Is the Internet of Things strategic to the enterprise?

Is the Internet of Things strategic to the enterprise?

Summary: Few are disputing the growth of connected devices of all kinds -- from office equipment to smartdust -- will be historic. But will it be critical to the survival and growth of the enterprise?

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Are we to add the Internet of Things to the pantheon of top strategic technology priorities for the decade? That's the question increasingly in front of IT decision makers these days as tech vendors add the buzzphrase to their marketing and practitioners evaluate the rapidly growing array of related tools and technologies.

That's not to say there's much doubt about the phenomenon itself. There's essentially no question that the Internet of Things (IoT) is fast becoming entrenched both in consumer and enterprise IT. It already seems like just about other new digital device that emerges these days comes with an app to monitor or control it, remote home automation devices are exploding, and everything electric and digital seems to be heading for 24/7 connection to the Internet.

The data is familiar to anyone tracking the story: By 2020, IoT will be a $8.9 trillion market in 2020, with over 212 billion connected things. To put that in perspective, that's about half the size of the entire U.S. economy, meaning that the connectedness of everything will soon be one of the world's largest industries, even though one might say it's nothing more than a convergence of the top pre-existing trends of smart mobility, cloud, and big data.

The Internet of Things for the Enterprise: Connected Workplace, Business Process, Extend IT, Automation of products, Business Intelligence, NFC, Bluetooth, Z-wave, Zigbee, RFID, Smartdust, MEMs, TCP/IP, HAN, light, HVAC, magnetic, seismic, imaging, thermal, acoustic, chemical, humidity, magnetic, industrial, medical, vehicle, retail, home, office, logistics

But the real question is if IoT is strategic to our businesses? By this I mean whether or not playing early enough and deeply enough in "IoT-ifying" the enterprise will result in competitive ruin (or not.) Certainly some are rather skeptical of the strategic nature of the trend. Just this week, The Economist noted, in the Internet of nothings:

The vast majority of the billions of things connected to the internet on Cisco’s website, for instance, are not the toasters, refrigerators, thermostats, smoke detectors, pace-makers and insulin pumps that the IoT's true believers enthuse about. Almost exclusively, they are existing smartphones, tablets, computers and routers, plus a surprising number of industrial components used to beam performance statistics back to corporate headquarters. Without any hoopla, operators of power stations, passenger jets, railways, refineries, chemical plants, oil platforms and other industrial equipment have been doing this for ages.

The two worlds of IoT

By this argument there are really two Internets of Things. One is the enterprise-grade version that has long been in place and is already helping us run our companies. It is largely realized wherever it is needed. The other IoT is the emerging consumer-based cloud of connected products and services which has only been happening in a significant way in the last 2-3 years. The second IoT is more consumer focused and perhaps less impactful to the enterprise. Consequently, so the reasoning goes, we've already received the results of the low-hanging fruit of IoT in the industrial/enterprise space.

Other are more sanguine: The famed consulting firm McKinsey has included the IoT as one of the ten truly disruptive technologies for the next decade that will be adding several tens of trillions of dollars to the global economy by 2025. By just this estimate, for revenue opportunities alone it's probably vital that organizations consider embracing IoT early and broadly in any untapped spaces.

But steady, meaningful adoption is still something that can be done tactically. There have been numerous important enterprise technologies that didn't require the rethinking of how business is done or constant competitive one-upping, but still generated plenty of rewards: payroll systems, relational databases, e-mail, SaaS, CRM software, the list goes on. In this light, it's somewhat unlikely that IoT will ever crack the top 50 greatest technology breakthroughs (the Internet has, but will the Internet of Everything?)

Unfortunately, all of this thinking leaves out a few important concepts. Most importantly, is the idea of network effect. The more connected something is, especially if by being connected it provides additional value to those on the network, the more valuable it becomes. The value grows expontentially according to connectedness. That's the basic truism of Internet business, and the reason why growth is always the primary and first order of business for Internet startups. You can do anything, create any business model, find new and better ways to monetize, if only you are deeply connected. If you aren't, the most innovative digital business models just have no meaning.

Key Point: Network effects don't just mean being connected, but by being connected and contributing value of some kind to those on the network in some way. Traditional enterprises don't usually manage to network effects, which is why they typically have low impact in the digital world.

