IoT Think Tank
Not All that Glitters Is Gold: Making the Business Case for IoT
The ability to do something is not reason in itself to do it. Every IoT project needs a good business case behind it.
- By Clive Howard
- May 5, 2015
The Internet of Things (IoT) enables a vast number of new possibilities for individuals and organizations. IoT is about lowering the barriers to entry into a world traditionally dominated by a few. The ability to use sensors to collect actionable data is something that historically has been the preserve of embedded systems and M2M companies. For decades they have delivered solutions that often take many years of design and development at great cost and require specialist skills. Consider jet engines, medical devices or on a larger scale power stations.
Through high availability and low cost of new sensor hardware that connects easily to the Internet, this capability is now available to all. The hype is everywhere and we're seeing examples of IoT coming out of every industry with a heavy focus on startups and their potential to disrupt markets. Like the Internet at the turn of this century, many businesses may be thinking that they need to be part of this phenomenon. But what all organizations need to remember is that the ability to do something is not reason in itself to do it. Every IoT project needs a good business case behind it.
Producers, Providers and Enhancers
As discussed in previous columns, what is meant by IoT is incredibly broad. For some it may mean wearables like the new Apple Watch, whereas for others it's a new medical device like OrthoSensor's Knee Balancer. More commonly these different groups of use cases are referred to as either Consumer IoT or Industrial IoT. According to figures from the likes of Accenture and Cisco, the value of Industrial IoT will overtake consumer IoT this year. That's not to say that consumer IoT won't see good growth as well. But Industrial IoT is where we're seeing the most significant value being realized.
Across IoT we see three roles into which organizations could fit. We're referring to these as Providers, Producers and Enhancers. Providers are those who create the foundational elements for IoT solutions -- the hardware makers and software platform providers and so on. Examples of a Provider are ARM or 2lemetry. Producers take what Providers offer and design and build actual IoT solutions. Producers are the ones who will create the products and services that collect and process data. Apple or OrthoSensor are Producers. Enhancers will build upon the solutions created by Providers. Primarily we'll see Enhancers utilizing the data coming from IoT sources, perhaps by combining multiple sources, to add new value and create new services. An organization could fit into one or more of these roles and operate across both consumer and industrial IoT.
More Money or Less Cost
All of this means that the potential for organizations with regard to IoT runs far and wide. Whatever the solution, success will come down to the value it provides. When looking at building a business case for IoT, they generally fall into one of the two traditional buckets: new revenue or cost reduction. On the new revenue side, we have examples of new solutions being brought quickly and cheaply to market: Philips Healthcare's service for monitoring a patient in their home; the UK energy supplier, British Gas's Hive smart thermostat; or Black and Decker's new tools that can flag when a tool is missing and identify its location.
However, the majority of solutions that we see are about reducing costs. The GE engine on the new Boeing which communicates with engineers via an enterprise social network reduces maintenance costs and extends the products life. SAP and SK Solutions are using sensors in construction cranes combined with weather data to avoid wind-related accidents. The SAIA fleet tracking solution takes data from vehicles, such as their route and weather conditions, to reduce fuel costs. The list of case studies where IoT is helping organizations to reduce costs is long and fast growing. Most organizations will probably be able to find some similar use case to build a commercial case for.
Then there are the examples that one might say fall into the bucket of serving the greater good. Precision Agriculture is using sensors in farm land combined with aerial drones to identify exactly when crops need watering and how much water to use. The results are significantly less water usage and better crop yields. Yes, there's revenue to the service provider and a reduction in cost for the farmer, but being able to produce higher crop yields with less water can have an impact in certain parts of the world that's far greater than monetary.
What's important to note, however, is that in all of these examples the value isn't in the hardware or software. The value comes from the data that's collected and the actionable insights that can be derived from that data. The value in IoT and therefore in any (or at least the majority) business case is in the data collected.
Considering the Costs of IoT
The subject of data brings us to the first consideration when building a business case. Data is where the value lies, but data costs money to move around networks (whether cellular, Wi-Fi or even LAN) and costs money to store. The cloud may reduce these storage costs in some case but there's still cost. Therefore one has to consider carefully what data is actually required and then what costs are involved. Just because it's possible to collect 100 different data points doesn't mean it's necessary or wise, and if it is necessary, then does the cost outweigh the benefit? Of course, data can also generate revenue. We're already seeing organizations that are collecting IoT data and making that data available for sale.
The next consideration for the IoT business case is the cost of the solution itself, especially for producers. As outlined earlier, IoT is all about lower costs of hardware and software because of cheap, often standardized components (such as Arduino) and the use of the Internet and related open technologies (HTPP and RESTful Web services, for example). But while many of the cheap hardware kits and software solutions are great for fast and low-cost prototyping, they're usually no good for production. Building a device that can be manufactured at low cost, small and at scale and potentially run on very low power for long periods comes with certain costs.
For example, the skills of a system designer will probably be required to shrink down a prototype the size of a shoe box to something the size of a coin. Then there are standards and regulation compliance. Putting a device into certain environments will require that it meets industry standards. There's a cost to that process and some report those costs are rising because of the flood of new devices as a result of IoT. Standards bodies are having to be extra rigorous to ensure compliance, especially where safety is concerned.
New Ways for Suppliers and Customers to Engage
Finally we are seeing IoT change the way in which companies and customers engage. Most notably there's a movement towards X as a Service (where X can be anything). Because the true value in IoT is data it is the provision of this data that customers want. Whereas once a supplier may have made money selling the physical device that collects the data now they are selling access to the data coming from the device instead.
This concept is not new; anyone in the airline industry will have been aware of power by the hour for many years. In this model, airlines pay for jet engines based on usage rather than a big upfront cost. The benefit of the XaaS model to customers is that it spreads the cost. To suppliers it creates a constant ongoing relationship through which they can potentially sell new solutions. This is much better than the occasional interaction of the old product sales model. No doubt we will see other engagement models emerge from IoT.
IoT will present possibilities for many organizations but in all cases there should be a well-thought-through business case. This will consider not just the obvious potential benefits but the costs as well. None of this is new, but it's easy to sometimes get carried away with the hype and believe that anything IoT automatically has value. At the moment, we're seeing a lot of success, but the failures will start to come. In the consumer market, we've seen wearables struggle, the demise of Google Glass and reports of problems at Nest. Some of these may be the result of something seeming clever but which actually didn't have a sound commercial case behind it.
Clive Howard is Principal Analyst for industry analysis firm Creative Intellect Consulting and a technology consultant and entrepreneur focused on delivering expert guidance on software and systems delivery in a connected world. Clive can be reached at [email protected]. Read more from Clive on the Creative Intellect Consulting blog.