August 03, 2015

Digitization and networking were the first steps taken. Now we are about to take the next big step: the Internet of Things. 

At this point, when devices communicate with each other and act autonomously, new business opportunities open up for companies. However, before that happens, other obstacles have to be overcome.

Machines that request their own maintenance. Sensors that monitor a patient’s vital signs and sound an alarm if something goes wrong. The autonomous car going from point A to point B! That’s the Internet of Things (IoT), the networking of more and more machines, services and people – and, according to recent studies, it holds great growth potential. Accenture says that IoT could account for 14.5 trillion dollars of the global economic output by the year 2030 and ICD predicts a volume of 1.7 trillion dollars for the global IoT market. While Gartner expects around 25 billion connected devices by 2020, CISCO projects up to 50 billion.

At the moment, the market is in a state of transition. The much discussed digital transformation is just arriving at companies and the IoT is only a part of it. Really successful business models in this field are still in the making and the decision-makers in the various industries are slowly approaching these new opportunities. How can companies develop smart services to participate in this growing market?

Where we are today

The technology is ready – at least in its well-defined and compartmentalized Walled Garden systems – but nonetheless: The Internet of Things is ready for take-off. Reasonably priced radio modules and sensors, affordable telephone service rates and the new IPv6 standard to accommodate the Internet addresses of all those connected devices. The first tentative steps have been made. Devices, machines and people can now be connected to the Internet and networked easily. Cloud technology makes the storage of data and extensive processing on external servers possible without the need for local storage.

However, the IoT is supposed to be more than that. It is supposed to establish an intelligent connection between individual components that is automated and offers added value for the users. We are talking about the second level of networking, that is, a network that really creates smart services.

At the moment, the economy is still in the limbo phase of the digital transformation but headed for a genuine IoT. This "Inter-net" is still made up of individual and proprietary networks that are cumbersome to connect to each other. True, they give us "things online" but still not a comprehensive all-encompassing network. If you want to connect several objects and devices in these networks in any meaningful way – that can still only be done within one ecosystem at the moment, but not beyond the system's boundaries. So the pioneers of this technology still have a lot of integration work to do.

What does Internet of Things mean exactly?

To have a better and more precise understanding of the term Internet of Things, we have to define some terms more clearly. A "thing" in the Internet of Things typically possesses the following properties:

• • • • • A sensor to capture, store and/or evaluate data.
        • It has an ID, so that the respective data can be put in the right context (e.g. position of the sensor if the sensor itself does not have GPS.
        • It communicates and interacts with other devices of its class and/or the Internet to create added value.

This opens up completely new opportunities for companies, provided the basic principles are understood:

• With attractive sharing models, physically owning a product loses its importance.
• There will be a move from pure product turnover to service turnover.
• New business models are not founded on selling physical products but on the capture and analysis of operational data by way of creating simulations.
• The after sales business will be strengthened.
• New ways of adding value will be created.
• If proprietary know-how is shared and companies are open for partnerships and alliances (e.g. IT companies with their software knowledge), new ecosystems and value-creation will emerge.
• Approaches to development processes are changing, services are more customer-driven, flexible and agile methods will be prevalent.
• By combining various data sets, companies can help their customers to improve performance (B2B) or allow them to enjoy new user experiences (B2C).

Where is the market?

Many industries are already searching for new business fields where they can employ the Internet of Things. Even small businesses and mid-sized companies are embracing digitalization more and more; e.g. the following business models can be identified:

• Predictive Maintenance: On the basis of collected data it can be predicted if and when a machine or car is going to break down. This will be reported in advance and corrective maintenance will be initiated by way of a software update.
• Physical Freemium: With their purchases, customers acquire a physical device, a digital service or object free of charge that extends or supplements the physical product. Typically, this offers only basic functionality, the extension of which can be bought later.
• Digital Add‐on: Here the physical product is sold at a very small profit margin; but value can be added later by high margin digital products.
• Object Self Service: This is the classic fridge IoT scenario where the fridge, if needed, can order milk.
• Digitally Charged Products: Classic physical products are loaded up with sensor-based digital service bundles and positioned with a new value claim.
• Sensor as a Service: The idea that the sensor data of one workshop is captured, processed and sold to other workshops at a price. Here, in contrast to Digitally Charged Products, it is not the data-generating product that takes center stage but the data itself. Data is the primary currency to do business in.

Where are the kinks?

For making a real breakthrough in the market, there are still some obstacles that have to be overcome, not only with Wearable Devices or Smart Home but also in the consumer market. The same goes for Industry 4.0! To ensure stable services and the machine-to-machine communication in real-time that goes with it, certain conditions have to be ensured:

• A common technical standard is a must to guarantee a successful interplay of the Walled Garden Systems; this, ideally, should be on a global level, but open interfaces are still rare at the moment.
• A legal framework in an international context has to be forged – consider this: if machines place orders automatically who will be liable in case of an error?
• Also, a host of questions on privacy and data sovereignty are still open.
• To make Wearable Devices successful, it will take new smart energy concepts, since the devices are still a far cry from being operational around the clock.
• To run critical corporate, health and safety applications autonomously in real-time, faster and more reliably network technology is necessary. Research teams are already working on the 5G standard that is supposed to allow lowest latencies at high data throughput rates and thus create the so-called tactile internet.

What will the future bring?

• From the Internet of Things to the "Internet of Everything". Networking will become so natural and omnipresent it will barely be noticeable anymore. This will bring up opportunities to create brand contact points and to extend customer experience immensely. Under the heading "Pervasive Computing" you will find the vision of capturing and analyzing data from everything and everybody at all times. This will offer the marketing and e-commerce departments new opportunities to predict and address user behavior.
• In industry, completely new scenarios will become a reality, such as remote maintenance or Augmented Reality applications in real-time.
• Health monitoring will be automated and linked to new materials.
• Cars will become more and more autonomous and base their driving behavior on ambient data.

Summary

Companies now have the chance of positioning themselves in such a way that they can greatly benefit from these new opportunities. However, this requires them to review their own business models – and if necessary, adapt them. If they fail to do so and stay in their comfort zone, they will run the risk of being overtaken in their own core competencies by inventive companies that may even hail from other industries. For this reason, companies should open up to partnerships, but also obtain outside expertise. However, the technical and regulatory conditions have to continue to be developed further for the Internet of Things to become a success.