Picking IoT Winners

In the future, the clear winners in the IoT Revolution will be those companies that not only embrace the Internet of Things, but use it to transform their businesses. Those winning companies will be the ones that integrate IoT into their operations, products, and customer interactions to create new business models and sources of value. In fact, McKinsey estimates there could be as much as $11 trillion per year by 2020 in new economic value from adopting IoT.

Let’s look at the suppliers who will be the winning companies and the market leaders who will help businesses achieve these tantalizing new benefits.

Every new technology revolution creates new technology company powerhouses and relegates others to the ashes of history. The PC Revolution gave us the likes of Microsoft and Intel; the Internet Revolution created companies such as Cisco, Google, and Amazon; and, more recently, the Mobile Revolution has created market giants such as Apple, Samsung, and Facebook. Who will be the winning suppliers in the IoT Revolution?

Despite the Internet (connectivity) and Things (devices) being the key terms in the title of the next technology revolution, this is not where the money will be made. It is estimated that there could be up to 50 billion connected devices in the next 5 years. But, these will be largely low-cost, low-power devices with long replacement cycles. We have all seen what happens in the device and hardware business—a steep declining price curve. For example, the cost of semiconductors on a per-transistor basis has plummeted 50% in the last 3 years. Effectively, it represents lots of volume but a low-margin business.

Service providers are salivating at the thought of connecting the 50 billion inanimate objects to the internet. However, the vast majority of these devices will require very low bandwidth as opposed to the demands of chatty and data-hungry mobile users. Equally, most of these connections will be over unlicensed networks, such as Wi-Fi, rather than the lucrative cellular networks. Chasing value from connectivity effectively becomes a game of “trading mobile dollars for IoT pennies.”

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But don’t despair. There is the opportunity to generate good money from supplying the IoT Revolution and to create the next tech giants of this new era. There are three key areas for value creation:

  1. Platforms. We are seeing that successful IoT implementations require a comprehensive business and technical architecture—the IoT platform—to provide the building blocks of the underlying infrastructure. This platform is comprised of three broad areas: 1) Technology Enablers—cloud storage and compute, security, etc.; 2) DataProcesses—capture, management, analytics, etc.; and 3) Management—policy, device, API, and application framework. These platforms are horizontal plays that can be leveraged across multiple verticals, allowing suppliers to reap the benefits of economies of scope and scale.
  2. Solutions. Implementing effective IoT systems is complicated and often requires considerable customization. Providers who can offer end-to-end solutions (hardware, software, data insights, implementation, and services) will be clear winners. Successful solutions have a vertical wrapper to make them relevant to the customer’s particular needs. These solution providers will create new business models to deliver “IoT as a service” and outcomes-based financial models. For example, IoT-enabled machinery as a service or payments based on energy savings will be new models that will reduce the risk to businesses and ensure successful IoT implementations. Providers that can successfully deliver solutions, vertical expertise, and new business models will create deep and enduring relationships with their customers.
  3. Business Integration. IoT is only as good as its successful implementation and adoption by the business. As we saw in the Internet Revolution, there is a great need for outside providers to help companies make this transition and realize the promised benefits of the new technology. Key business integration needs include the following: 1) Business Consulting—identifying opportunities, creating the business case, re-engineering the business, and change management; 2) Systems Integration—integrating IoT systems with existing systems, data, and processes; and 3) Management—program management, ongoing operations, and outsourcing of key operations.

Helping to deliver the IoT Revolution presents huge opportunities for businesses and technology suppliers. The winners will be those companies that bring distinctive technologies, innovation, new business models, and deep industry knowledge to the three key areas of IoT value creation.

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