Success in the Pervasive Internet will require the customer orientation and scenario skills that insurers take for granted. But device-generated data will give manufacturers a revolutionary edge.

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The logic is simple. Connected devices deliver abundant information. Abundant information means more and better opportunities to serve the customer. More opportunities for service provide new business models for manufacturing companies. And service-based business models require skills that are new to most manufacturers.

The skills, however, aren’t new to everybody. Many of them have been part of the insurance business for nearly as long as there’s been such a thing. Insurers accept customer risk and charge for doing so. For manufacturers in the Pervasive Internet, there’s a lot to learn from the risk-taking professionals. But there’s a lovely new twist: all that abundant M2M data means a dramatic reduction in uncertainty, which in turn means a dramatic reduction in risk.

Connected Devices Will Change Customer Concepts of Ownership and Value
The opportunity is clearest in those cases (and the Pervasive Internet will enable many of them) in which a manufacturer entirely stops selling a product and sells instead the service that the product had always delivered. Households used to buy a washer and dryer in order to be enabled to clean clothes. In the connected future, they will still do their laundry in much the same way, although smart, connected machines will help them do it better. The difference will be that they no longer own the machine. Rather, they will contract with Whitegoods, Inc., for a year or so at a time, for a service called “laundering.”

Already, hospitals are offered the option to contract for imaging services instead of buying certain kinds of imaging equipment. The two options look and feel the same to the doctors and technicians; the machine is still onsite, and the hospital’s own experts use it. But in the new case, the hospital doesn’t finance, own, or maintain the equipment. All that remains in the hands of the manufacturer. The hospital simply pays for each use of the machine.

Most Customers Will Welcome Services-Based Relationships, But Not Pay-Per-Use
If we remember how much Xerox loved that business model in the company’s early days, we know why manufacturers will want to move in that direction. However, we will also remember that market pressure forced Xerox to give up that system. Similarly, in the realm of connected devices, customers will resist pay-per-use contracts, even though they will like many aspects of buying a service rather than a device.

Harbor Research believes that in many cases, the solution will be for companies to offer fixed-price contracts. This reduces risk for the customer, easing the selling process. And if they are managed well, fixed-price contracts can be nearly, if not fully, as lucrative as pay-per-use. To make them so, however, requires the skills that have made insurance companies profitable for many years.

Skills That Make the Insurance World Go ’Round

• Limiting Risk: Since a key value to the customer in buying a contract is reduced risk, the risk is shifted to the manufacturer. (The money is to be made by managing that risk better than the customer would.) The first risk—in fact, the mother of all risks—is adverse selection. Just as the sickest people are those most eager to have health and life insurance, the hospital that knows it beats up CAT scanners will be the first to jump at a fixed-price contract for scanning. And so we learn to think like insurers. We write riders to exclude certain kinds of failures from coverage. We develop co-pay plans for repair calls, designed to discourage gaming the system.


• Designing Offerings: While some buyers want an entirely unique contract, it’s in everybody’s interest to keep customization within some strict boundaries. This is another skill of insurers: breaking down the elements of policies into constituent parts, and developing the bundles of those elements that will minimize the number of policy types while still addressing the needs of the greatest possible market.


• Pricing Under Uncertainty: Where outcomes are uncertain, there are still ways of setting intelligent prices on contracts. Insurers have been doing this for years, although only recently has option pricing theory matured to provide a truly reliable tool.


• Using Actuarial Data: While it’s helpful to know how to price under uncertainty, it’s better to minimize the uncertainty. Like insurers, manufacturers offering service contracts will need to gather and analyze data on actual outcomes, both to identify what makes a high-risk customer, and to understand the basics of what should and shouldn’t be offered in a contract, and how much to charge. Obviously, when a manufacturer’s devices in the field are generating ongoing streams of real-world usage and status data, risk and uncertainty decline dramatically.


• Legitimating Premium Increases: Few of us like it, but most of us are both aware and accepting of the fact that insurers don’t entirely foresee claims and compute with prescience the just-right premium. What they do instead is look at how much a year’s claims cost them, and price the next year’s policies to cover last year’s costs. The burden doesn’t always fall only on those who make the expensive claims (sometimes, as with disability, it can’t), but on every policyholder. The facts of life will be similar for companies assuming the risk of fixed-price contracts. The challenge, in the early years of connected devices, will be legitimating the practice of increasing contract prices as needed.

Corporate Strategy Will Mean Envisioning the Most Likely Scenarios
Even the process of developing strategy will be different for connected companies. For years, Harbor Research has found scenario planning to be a powerful tool for technology companies and all companies in volatile environments. We believe it will be a favored tool among manufacturers who Internet-enable their products.

Interestingly, scenario planning itself requires a skill quite similar to one of the insurer’s skills we’ve listed. It’s the skill of designing “representative bundles.” Designing insurance policy types and contract offerings has an analogue in the process of isolating likely scenarios. Just as insurers want to offer a small number of policies or contracts and yet meet the needs of many customers, scenario planners look at a theoretical infinitude of possible futures and boil them down to the few futures that are most likely to occur.

New Services-Based Business Models Mean Shifting Risk and Charging for It
No matter what business model manufacturers adopt in the next decade, every company will find itself much more involved in its customers’ lives and problems than is the norm today—with all the attendant benefits and risks. Even if a customer continues to purchase a device outright, the device’s new connectivity will make extensive service agreements easy to implement, beneficial to the customer, and lucrative for the manufacturer to offer.

