It’s been just over a year since Cisco Chief Technology and Strategy Officer Padmasree Warrior told Access how Cisco believes that only 1 percent of what could be connected in the world, has been connected. It was a provocative thought, one that pointed toward a world linked by technology in ways we can’t even imagine.
But with every launch of another coffeemaker you can control from a smartphone app, the bigger questions grow more urgent. How quickly is this new wave of global connectivity moving? What’s the scope of the opportunity? And most important, what are the strategic implications for business in terms of capturing and using data, managing relationships, and exploring industry boundaries?
The Big Picture
When trying to answer these questions, a good place to start is to simply understand where the Internet of Things (IoT) fits historically.
Last fall, a Harvard Business Review (HBR) article argued that the IoT should be understood as the “third wave of IT-driven competition.” The first wave was the automation of activities in the value chain during the 1960s and 1970s. The second was supply-chain integration and internet-fueled coordination during the 1980s and 1990s. The IoT is what’s next, and according to the HBR, it promises another leap in productivity as sensors and computers inside everyday devices increase functionality and performance. The result: The global value chain will again be reshaped, including not only how we manufacture products and create services, but how we market and support them.
Scope of Opportunity
If you use the measurements of Goldman Sachs Equity Research Analyst Simona Jankowski, the IoT will make an impact on connectivity that’s 28 times the scope of the internet revolution of the 1990s. For example, while the “fixed internet” connected 1 billion PCs in the 1990s, Jankowski projects the IoT to connect 28 billion “things” by 2020. Those things will include smartwatches, automobiles, industrial equipment, and much more.
When you zero-in on the consumer’s home, you can see that growth in connectivity play out in the projections of a major brand such as Samsung, which predicts the global smart home device market will reach $15 billion in 2015, almost doubling from 2013’s $7.8 billion.
Technology industry experts also project the IoT to grow exponentially as components and connectivity become cheaper. At an IDC conference last fall, Andrew Scott, a general manager with Australian telecom firm Telstra, noted that rapid global smartphone penetration is creating new, cost-effective platforms for IoT devices. At the same time, he added, the cost of sensors has plummeted 90 percent in the past five years. Factor in an environment where 1MB of data can now be transferred for only 3 cents — compared to $1 in 2008 — and you start to understand the scope.
More devices, cheaper components, cheaper data: all the ingredients are present for an IoT explosion. If the industry can solve its battery life, usability and security conundrums, the “third wave” will begin moving even faster.
So-called smart technology allows a company to integrate technology virtually everywhere along its value chains, from how it manufactures products or creates services to how a final product or service operates and what it ultimately offers to its end user. Increased monitoring, control, and autonomy can be built into both a supply chain platform (think: a tennis racket manufacturer’s factory floor) to a given product’s final end-use (think: a tennis racket that tells your smartphone how well you’ve been hitting the ball).
The HBR argues that the IoT should force every company to make 10 strategic choices, which include the following questions:
- Which set of smart, connected product capabilities and features should we pursue?
- How much functionality should be embedded in the product and how much in the cloud?
- Should we pursue an open or closed system?
Bottom line: The IoT trend is only getting started. Best to get up to speed on it now, as it promises to fundamentally reshape businesses in nearly every sector of the global economy.
Tell Us Your Opinion
- Has the Internet of Things begun to affect your business?