As with every major technological sea change, the emergence of the Internet of Things (IoT) has occasioned both widespread success and widespread failure. In many cases, enthusiasm has outpaced understanding. Particle's GM of Enterprise, Dan Jamieson, writes that IoT technologies only prove truly advantageous when their application results in recurring, continuous value. In this article, Jamieson details the six most promising commercial applications.
IoT value can be achieved in a variety of different ways including increased efficiencies, reduced operating costs, and facilitation of compliance.
Particle includes everything you need to deploy an IoT product: a device cloud platform, connectivity hardware, and even SIMs for cellular products.
Traditional hardware business models are based on the classic, product-at-a-margin principal. A company produces a piece of hardware for X and sells it to consumers for X+Y. What complicates this model in IoT, however, is that the X value is most often cumulative and recurring.
That's because IoT products incur continuous, infrastructure-related costs that do not apply to traditional hardware. To remain operational, IoT devices require a network on which to function, and a service platform on which to collect and manage data. As a result, traditional unit economics quickly break down as a business scales or a product ages.
In response, IoT companies are adopting new business models to protect their margins against erosion. These models most often rely upon recurring payments by the customer, such as within the "hardware as a service" business model. HaaS is, put simply, a model in which a hardware manufacturer leases its product to customers for an annual or monthly fee. IoT platform providers, meanwhile, charge monthly rates for the collection, organization, and curation of device-driven data.
Because of these recurring costs, IoT technologies only prove economically advantageous when they deliver recurring, continuous value for the customer. Our experience at Particle, an IoT device platform, suggests that there is a common set of conditions of which one or more must be true for a connected device to be successful:
Absent of these conditions, a business selling connected products under a traditional model will likely fail. That's because, over time, the recurring backend costs will eat away at the company's margins.
Let's look at some of the most promising commercial applications of IoT technologies.
Each year, American manufacturers spend an estimated $192 billion to comply with economic, environmental, and workplace safety regulations. Within that astronomical figure, however, exist innumerable opportunities for increasing efficiencies.
IoT technologies have already shown profound potential in that effort. By remotely monitoring sensitive assets, IoT devices are allowing manufacturers to dramatically reduce the costs associated with regulatory compliance. An excellent example of IoT's potential for facilitating compliance is its application in the oil and gas industry.
Oil and gas extraction and processing sites are subject to extremely rigorous compliance standards. Environmental and workplace safety regulations are extensive, and require constant vigilance to uphold. Internet-connected sensing devices, however, are now making compliance significantly easier and less expensive.
An IoT device can be deployed in the field to remotely monitor essential compliance metrics, such as oil leaks and gas emissions. Not only does this functionality reduce the costs associated with in-field monitoring, it is also much more responsive. Whereas a field agent may only be able to visit a given site once a quarter, an IoT device can provide constant, up-to-the-minute data in real time.
The costs of equipment malfunction tend to cascade. A single malfunctioning machine can slow production, disrupt an entire supply chain, and result in regulatory non-compliance.
Thankfully, the same functionality that lets IoT technologies facilitate compliance is also helping manufacturers protect valuable in-field assets. By returning to the case of oil and gas extraction, we can see how IoT technologies stand to revolutionize equipment maintenance.
An inexpensive IoT device can now be deployed to remotely monitor equipment, track maintenance schedules, and prevent malfunction. If a piece of equipment begins to malfunction or underperform, the IoT device will instantly issue an automated alert. Doing so will limit losses caused by inefficiency, and help prevent full-scale failures and equipment damage.
In this way, IoT devices help transform equipment maintenance from a responsive process into a proactive one.
IoT technology's remote monitoring capabilities are also being successfully employed outside the realm of mechanical maintenance. IoT devices are being used to collect detailed and timely diagnostic data in a wide array of fields, ranging from medicine to agriculture. Robust data collection has even allowed businesses to automate certain processes and remotely manage production.
Visibility is the most valuable commodity in supply-chain management. Despite that, over 60 percent of companies lack full supply-chain visibility, and the average inventory accuracy threshold among American retailers is just 63 percent.
Thankfully, inexpensive IoT technologies are now allowing businesses to overcome those blind spots. A simple, 3G-connected microcontroller can identify, track, and monitor an asset in real time, from anywhere on Earth. That unprecedented degree of visibility helps companies prevent against loss and theft, increase fleet efficiencies, and improve demand forecasting. Tracking data can also be shared instantly with all other entities in a supply chain to further increase visibility and reduce inefficiencies.
Increased visibility on the consumer end of the supply chain is also allowing business to implement new, more lucrative service models. Up-to-the-minute inventory and consumption data are making automatic fulfillment and service level agreements possible to new customer groups.
This functionality stands to benefit businesses by improving demand forecasting, driving sales, and informing marketing efforts. At the same time, consumers will benefit from fewer product outages and more efficient customer service.
An interesting example of this IoT application is the Amazon Dash button. The Amazon Dash button is a small, IoT device which can be configured to reorder specific items when pressed. For example, a customer can program their device to order a 12-pack of Bounty paper towels whenever it's pressed. Because each button can only be programmed for one item and quantity at a time, they are marketed in packs. The buttons can then be easily mounted around a user's home, next to each item's relevant location. Not only do these models help generate sales, they also provide invaluable data on customer consumption habits.
Premium Consumer Upsell
Increasingly, businesses are offering internet-connected versions of consumer products or services as "premium" alternatives to common models. These products provide customers with recurring value through increased functionality and improved customer service. Manufacturers, meanwhile, are offsetting increased backend costs with higher price tags and data monetization.
One example of this application is consumer-level "smart" thermostats. These internet-connected thermostats can be remotely controlled by the customer, and collect data to maximize energy efficiency. To address some the infrastructure-related costs of those enhanced services, smart thermostats are considerably more expensive than traditional models. However, premium IoT devices such as these can also offset those recurring costs through data monetization. In the case of a product like an internet-connected thermostat, the manufacturer could sell consumer data to utility companies or air conditioner manufacturers, for example.
The unique, infrastructure-related costs of IoT technologies have necessitated a re-envisioning of traditional hardware business models. Under these new models, IoT businesses must receive and provide recurring value to their customers in order to be successful.
Successful IoT companies are receiving that recurring value from their customers by implementing service-based business models, and/or monetizing customer data. To ensure those models appeal to customers, however, successful IoT businesses must also provide recurring value in return. That value can come in a variety of different forms.
As the IoT industry matures, clear trends have begun to emerge. Within these trends, IoT devices are providing recurring value by increasing operational efficiencies; facilitating compliance; improving sales; and opening new revenue streams.
In a 2015 report, McKinsey & Company estimated that the Internet of Things has "a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025."
"At the top end, that level of value -- including the consumer surplus -- would be equivalent to about 11 percent of the world economy."
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