In 2014, the Internet of Things (IoT) made the transition from nerdy esotericism to global phenomenon. It is especially desirable to manufacturing companies that want to connect their products and add new services. With the technology, companies can streamline internal processes, differentiate offerings, generate new revenues, or enhance customer experience. It’s no surprise that these companies can see the business potential. But to achieve success in the long term, they have to understand that IoT is not chiefly a technical enhancement, but an organizational one; the products don’t only have to change, the whole company does.
In this four-part series Robert Brunbäck, CMO at Telenor Connexion, describes why and how IoT is an issue of competence that cuts across a company’s entire organization, and what a company should bear in mind in order to enter into the ‘connected’ world. Each installment focuses on one of these four main divisions of a company, Information Technology (IT), Business Development, Sales & Marketing, and Customer Support, and how IoT is revolutionizing each.
Part Two – Business Development
Manufacturing companies often have a long, proud engineering tradition in which all business development takes place internally and quality is synonymous with the best possible product performance. The IoT turns this logic on its head. Even if the physical product still has an absolutely key role in a connected world, it is less and less the product itself that customers are willing to pay for. It is instead smart, often web-based services to which the user gains access via the product that generate the actual customer value. This is reflected in the customer’s willingness to pay. A machine might currently have a profit margin that has been forced down to 1-2%. Services relating to the same product, especially those that help the customer get those most out of using it, or predict maintenance and repairs, often have margins that are 5-10 times higher.
This is why GE is connecting everything from ships and trains to pinwheels and hospital equipment with sensors and selling the functions as services. It’s why Volvo Trucks are selling Uptime instead of trucks. To take a more local and less hi-tech example, it’s why Lantmännen is now offering Swedish farmers access to pellets via subscription services in which sensors in the farmer’s machinery automatically order new pellets as required.
Which market are you operating in?
The servicification that accompanies IoT is also re-drawing the map that defines companies’ markets. Sectors and industries are merging. Value chains are being short-circuited. Previously unrelated operators are suddenly entering into partnerships. And companies are acquiring businesses that (on paper) are totally unrelated.
Nest is a good example. It is a smart thermostat company that was acquired by Google last winter for SEK 23 billion. Very few people understood why at the time, but a massive new program with opportunities for third-party developers explained Google’s ambitious plans for the smart home. Now companies like Mercedes, Whirlpool, Logitech, Jawbone and Chamberlain are active partners – all with their sights set on assuming a central position in the new value network. This value network consists of products and services emerging from people’s connected homes. The aim is to have an ecosystem that constantly teaches itself precisely how you and your family are living, and provides a totally individualized user experience.
Beta is the new ‘Final’
Manufacturers have long cast envious glances at digital service companies for their opportunities to quickly and easily test their offerings directly on users. With IoT, manufacturing companies can start to do exactly this. And connecting a product doesn’t just mean that you can instruct it to respond to a given command. It also means that the product can tell you exactly when, where, and how it is being used; it can give you data to analyze. So instead of spending years and capital developing products or services in-house at the company (which it is by no means guaranteed anyone even wants), the company can launch decent beta products. These are then improved on an ongoing basis by means of analyzing data from actual usage.
This is nothing new for digital service companies. Facebook, for example, is constantly launching new functions in various parallel versions for different users in order to assess which one works best. Most of the Nike+ exercise wristbands and digital exercise services have been developed and enhanced by means of studying data from how people actually exercise. As Stefan Olander, Vice President of Digital Sport at Nike, puts it, “In the past, the product was the end point of the customer experience. Now it’s just the beginning.”
In the next series installment, Robert will be focusing on IoT’s effects on Sales & Marketing. If you missed out on Part 1 about Information Technology, you can find it here!