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Making the Jump to the Internet of Things

IoT adoption is speeding up. It’s time to get ready.

From real-time adjustment of production processes to tracking of vehicles, from monitoring of electricity, gas, and water consumption to remote health monitors and predictive maintenance of costly equipment, possibilities for IoT applications abound. The value it will eventually create may be almost unfathomable—like a second internet, some analysts have said.

But it won’t come cheap. By 2020, we estimate, investments in the Internet of Things will grow to 250€ billion a year. Half of that spending will be concentrated in discrete manufacturing, utilities, transportation, and logistics, and focused largely on services (60€ billion), applications (60€ billion), and connected things (50€ billion). Communications, security, analytics, and infrastructure will each take 25€ billion or less of the IoT pie, according to our analysis.

Such serious investments demand serious forethought. With 2020 only three years away, it’s important to start asking hard questions about what IoT strategy you should pursue and what steps you will need to take to implement it.

Bumps in the Road to the IoT Future

It’s easy to be skeptical about IoT. After all, forecasters have been talking about IoT for a long time now, with vendor after vendor promising that a connected, efficient future is just around the corner.

Now, however, it finally seems to be happening. Slowly but surely, most of the technical hiccups are being resolved.  IoT engineers have thought through solutions for many of the security issues. They are also developing lighter, more energy-frugal sensors that make smart tracking easier. An increasingly savvy industry is now supporting companies as they integrate IoT’s six-layer technology stack into their legacy systems.

Profiting from the Internet of Things

There is still a lot to work out, from analytics and applications to decisions about the right kind of platform and connected things. However, for many companies, the hardest part of IoT is learning how to apply it profitably. Most companies say they are still working on a new business model to capitalize on the greater insight IoT applications will give them into their customers and the performance of their offering.

For manufacturers, this exercise will probably come down to reimagining value in a way that focuses on outcomes rather than outright sales. Outcome-based guarantees have proven popular with both industrial and retail consumers in the past, but were not always easy to deliver profitably. Fortunately, the interactive nature of the connection, which will enable the product to become more intelligent over time, and the granular lifecycle knowledge IoT can yield, will make this kind of brand promise easier to sustain.

For consumer-focused companies, this subscription model will undoubtedly be important, but, as with the internet, the consumer data itself may become so valuable that it leads to a reassessment of the rest of the pricing equation.

For telco service providers, IoT presents an existential conundrum. Billions of IoT devices, generating exabytes of data, are projected to come online, creating unprecedented demand for connectivity and new telco services. This will put increasing pressure on current network infrastructure and capacity with no clear pathways for companies to monetize the new bandwidth and quality of service demands.

To address these challenges, telcos are rolling out more advanced networks with software-defined networking and network function virtualization features, deploying IoT specific networks (including LP-WAN), and planning 5G rollouts that promise much greater bandwidth. From this new foundation, some telcos see themselves evolving into high-volume, low-cost commodity connectivity providers. Others are investigating higher-margin alternatives, experimenting with new business models such as vertically integrated IoT application stacks, platforms as a service, and managed services offerings.

For technology players, the three driving priorities will be to forge long-term partnerships with industry leaders, define the right use cases, and establish vertical solutions. In the increasingly crowded IoT arena—including enterprise software and service companies, IoT startups, industrial technology providers, digital natives and telcos—the players need to go beyond standard products, professional services, and initial IoT deployments to gain meaningful market share and a stable margin. For now, three use cases are currently driving IoT adoption and growth and will continue to do so through 2020: predictive maintenance, automated inventory management, and self-optimized production.

These technology players also need to pay special attention to integration. IoT customers are looking for end-to-end solutions. The layers of connected things, communications, backbone, and security must work seamlessly. Technology players don’t necessarily need to own all the components, but they do need to be a core part of an IoT ecosystem and they will need to be part of any go-to-market plan for end-to-end solutions in their space.

Logistics of IoT Integration

Of course, working out the intricacies of such a new business model will be much more complicated than simply gluing a sensor to a box. It may entail hiring a variety of specialized developers and analysts, and it’s likely to extend far beyond the IT department. For example, if the focus of the business is on service rather than sales, account representatives may need to be retrained and sent to different stages of the lifecycle. The finance and legal teams may also need to be brought in, if leasing proves to be a more valuable option than outright sales.    

On top of this, many companies will need to choose an IoT platform. Some providers are focused on serving particular verticals while others focus on serving a particular layer of the IoT stack. This is a thorny decision with no easy answer. In the end, the right vendor will own the platform that best suits your budget and business needs, and accommodates the complexity of your legacy IT system.

Questions to Ask About IoT Adoption

As with most major technological transitions, the mass adoption of IoT will produce both winners and losers. Where your company ends up after this revolution may depend on the questions your team asks now. Here are some of the questions you should be asking:

  • Which of our current processes could be more efficient if we added IoT? What risks could be reduced or aspects of customer service improved?
  • If our offering were suddenly brought to life, what information would it most want to tell our customers? How could IoT deliver that insight?
  • What outcomes does our offering create? Is there a way we could guarantee performance through IoT and then turn our offering into a subscription service?
  • Who is in charge of our IoT initiative? How will we measure whether that manager has done a good job?
  • In addition to an IoT platform, what kinds of talent will we need to make our IoT projects work? If we don’t have it, how do we plan to find it?

The answers to these questions should form the foundation of your IoT adoption strategy.

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