saving energy and water, and discount
subscriptions for laundry detergent delivered to the home. With that
type of information, even tradition-bound manufacturers can become
innovators in human-centered design.
If
the washing machine can be integrated with the house’s hub, the
possibilities multiply. The manufacturer could work with the power
and water utilities to establish a schedule for washing clothes at
the least expensive time, using the house’s HVAC system to balance
the heat and humidity generated by the washing machine, and
programming the entertainment system with a playlist of laundry-day
music. The company would move beyond selling products to offering a
powerful and attractive customer experience, building loyalty even as
it locks customers in through the many services it can offer.
Enhancers: Creating New Value
Like
the enhanced services that they often deliver, the Enhancers are just
beginning to appear in the IoT ecosystem. They provide integrated
services that reframe and repackage the products and services of the
Engagers. They succeed by finding new ways of creating and extracting
value from the data, relationships, and insights generated from IoT
activity.
The
insurance industry offers a good example. Several companies,
including MetLife, are developing ways to gather data on
health-related behavior to help design their rate schedules and
offerings. By and large, insurance companies will not want to create
their own version of the quantified self. Instead, they will work
with services that already exist: the Fitbit, which measures physical
activity; emerging systems that monitor heart rate, blood pressure,
blood sugar, weight, and other health-related metrics; and nutrition
tracking devices (set up to receive automated signals from the
refrigerator and restaurants).
Once
these health-tracking technologies are gathered into a hub, combined
with data from additional apps and services such as Strava’s
fitness-oriented social network, and integrated into an overarching
service, the insurance company can build and package value-added
services personalized to each individual. A health insurer already
keeps comprehensive data on its customers’ health status and past
medical treatments and expenses. It could augment that with
individual electronic health records—with customers’ permission,
of course. It could then combine that information with its own
actuarial data, supplemented with data from drug companies, market
research firms, school lunch programs, and the government.
By
aggregating all this information, a health insurer could start
building new services. It could offer health insurance with coverage
tailored to individuals’ needs, and premiums based on their fitness
habits. Customers might receive regular health and nutrition status
updates tagged to their individual medical needs, along with
reminders for scheduling regular exams and remote consultations that
take advantage of their past data. There is also the possibility of
teaming with other healthcare companies to offer products and
services catering to people’s specific health needs and interests
(see
Exhibit 3).
The
Enhancers emerging today will develop new types of services, many of
which will undoubtedly disrupt or leapfrog past today’s business
models. Companies with the potential to act as Enhancers would do
well to begin planning for that future now. They can position
themselves by focusing attention on the experience they provide their
customers. They should start looking into technological and business
issues, such as how to share data with existing hubs and services,
and how to structure business partnerships. They will also need to
develop a strong innovation capability, oriented around developing
and continually updating their suite of services connected to the
Internet of Things.
Your Company’s IoT Strategy
A
wealth of opportunities exist for each of the three types of IoT
strategy models: Enablers, Engagers, and Enhancers. Entering the
fray, however, should not be undertaken lightly. The IoT market’s
newness and heterogeneity will make it difficult to negotiate, even
by those companies with the strongest capabilities and the clearest,
most compelling value propositions.
Many
challenging issues remain. Customer demands and expectations are
still hard to discern, and the hardware and software standards for
the IoT are still evolving. Billions of endpoints and intelligent
devices must be integrated. The data they produce must be managed and
analyzed. This is no small task, especially given increasing concerns
about security and reliability. Consumers are coming to expect
greater control over their personal data, issues surrounding the
privacy of tracked information and sensitive data (such as e-health
records) are ongoing, and it is unclear how vulnerable many of the
devices and clouds that make up the IoT are to hackers and malicious
code. We expect some companies, and perhaps some entire industries,
to be reluctant to share data with other enterprises in an IoT
context, especially given these unknowns about stability and
security.
If
your company wants to stake a claim with the Internet of Things, you
first need to develop a distinctive “way to play”—a clear value
proposition that you can offer customers. This should be consistent
with your enterprise’s overall capabilities system: the things you
do best when you go to market, aligned with most or all of the
products and services you sell.
