Value and profitability are playing a new game of hide-and-seek. They’re still there, but not where they used to be. If you keep looking in the old places…well, you know what’s going to happen.
In our continuing research and consulting work in the IoT arena we have found that, with few exceptions, “hard” technologies will tend to be declining profit activities even though literal growth can be enormous. Sustainable profits, on the other hand, will grow from a new generation of software tools for data management, analytics and intelligence—coupled with smart managed services.
Buckminster Fuller saw this general phenomenon decades ago and called it “ephemeralization”: the tendency of evolving technology to become less and less material. More brains, less brawn; more metaphysical value, less physical value. At one point in human history, you have the Egyptian pyramids—perpetuity via lots of brawn (mass). Many years later, you have the Eiffel tower—Less brawn (mass), more brains (laws of physics). In information technology, the exponential miniaturization of integrated circuits and the virtualization of many software and data management functions are obvious examples of “emphemeralization”.
In the era of Smart Systems and the Internet of Things, there will be nearly infinite potential applications for cheap, embedded, self-organizing sensors. Their widespread adoption is inevitable. But that doesn’t mean that every market participant will automatically be shaking a money tree.
We think that profitable vendor activity in Smart Systems will replicate the tendency we’ve seen for decades in digital technology and more recently in other kinds of product businesses—less and less physical value (hardware and products), more and more metaphysical value (data and services).
Where will the investment flow in Smart Systems over the next five-plus years? It will likely be into a mix of traditional IT and network infrastructure technologies, coupled with new investments in core Smart System technologies focused on leveraging data and interactions. We expect the rate of investment in new IoT technologies will be significantly higher than in maturing IT infrastructure.
Everyone is coming to recognize that “it’s the data, dummy”.
But let’s stop and put this discussion into a market evolution context. To date, remote services and machine-to-machine systems have largely been focused on what we call “simple” applications, such as remote monitoring and simple tracking and location services—in large part because of technical complexities and business model challenges.
Existing technology has proven cumbersome and costly to apply, with many conflicting protocols and incomplete component-based solutions. The challenges of developing applications and integrating diverse devices onto networks in an interoperable manner have been big adoption hurdles. Market development has for many years been stuck in low gear.
Returns from simple applications, while extremely valuable, are limited to the device manufacturer’s service delivery efficiency. Contrary to what current market offerings depict, however, the value of connected products does not have to end with simple applications focused on after-market support for a single class of device or machine.
As technologies mature and open standards become the norm, applications based on deeper, peer-to-peer interactions between devices, systems and people will drive more dynamic value streams. This opens up new collaborative business model opportunities that have the potential to drive much greater impact for the customer.
These collaborative solutions are what we call “compound” applications, and they are the real promise of the Internet of Things. Compound apps are fully integrated systems that cut across multiple participating equipment and device vendors and service providers. Imagine a fully integrated 200-bed hospital that integrates hundreds of brands of equipment, sharing and leveraging data to optimize patient care; or take just about anyone’s vision of a smart city. Both examples are a far distance from simple after-market support monitoring.
Moving from “Simple” to “Compound” applications involves multiple collaborating systems with significant interactions between and among devices, systems and people. No longer is the focus solely on the product supplier’s ability to deliver support for their product efficiently. Rather, value is brought to the end user and customer through integration of multiple parallel ecosystem participants, as well as from business process automation and optimization.
Compound collaborative applications, deployed across enterprise and public-sector systems, will set the stage for expanding value from large-scale data integration, analytics and intelligence.
This is where the real value and profits will reside in future Smart Systems solutions.