The next generation of the internet is called the ‘internet of things’. Some people like to call it M2M or ‘machine to machine’ or ‘internet everywhere’. In any case it is here and it is about to shake things up.
The internet of things is where devices become connected and have embedded sensors that enable them to act and react in connected ways. It means that devices can talk to each other, can instruct and respond to each other in response to contextual stimuli. And by devices I mean any physical object that can have sensors and communications technology attached or embedded.
Objects are becoming embedded with sensors and gaining the ability to communicate. The resulting information networks promise to create new business models and disrupt existing business models.
The internet of things builds on the foundations of Web 2.0:
- User Control
Source: Launching the Web 2.0 Framework, Ross Dawson, May 30, 2007
The technical plumbing that is needed to make the internet of things real is already in place: TCP/IP, wifi, Zigbee, Bluetooth, etc. Key factors are almost ubiquitous wireless internet connectivity and devices with connection capability. These are already in place across the world.
The other technology trend that is supporting the emergence of the internet of things is ‘big data’ and our enhanced ability to derive actionable insights from the collection and analysis of enormous amounts of data.
The convergence of big data and ubiquitously connected smart devices means that we can harness predictive capacity and enable things or objects to act in ways that are contextually relevant. It also means that we can finally start using this technology to market to an audience of one. That is, we can use technology to craft individually meaningful and relevant marketing messages and deliver them within a particular context to drive purchase behaviour for a particular individual. The entire marketing conversation can be automated and have human agency largely removed from it, while retaining human-like communication modes and styles of communication. It seems that Minority Report might not have gone far enough in conceptualising the future of marketing.
How big is the market opportunity from the internet of things?
There are many different estimates of the size of the internet of things market. One thing remains constant, business leaders who understand the concept are making big calls and are changing their business focus as a result. For example John Chambers from Cisco:
“The Internet of Things, I think will be the biggest leverage point for IT in the next 10 years, $14 trillion in profits from that one concept alone”
Cisco Chief Executive Officer John Chambers, AllThingsD D11 Conference May 2013
Source: Internet of Things Poses Big Questions, Ben Rooney, July 3, 2013
Where and how do the business opportunities arise?
The internet of things creates value that is not in the devices, rather it is in the new services that are related to the devices. Connected devices are transformed from a single purchase product into a service that generates recurring income.
A big part of the business opportunity is making it possible to bypass traditional aggregators of demand and access customers via peer-to-peer channels. Apps are key to this peer-to-peer landscape and they look to be an important multiplier in the growth of the internet of things marketplace.
“Between 2008 and 2017, Google Play and Apple’s App Store will be responsible for a mind- blowing number of mobile app downloads: 350 billion.”
Source: Decade of the 350 Billion App Downloads
New business models are emerging, and it is seems that open and collaborative models particularly lend themselves to this more interconnected landscape.
- Open models will rule the new landscape – organisations that try to control the entire vertically integrated supply chain will struggle unless they bring in partners to add diversity. A good example of this is Apple with their app store, which enables them to have a vertically integrated supply chain along with diversity via apps.
- Collaboration and loose confederations – the barriers to entry that previously protected large players will begin to dissipate and provide opportunities for new entrants. Uber versus the taxi industry is a good example of this phenomenon.
- Agile, change ready organisations will be best placed to adapt in this new highly connected world. Any organisation that needs two years to get a new product to market will be overtaken by those who can move faster. A good example of this is Nokia. Their new Lumia Windows phone is a great product that is two years too late to market. And the delay in getting to market means that they will need to find a niche to dominate rather than become a mass provider – perhaps they can dominate as a camera with connectivity rather than as a smartphone? Here Nokia’s decision to align themselves with the notoriously non-agile Microsoft Windows could be part of the problem.
- Restructured supply chain – the internet of things offers enormous opportunities to restructure supply chains. Smart businesses will take advantage of this. In the 1990s ‘just in time’ inventory models revolutionised the cost base of doing business. The internet of things will provide similar opportunities.
What industries will be impacted?
All industries will be impacted but let’s examine the potential changes for a few that are interconnected:
- Retail – already we are seeing shoppers use online and offline retail channels to find the best product for the best price. We can expect to see this intensify and put increased pressure on offline retail. Apparel shopping is one area that can expect disruption. Already shoppers are using terrestrial stores as places to check the fit of apparel items of interest, a practice known as ‘showrooming’. Some stores are fighting back by imposing a ‘trying on charge’ that is deducted if a purchase is made in store. But what if the in store retail experience became richer? What if the products started to sell themselves? What if the products knew that you were already wearing a particular brand and reached out to you and suggested complementary products? For example, a pair shoes could recognise that you are wearing a particular brand of jacket and offer you a special deal as a result. The convergence of ubiquitous connectivity, big data, and internet of things makes this scenario possible.
- Transportation – We already have driverless transport with trains and Google is already showing us a glimpse of this future with their driverless car. But these new forms of transport require the development of new business models. For example, all that time we used to spend actually driving our cars will give rise to a new cognitive surplus – wonder what we’ll do with it? Play games, create art? Another example of new things that driverless vehicles will give rise to is smart intersections, because those new driverless cars will require smarter intersections that we currently deploy. The internet of things will make autonomous transport possible.