2016: The Internet of Things advance

If you have a FitBit that talks to your smartphone, or a Nest thermostat, or lights in your home that you can control with your phone, you are part of the Internet of Things (IoT).

How big is IoT?

Mobile data traffic was 30 times as large in 2014 as the entire internet was in 2000, according to global IT firm, Cisco. The prediction is that there will be 50 billion connected devices or more within the next five years as the price of sensors and processors falls and WiFi and Bluetooth usage increases. IT insight firm Gartner estimates that IoT products and service suppliers will generate revenue exceeding US$300 billion in 2020.

IoT impact

IoT pushes companies to make smarter products that connect better. IoT utilises sensors that record data, so smarter decisions and business operations become possible. IoT is expected to drive fundamental changes in business models and customer engagement.

The Internet of Threats?

If IoT is truly upon us, are companies feeling the pressure to connect their objects and join the machine to machine generation? LBS Executive Education alumnus Nicolas Sauvage, Worldwide Sales Director of NXP Software, says not.

“I don’t think there is a sense of urgency yet. IoT still feels, for most companies, very niche and geeky. But I think as markets get disrupted, companies are going to feel the pain if they don’t leverage what IoT brings, and let their competition take advantage.”

Sauvage peers into the past for a glimpse into the future. In the 19th century the ice trade was booming. At its peak, the US employed an estimated 90,000 people who harvested, transported, and sold natural ice for domestic and commercial consumption. Today, the entire industry has been taken over by a single product; the refrigerator. “At first, people didn’t think the technology would be taken up, as it was too geeky, people thought it would be too expensive and too luxurious to own a fridge,” he says.

Tomorrow’s world

Just as people of the past wrongly predicted the uptake of fridge-freezers, people today could underestimate the next development: connected refrigerators. In the near future, a fridge could identify when certain products, say milk, are due to be ordered and help measure the health and activity of a person or family inside their own home.

The system would generate a shopping list, place an order and book the delivery.  Sauvage says: “Today’s white goods providers have very short and limited relationships with their customers. Once the product is purchased, the relationship is over, until the customer is ready to buy another. In the future, companies will be able to continue the relationship post-purchase.”

You can learn a lot about a person from their activity with an essential item like a fridge, he explains. For example knowing whether someone is a morning or an evening person can help you cross-sell to them. “You could charge higher margins for coffee if they are morning people,” he adds.

IoT strategy

Saul Klein, Executive Fellow of Strategy at London Business School is an entrepreneur and investor with more than 20 years of experience starting, building, exiting and investing in businesses globally. He says that companies need to ask a simple set of questions to get the most from IoT.

• You’ve got the data, now, what are you going to do with it?
• How is it going to change the way you think about marketing?
• What assets do you need to own?
• What assets do you need strategic partners to manage for you?

Business model shift

Companies must decide whether to combine sensors, data collection and advanced analytics, or whether to partner strategically with business intelligence specialists.

Klein gives three examples of business model decisions already playing out in the networked world.

1. Large established companies such as GE are combining hardware, data and analytics. By connecting machines and industrial big data, the ‘Industrial Internet’ enables businesses to better understand operations. In real terms that means operations, in say manufacturing, can reach their fullest potential based on market demand, weather conditions, plant environment, load balancing and more.

2. Emerging tech companies focused on the area of big data and business intelligence – what Klein calls the “close neighbours of industrial IoT”, such as start-up Oden Technologies. “What Oden does can be likened to a Google Analytics for factories,” he says. “It places sensors on production lines which gives real-time intelligence of their performance. Understanding operations allows you to significantly optimise performance, save money and fix things when they go wrong.”

3. Businesses that take advantage of other companies’ data, hardware and systems to help them better understand performance – such as Palantir which builds software that connects data, technologies, humans and environment, and Quantam Black which helps companies use data to make sustainable improvements to their performance. “These companies help other businesses understand the huge amount of information, creating better insights and gathering meaning from that data,” says Klein.

Use IoT or lose out

IoT will make the invisible visible, impacting everything from supply chain management to l energy efficiency and even health and wellness. Software expert Sauvage says: “There will not be a single industry that stays the same. The biggest difference will be from the ‘things’ that people use every day.

“If you could measure what you eat and you could measure your body afterwards and you could measure your sleeping habits depending on what you have eaten before, then there will be massive learnings about what brings health benefits, and, for people to act accordingly once the benefits are clear to them.”

Fitness trackers like FitBit and Jawbone already aggregate data about our fitness habits and share these health statistics with their strategic partners. Sauvage’s vision is radical: “I believe the best doctors will not be doctors anymore, they will be the mathematicians behind algorithms leveraging data that doctors can never dream to access.” If data is collected in a private way, and aggregated across millions of similar patients, then a doctor, who has just 20 minutes with one person, will use algorithms to surpass any consultation-based diagnosis.

Companies will still need the human touch, but they have important decisions to make. Where will they play? How will they gain insight from IoT? And most important of all, how quickly will they be able to adapt?