We’re at a precipice when it comes to the internet of things. Everyone loves prognosticating about the implications, but many are still unclear about how exactly IoT will impact their businesses. Still, it’s clear the tide is turning quickly. In a July McKinsey survey, 98 percent of respondents said most companies in their industry are planning enterprise IoT initiatives. And the two main areas where those companies plan to use IoT is in optimizing service operations and improving visibility into operations.
Since most companies are just beginning their IoT journey, those priorities make sense. The first question leaders ask is, “How can I use IoT to improve my company?” So the answers focus on the in-house operational advantages the connected technology can impart, which is why most use cases we read about today involve internal improvement: Manufacturers using sensor data to preemptively repair machinery before they break down. Warehouses employing fleets of autonomous robots, all communicating with each other to move goods around the facility. Utility companies installing smart meters to more effectively manage energy flow into buildings.
These operational enhancements will help companies become more streamlined and efficient. But the real upheaval that IoT will have is by transforming all types of companies into SaaS companies.
By collecting and analyzing data from all of their customers’ connected devices, companies can then offer additional subscription services — like predictive maintenance, track and trace, and performance management. According to the McKinsey survey, only 14 percent of respondents cited new product and service offerings as a top IoT priority. As more companies understand just how profoundly IoT can add to their bottom line, that number will increase dramatically. Here are a few examples of how this strategy is already playing out.
An industrial tire provider places motion, location, and impact sensors in each tire it sells. When its customers buy and start using these tires in the field, they generate reams of data as they operate. The tire company gathers and analyzes that information. Once it has enough historical performance data, it can offer a predictive analytics subscription service to future users. This new service will give customers visibility into whether their tires are operating at peak performance and when they are likely wearing down and need replacement, avoiding a costly flat and vehicle down time. And this SaaS service augments the tire company’s business model with a new, growing, and repeating revenue stream.
A steam generator manufacturer sells a small batch of units to a pilot customer, connecting them all through an IoT platform that exports the real-time status of more than 50 operational parameters to a machine learning model for three months. The resulting machine learning model quantifies some initial assumptions and creates some new insights for the operation usage. The steam generator company can now sell a monitoring service to new customers that improves serviceability with predictive maintenance, boosts supply chain efficiency with more accurate demand information, and lowers customer costs with demand-based performance. Here, too, the company adds an ongoing bump to its bottom line while also providing a valuable new service for its customers.
A conveyer belt producer provides belts to large logistics organizations, such as warehouses, distribution centers and airports. With one of its airport installations, it installs sensors on tens of thousands of belt feet, extracting usage data for a period of time. With the data crunched, the company can provide its airport customer with detailed information on run times, time outs, and start/stops, saving the airport substantially on energy cost, equipment replacement, and staffing protocols.
Each of these are examples of legacy companies that augment their go-to-market strategy by incorporating IoT into their product line. With connected technology, they can collect huge sets of performance data as their customers use their products. And, once enough data has been analyzed, they are in a unique position to provide additional value to their customers.
IoT-enabled subscription-based service models can add an ongoing revenue stream for companies whose business leaders – five or 10 years ago – would never have imagined entering the software and data market. And as we see with consumers of services like Netflix, end users will gladly pay for that additional service if it provides a tangible return on investment. If you’ve never imagined that your company could offer a data analytics or machine learning service, think again as you contemplate your future IoT strategy.
Bernd Gross is senior vice president of IoT & Cloud at Software AG.