That a new skill in strategy development is similar to one that will become a core capability for service companies only makes it more universally true that in the real-time enterprise we will all become insurers, or at least learn to think like one. Even if a company does not move to a full-blown services model, it must still learn to evaluate risk—first in the absence of actuarial data, and then later in the presence of vast amounts of data. A good starting exercise might be assessing your own risk of dying at the hands of a competitor who makes better use of the Pervasive Internet.

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Who We Are and What We Offer.
Harbor Research Inc. has been providing strategic consulting and research services to leaders in communications, computing, control, and content since 1983. The firm has built relationships with larger multi-line companies including AT&T, ABB, General Electric, Danaher, Eaton, Emerson, Hewlett Packard, Honeywell, Hughes, IBM, Intel, Invensys, Lucent, Motorola, Rockwell, Siemens, and Texas Instruments, as well as focused growth companies such as EMC, Cadence Design, Conexant, and Qualcomm.

We also continue to work for a broad array of emergent start-ups and pre-IPO technology ventures. We have built relationships with a number of significant M2M / Pervasive Internet players, including Cimetrics, DataSweep, eDevice, Ember, emWare, Questra, Wireless Innovation, and Xsilogy, to name a few.

Harbor is organized around emergent and disruptive opportunities in high technology, with a unique focus on the impact of the Pervasive Internet—the use of the Internet to accomplish global device networking that will revolutionize business by unleashing entirely new modes of system optimization, customer relationships, and service delivery.

We provide studies, workshops, briefings, research retainers, and consulting engagements of uniquely high value to both technology suppliers and adopters. For more information, please contact us.

Harbor’s new online platform for research services offers continually updated intelligence and stunning data-visualization.

Static, printed reports can’t track the complex ecosystems and warp-speed pace of high tech. SmartSphere® projects can.

The brains of the Web. The brawn of server databases. The beauty of a CD-ROM.
For nearly ten years, we’ve been waiting for Web media to get good enough to let us do this. It’s finally here. Harbor SmartSphere® re-invents the whole concept of delivering research value. It’s to business research what the Pervasive Internet will be to business itself: a huge injection of dynamic intelligence and sheer voltage. SmartSphere® is online, interactive, dynamic, and visualized. There’s nothing static, rigid, or dead about it. Eventually, we at Harbor will do everything in SmartSphere® that we used to do on paper, and we’ll do it better. And you can, too. in a custom-configured project of your own, SmartSphere® can be anything you want it to be.

And yes, you can get printed reports. We’ve re-invented those, too. Not fixed, one-size-fits-all printed reports, but custom printed reports that you configure and SmartSphere® creates for you on the fly in PDF format.

See SmartSphere® and find out more right now:

1. Visit our free, live SmartSphere® demonstration. They say pictures are worth a thousand words. So what are they worth if they’re pictures of your whole world, and you can fly around inside the pictures with your mouse?
2. Download a brochure on the SmartSphere® research platform and services (PDF, 970 KB).
3. Download a brochure about our SmartSphere® “living research” projects on the M2M/Pervasive Internet phenomenon (PDF, 240 KB).

A small portion of an interactive Harbor SphereMap™. This one portrays a company’s world. You “fly around” the map by dragging it with your mouse, bringing into focus any area you want to explore. You see a company’s peers, investors, products, and alliance-structure at a glance. Clicking nodes fetches additional information from the database. Shift-clicking nodes creates new maps of other companies—and maps of markets, too.

Projects, projects, projects. Ours, and yours.
SmartSphere® is an online platform that Harbor uses to deliver Web-based services. You don’t buy SmartSphere® the way you buy a program for your computer. You buy access to one or more SmartSphere® projects. We define projects of our own on important high-tech subjects, and clients can subscribe to those projects. Clients can also define their own custom (and completely private) projects.

SmartSphere® projects are laser-focused on their subjects. No waste, no fluff, no irrelevance. A SmartSphere® project delivers continually updated information on whatever the project has been defined to track. Some of that information is created in the good old-fashioned way, by experienced researchers and analysts. And some of it is created with 21^st century tools like automated news feeds and Web-based info services. Every time you log in to a project, there’s new information—freshly tracked events, new company alliances, new company and market comparisons, enhanced company, market, and technology profiles, and insightful Harbor commentary and analysis.

When you visit our SmartSphere® demonstration, you’ll see a limited version of our own “Pervasive Internet Suppliers” project. Bear in mind that the free demo offers limited information and functionality. The full “Pervasive Internet Suppliers” project, for example, was created to replace and improve our own earlier online publication, Pervasive Internet Report.

Custom SmartSphere® projects. Your secret weapon has arrived.
You’ve heard about some of our SmartSphere® projects. Now let’s talk about yours. Does your company have business development, M&A, R&D, or sales and marketing goals? We hope the answer is yes. How would you like “living business intelligence”™ on the companies that interest or worry you? Or on the markets and technologies that are defining your future? A custom SmartSphere® project is the perfect way to do that. “Living business intelligence”™ means research that is laser-focused on your targets, and continually updated for as long as you need it.

Any collection of companies, markets, or technologies can become the backbone of a SmartSphere® project. You define who or what they are. You define what you want to track about them, and how you’d like to rank or score or weight them. You define the types of cross-company or cross-market comparisons you’d like to see.

Take action and take control.
If you’ve read this much about SmartSphere® without clicking something, it’s time to click. Here are those links once again.

1. Visit our free, live SmartSphere® demonstration.
2. Download a brochure on the SmartSphere® research platform and services (PDF, 970 KB).
3. Download a brochure about our SmartSphere® “living research” projects on the M2M/Pervasive Internet phenomenon (PDF, 240 KB).