Though many connected products seem better suited for the Jetsons than the Joneses, the connected world is not far away – and its potential is enormous. McKinsey Global Institute says the Internet of Things (IoT) could drive economic impact of $6.2 trillion or more, annually, by 2025. In terms of units, Cisco predicts the IoT will comprise more than 50 billion devices by 2020, up from 10 billion today. It’s clear the IoT will create unprecedented revenue and value generation opportunities, but it will be hard to fully realize the potential if the focus of the IoT remains only on devices, not the broader benefits of an ecosystem.
To date, the IoT conversation hasn’t outlined how businesses will ultimately realize revenue and value-add benefits from an Internet connectivity strategy. Most discussions ignore the need to make the IoT cost-effective for end users; they also overlook how ancillary partners can profit from the IoT. We need to change the conversation. We won’t realize the game changing effects of an explosion of devices unless connected product manufacturers foster ecosystems that create value for consumers, manufacturers, and new partners.
The connected IoT devices in the market today mostly focus on features, not the broader IoT ecosystem. The LIFX bulb, for instance, allows you to change the colors of the light bulb and program your lights to turn on when you wake up. These products are useful to consumers but limited; they are point-to-point solutions that connect a product to the consumer. They don’t open up the benefits of connectivity to a larger ecosystem.
Unlike a point-to-point solution, a connectivity-based ecosystem brings value to more than just the product manufacturer and consumer. Take, for instance, hiku, a palm-sized device that conveniently scans product bar codes to create a grocery list for users. While useful on its own, hiku’s value soared when hiku labs announced agreements with large grocery retailers – Auchan in France and Waitrose in the U.K. – to instantly fulfill their customers’ grocery lists. Now hiku creates a shopping list, and shares it with the fulfillment partner. Consumers have an easier way to order and receive goods and the grocer increases brand loyalty. What began as a simple product became the springboard for an ecosystem that drives greater demand, value, and utility for everyone involved.
But this is just the beginning. Consider the benefits if all home appliances talked not just to you, but to critical service providers as well. Instead of coming home from vacation to a flooded basement, your water heater would alert you if it overflowed. Though this feature would be valuable to most consumers, some would argue the cost of connectivity is just too high. But what if a homeowner’s insurance provider could be part of this equation? What if the insurer received an alert any time water leaked or the clothes dryer overheated and became a fire hazard? The insurer would likely offer consumers a lower premium if they installed connected appliances because these appliances would lower underwriting costs.
The IoT ecosystem can also uncover new revenue opportunities. It is convenient to receive an alert on your phone that your toilet is broken. But if all plumbing fixtures were online, companies like Roto-Rooter or Service America might offer a new type of monthly service contract. Instead of the consumer calling when plumbing is clogged, the service provider would already know a repair is needed and preemptively fix it – maybe even over the Internet. If a service call were necessary, the technician would know to bring the right parts. This ecosystem would deliver cost – and time – savings to service providers and consumers.
The ecosystem also makes the IoT financially feasible. Today, every manufacturer who sells a connected device either bills customers for connectivity or eats the cost. As the IoT grows, the number of individual connectivity fees in the home could add up quickly and hinder widespread adoption. However, when you create a connected ecosystem that extends beyond those who manufacture a device and use that device, you identify partners who believe that the potential revenue will offset additional costs.
Ultimately, one of the major factors that distinguishes a valuable product from a novelty product will be the benefit it drives for the ecosystem. The valuable products create incremental pull between the manufacturer, consumer and partners – like insurance companies and service providers – who all benefit from the information the device generates. Only in this IoT scenario does the predicted $6.2 trillion move from forecast to reality.
Chief Financial Officer at Electric Imp
This blog was originally published by Electric Imp at: http://blog.electricimp.com/post/110019190920/ecosystems-not-features-will-lead-to-trillion
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