Is the Internet of Things strategic to the enterprise?

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?
Written by Dion Hinchcliffe, Contributor

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

Editorial standards