With
those elements in place, if you tread carefully and methodically, the
time is right. To develop a strategy for the IoT, you could proceed
by addressing, in order:
1.
Your own role in the IoT. Given
your existing value proposition and capabilities, are you best suited
to be an Enabler, Engager, or Enhancer?
2.
Industries and markets. Assess
how your business environment is being (or could be) transformed by
the IoT. If you are an Engager or Enhancer, what endpoints, hubs, and
services are already being sold in your market? How are they expected
to combine? What sense do you have of the demand for them? The more
IoT activity that already exists in your industry, as it does in
healthcare, automotive, manufacturing, and home-related sectors, the
more rapidly you will have to move.
3.
Customer or business engagement. Because
value in the IoT will be created through the transformation of
customer experience, you need strong capabilities in experience
design. Even if you are an Enabler, without direct customer contact,
or if opportunities for engagement appear limited in your industry,
the IoT could eventually transform your business. What capabilities
do you already have in this area, and what will you need to develop?
4.
Connected products and services. Assess
your current lineup of offerings to determine which can be enhanced
through IoT connectivity, and what new ones could be developed
expressly for the IoT. For new launches and innovations, take into
account how connectivity will be established, how your company will
analyze and use the resulting data, and which other companies you
might collaborate with—all set against the proposed revenue model
and income stream.
5.
An enhanced connection. Most
Engagers will deploy an initial wave of basic connected devices and
services. Then they will build further services by using analytics to
gain insights from the wealth of new data that the IoT provides them.
As these deployments unfold, Engagers will look for ways to increase
value. This is where Enhancers will come in. What new business models
might emerge? Would you want to develop any of them, or do you want
to partner with other companies that can help serve this need?
6.
Your organization’s capabilities. Your
company will need to distinguish itself in this space. What will you
do that no other company does as well (or at all)? What improvements
and investments will you need to make? Where will the necessary time,
money, and attention come from; what activities will you need to
divest or downplay so their resources can move here?
You
may also need to develop some “table stakes” capabilities that
all IoT companies must have. These include the ability to manage and
analyze huge quantities of data, to integrate diverse portfolios of
services, and to build business relationships with other IoT-related
companies, some of which may have very different cultures. You
probably already have innovation processes in place, but they may not
be customer-centric enough. You may also need to foster more
opportunities for people in your company to experiment and learn
rapidly about what works and what doesn’t.
One
virtue of the IoT is the degree to which companies lacking in
technological expertise can lean on the devices and platforms that
others build. Even so, the creation and delivery of IoT services will
require you to design and prototype their new services, to manage
them once implemented, and to analyze the resulting wealth of data.
As
new and challenging as today’s IoT is, it offers a large and
wide-open playing field. The companies that gain the right to win in
this sphere will be those that understand just how disruptive the IoT
will be, and that create a value proposition to take advantage of the
opportunities.
EMBEDDING THE IOT IN YOUR BUSINESSby Chris Curran
Some
companies may never bring any part of the Internet of Things to
market, but their role is just as significant as that of the
Enablers, Engagers, and Enhancers. These are the Embedders: companies
that apply sensors, monitors, and other devices to improve their own
operations and optimize their own businesses. The idea of embedded
things goes back at least 20 years, to Xerox Palo Alto Research
Center (the same research lab that produced the graphic user
interface and object-oriented programming), where it was originally
called “ubiquitous computing.” A current-day example is United
Parcel Service’s adoption of sensors and monitors on its trucks and
delivery services; it is using the Internet of Things to continually
improve its throughput and service levels. Another example is the use
of the Internet of Things by manufacturing companies to monitor
throughput and emissions. Sensors and integrated hubs are set up to
continually adjust operations, based on the data, to reduce waste,
cost, and environmental impact. As the Internet of Things evolves,
its embedded use in day-to-day business will be a hallmark of the
most successful companies in every industry.
- Chris Curran is a PwC principal and chief technologist for the U.S. firm’s advisory practice. http://www.strategy-business.com/article/00294?pg=all
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