Topic Portal: Tapping M2M: The Internet of Things

Network efforts also tend to be zero sum game and this has long been known by those betting the farm on networked businesses, from VCs to the founders of Internet startups. Why would customers go to the second best ecosystem of connections (social network, open API, file sharing network, pick your networked asset), when you can just go to the first, and thereby, richest and more relevant.

So this is the key mover: Because IoT connects active devices by the tens, and eventually hundreds, of billions that capture and project data and broadly enrich the network, the technology has tremendously powerful network effects. Consumer products manufacturers like Philips, GE, (and now Google) or carmakers across the board are racing to connect their products for this reason. It will generate incredible accumulated value of data, and that data will have enormous competitive consequence.

What's more, as Tim O'Reilly has observed, "my data is better when it's with your data", meaning that being connected to your devices and data, as well as everyone elses, creates both countless business possibilities and opportunities, but also commensurate zero-sum network effecs.

The smart companies are already building their IoT ecosystems and growing their network effect in order to be the most appealing and valuable offering. Consumers will be surrounded by these networks and we'll soon have interoperability wars, battles over data, and endless privacy and control issues, but it will also be how business gets done, by being continually connected to your customers and the the market, and exchanging data, accumulating knowledge, and shared value.

Where IoT will impact the enterprise

So, though the techniques for how to best exploit the IoT to create business value is still very much emerging it's clear that they will generally fall into these buckets:

  • Smart, connected workplace. These are data and control technologies for the workplace that are often wearable (my favorite example is the Hitachi Business Microscope), but can include just about anything that includes sensors or controllers, and is connected.
  • Business process monitoring, control, & optimization. Business activities in the office and in the field will be deeply instrumented, measured, and once they are quantifable, they can more systematically improved. Solutions from wearable devices to smartdust will be instrumental in capturing this data. The technologies refined for big data will be applied to manage, orchestrate, and extract meaning from the vast streams of digital knowledge this will continuously throw off.
  • Enhance and extend IT. IoT will project the IT presence of the organization to all corners ofthe world and create the extended enterprise in the deeply transformed digital enterprise.
  • Automation of products and services. Companies will first IoT enable their products and services, but then soon design them for and around IoT.
  • Business intelligence. Just like big data did for social media, we'll have profound new levels of insight into the real world and how it actually works, and adapt our business to our better attuned understanding of reality.
  • Staying engaged and connected with customers & the marketplace. In short, this is the zero-sum presence in our customer's lives as well as the data that draws in the marketplace. By literally being connected in a meaningful way 24/7 with millions of our customers through IoT-enabed systems of engagement, however, is how we can ensure our organizations stay relevant, and keep the competition from doing so.

Many of the IoT technique above represent value-added services that will likely generate revenue. But the key point is that without the pre-existing ecosystem, you can't do any of these things in a way that is impactful. And there will likely only be 2-3 top players in each IoT category, as the network effects of accumulated data seperate the leaders and the laggards.

So, in short, yes, IoT is strategic to the enterprise. There isn't much time, so build your ecosystem, accumulate knowledge, build shared value over your IoT ecosystem, and get it delivering -- and capturing data -- for as many customers as possible, while you still can.

Additional Reading:

The enterprise technologies to watch in 2014

Businesses have digitized but not transformed

Topics: CXO, Big Data, Emerging Tech, IT Priorities, Mobility, Networking

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12 comments
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  • Interconnectedness will be the key.

    Great article, but I feel the true strategic value will come when devices can be designed for Interconnectedness rather than predefined with some back-to-base preordained connectedness. In other words, devices start to connect with other heterogenous devices for synergy and symbiosis. that's when the internet of things starts to be something truly interesting.
    Alan.Perkins@...
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      Yestu1954
    • Exactly, it will be the emergent nature of interconnectedness...

      That will organically create some of the more likely-astonishing outcomes of IoT and the pervasive global connectedness of everything.
      dionhinchcliffe
  • Interesting article ..

    ... but only really tells us that it's a known unknown.

    5 years ago, web-connected TV was a joke; now, it's normal.

    We just don't know what will happen in the IoT - I think home security is an obvious one, other may differ. All we know for sure is that it won't be Windows based ... but it could have been - Bill Gates was big on the connected home, many years ago ... but the world wasn'r ready.

    Now the world IS ready, but too much of the IoT is "because we can" not "because it is a good idea".
    Heenan73
    • Capable vs actually connected . . .

