Organizations that use the Internet of things

The businesses and other organizations that use IoT systems are faced with a multitude of opportunities—and maybe just as many challenges. Depending on the industry, IoT applications can have far-reaching effects on how companies operate and may even force changes in business models. Some businesses (automobile manufacturers, for example) need to master both use of IoT in their operations and in their products. We look at implications for businesses in three ways: using IoT to improve current business models, new business models enabled by IoT, and organizational issues related to IoT implementation.

Using IoT to improve current business models First, companies need to identify and prioritize opportunities for IoT to enable them to improve performance in their current operations and lines of business. These opportunities are extensions of the opportunities that have been identified with the use of big data and advanced analytics. IoT data will allow companies to personalize services based on consumer behavior, usage, and context.

It is also important to keep in mind the substantial potential benefits of deploying IoT in businesses in developing markets as well as in advanced economies. Depending on conditions in the specific developing economy, IoT applications can be used to create large amounts of value, often from different sources than those in advanced economies. Companies should bear in mind that interoperability is key to obtaining much of the value from the Internet of Things.

As sophisticated and powerful customers, companies can demand interoperability when they write specifications and procure IoT systems. As companies identify and prioritize opportunities to use IoT applications, they should inventory all potential sources of data, particularly those they might already own but have not yet fully exploited. IoT is an incredible source of data generated in the course of operations that can be used for other purposes.

As noted, in IoT applications, most data, including so-called exhaust data (data that is generated as a “byproduct” of IoT instrumentation), is not yet used or is used only for anomaly detection and/or real-time control. Far more value remains to be captured in analyzing the data for optimization and prediction. We have identified eleven broad categories of applications through which IoT can improve performance and create value for business users across settings and sectors (see Box 8, “The value of IoT applications”). The largest source of potential impact—60 percent—is operations optimization, such as inventory management and condition-based maintenance, which requires optimization and prediction. But each company will have to analyze and prioritize its own opportunities.

Service-based business models. The Internet has enabled the “as a service” business model for IT infrastructure and software. The Internet of Things enables “anything as a service” business models for all kinds of other products, potentially letting many kinds of companies shift from selling products to selling services based on those products.61 This model can transform large capital expenditures into a pay-by-usage operating expense. Examples of this trend are proliferating.

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They include selling “power by the hour” rather than gas turbines, selling transportation services rather than automobiles, and selling pages printed rather than laser printers. IoT technology not only enables the providers of these services to charge by usage, but it also enables these companies to better maintain and upgrade the equipment that is used in these services, removing the maintenance burden from customers and creating the basis of long-term relationships. IoT-based service businesses can also use consolidated customer usage data and data about individual customers for cross-selling, guiding product development, and other purposes. Furthermore, IoT can allow products to become better while in service (the opposite of depreciating in value), a concept Hal Varian has dubbed “product kaizen”.62 ƒ Monetization of IoT data.

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Finally

The exhaust data generated by IoT applications can become a profit center itself. For example, almost any data describing consumer behavior can be of great value to marketers. Data about physical assets such as buildings and vehicles can be used to assess insurance risks. One company’s data exhaust could be another company’s gold mine, and that value could be monetized by the originator of the data. Of course, privacy, confidentiality, and ownership rights over such data—for instance, consumer purchasing data—are issues that would have to be addressed to create such business models.

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