      "5 years ago, web-connected TV was a joke; now, it's normal."

      Having a TV that is *capable* of being web connected is normal.

      Whether or not anybody actually bothers to do so is a different question . . .
      CobraA1
    • Scope

      There is value for the IoT in some situations. TV to surf Hulu/Netflix but the refrigerator makes less sense or even worse the washer/dryer. Some devices will be enhanced by an connections. Others, the connection is useful only in limited circumstances. And for the rest, it is pointless. What smart businesses have been doing is to use connections were it makes the most sense. For example, remote monitoring of the "process" over a wide area make sense for several reasons: it centralizes the information, routine monitoring is much safer, there is better process control, and the dispatch of emergency crews can be better coordinated.

      Much of the current hype ignores the fact that there are many areas/activities where connecting to the Internet is not very useful for the customer.
      Linux_Lurker
  • It really needs IPv6...

    Until then, it will be just noise.
    jessepollard
    • Yes, IPv6 will be an important part of, but not essential for IoT success

      For example, some of the new protocols like Z-Wave and Zigbee can go far beyond the limited of the current IP stack. In fact, TCP/UDP IP are just one of a growing number of scalable options, and is too heavyweight for some applications, like smartdust.
      dionhinchcliffe
  • Not really

    It would be absolute insanity to connect all devices to the 'net. We have enough problems as it is without exposing more controllers either in the home, business, or infrastructure. Something similar to a multi-homed gateway) network is far more appropriate given the poor performance of the field to date. Then you only have to do a rip & replace on a few devices (and the last thing you will ever want to see is remote updates AT ALL).

    That's just aspect that gets ignored as we head down a super-highway to Hell paved by the good intentions of naivite.
    Brian J. Bartlett
    • Agree that just because we can, doesn't mean we should

      But I predict practically everything will get connected to the Net in relatively short order anyway. There's just too much value in doing so. Imagine, once smartdust is cheap enough, you'll never lose another object again, for example. Physical crimes will be impossible as well. As Neal Stephenson has already envisioned, we're going to get not only everything connected, but virtually the entire physical world coated in tiny smart devices. Next it will be accumulated IoT micro pollution that we have to deal with, etc. All tech as pros and cons, but we are indeed heading to an interesting place with this one.
      dionhinchcliffe
  • Will the IoT be strategic for business? My answer: it depends.

    Will the IoT be strategic for business? My answer: it depends. As the economist points out enterprise has been using IoT for a long time so for many organizations it’s strategic if, for example, it optimises the supply chain to become a strong competitive advantage. In the consumer sphere not everything will be strategically changed by consumer use of the Internet of Things But we shouldn’t ignore its impact on consumer expectation. It would have been very difficult to predict 5 years ago, the extent, for example, of automatic text messages by enterprise systems to consumer friends. That’s a change that’s been driven by consumer expectation. Similar expectations of this kind around the Internet of Things will make it strategic for some consumer businesses.
    Tarik.Taman
  • Key Point: Being connected and contributing value to THOSE on the network

    Great article Dion!

    I think you hit the nail on the head with this Key Point:

    Key Point: Network effects don't just mean being connected, but by being connected and contributing value of some kind to those on the network in some way.

    While enterprises have been doing IOT for years, the missing piece to the puzzle has always been the dis-connectedness of their indoor mobile workforce. Consider the 10’s of millions of store associates, hotel employees, manufacturing workers, and wharehouse/distribution center workers who do not have a desk, a company phone, or company computer – they are effectively disconnected from the enterprise IT infrastructure. Without being connected, how does all of the valuable data from connected device reach the employees who can react and act on the valuable data being collected?

    Enterprise Wearables have the ability to change this by connecting employees to the enterprise IT infrastructure and each other. An example comes from a recent article from ZDNET titled,
    Wearables in business: Five companies getting real work done (http://www.zdnet.com/wearables-in-business-five-companies-getting-real-work-done-7000030082/)

    Look at what The Container Store is doing about connecting their store associate to their IT infrastructure, then imagine the impact of these connected employees when they can receive immediate alerts (communications) from IOT devices, as well as allowing these now connected employees to communicate with each other, IT systems and data via voice rather than keyboards & screens.

    The possibilities become endless.

    John Thrailkill, vice president of store metrics and systems for The Container Store “is excited about the potential future applications that can be created.”

    Thanks for a great article!
    Dan
    Tier1pr