IoT’s Extreme Innovation: A New Service Architecture
A Conversation on New Services and Best Practices to Monetize the Digital Home
The connected digital – or “smart” – home and the “Internet of Things” have created opportunities for telecom companies and other service providers to enter into a new category of enhanced services, conveniences, and intelligent home ecosystems that anticipate needs and desires, often making repairs and adjustments before the homeowner even notices. Monetization of this bold new environment will depend less on the “things” on the Internet of Things and more on the intelligent service it enables.
The extreme innovation that the Internet of Things has enabled isn’t really about the “things.” It’s about the new services they enable.
Traditional business models focused first on products, then services. Today, those positions are reversed. The “things” have become smaller, cheaper, and vastly more intelligent. Implementation, installation, and the other mainstream value-adds that integrators and VARs have relied upon are often accomplished automatically or at a much lower cost, with up-front fees shrinking dramatically. Huge licensing costs have gone the way of subscription-based as-a-service models.
In the smart home environment, the “things” that add the intelligence are often invisible to the homeowner. Embedded sensors, hardware, and micro transmitters are just another part inside the garage door opener, HVAC system, house alarm, refrigerator, and coffee pot. Homeowners expect to pay for the services those devices enable, and this is where monetization opportunities lie.
IoT and a New Service Architecture
The technology that underlies IoT can be divided into four categories: the sensors – tiny devices that capture information, the communication networks that transmit that information, big data analytics that capture that information and derive meaningful results to make life easier for homeowners, and decision support platforms which can ultimately be used to resolve problems quickly, often before the homeowner realizes a problem exists.
The most powerful element of IoT is created on top of this four-component layer – an intelligent Service Architecture. Taking service to the next level, it transforms customer service from a cost center into a revenue center, and it becomes a focal point for new offerings, reducing churn, providing better customer service, and anticipating problems.
Making the Smart Home Smart
The digital home has undergone a significant shift. Just a few years ago, smart homes were expensive and appealed only to early adopters and those with high net worth.
Fundamental changes in the industry have brought smart homes to the middle class, largely due to technological changes that allowed for the development of smaller and lower-cost sensors and actuators that gather information from devices in real time. These tiny brains allowed for the development of single-purpose devices that could be offered to a second wave of customers that form the mass audience needed to achieve profitability.
In addition to sensors and hardware, the digital home works because of the further development of less-costly, cloud-based hub services through which those automated devices are able to communicate. An example of this is XFINITY Home, a service that has gained mass appeal – far beyond the early adopters.
IoT technology can be completely invisible to smart homeowners while they enjoy the enhanced services that IoT enables. And it’s driving a host of new services from telcos, cable providers, and other as-a-service cloud providers.
The new affordability of the digital home benefits the consumer – and presents new opportunities for providers – as demand for IoT-driven services increases.
“Many categories of connected things in 2020 don’t yet exist. As product designers dream up ways to exploit the inherent connectivity that will be offered in intelligent products, we expect the variety of devices offered to explode.”
Peter Middleton, Gartner, December, 2013
Where IoT- Driven Services are Changing the Game
Not only does IoT create a framework for discrete connected environments – the connected home, car, office, even connected cities – it establishes a foundation for them to be connected to each other. Rather than each environment operating in a vacuum, a fully-connected IoT world is emerging.
For example, the connected car will know when your workday is over and when to start your engine and head for home. The car alerts your connected home to ensure that the heat is turned on fifteen minutes before you arrive. What’s more, your car is able to interface with the connected city for real-time traffic updates to estimate your arrival at home. At the same time, upon sensing a traffic jam ahead, your connected car can send an automatic message to your babysitter that you will be arriving late.
The uses of an intelligent service architecture built on IoT are endless. A popular example is the Nest smart thermostat, a simple and affordable device for managing energy. Installed in over a million homes, Nest gives utility companies a valuable tool to better understand energy usage, thereby creating an opportunity to deliver better service and lower rates.
A View from Wall Street
In a 2014 equity research report, Goldman Sachs Group cited five critical early verticals of adoption as the best examples of what IoT can deliver: wearables, cars, homes, cities, and industrials.
“The IoT building blocks will come from those that can web-enable devices, provide common platforms on which they can communicate, and develop new applications to capture new users,” the report noted.
Three other points made in the same report:
- Enablers: “We see increased share for Wi-Fi, sensors and low-cost microcontrollers.”
- Platforms: “Focus on software applications for managing communications between devices, middleware, storage, and data analytics.”
- Industrials: “Home automation is at the forefront of the early product opportunity, while factory floor optimization may lead the efficiency side.”
Source: The Internet of Things: Making Sense of the Next Mega-Trend, Goldman Sachs, September 3, 2014
Navigating the Competitive Landscape
The Internet of Things has entered a sweet spot in time. The technology is robust, proven, and has achieved broad appeal. The number of potential uses for IoT has increased and inspired innovations and entrepreneurship, all aimed at delivering a range of new and affordable consumer products and services.
As with all major technology disruptions, competition will be ubiquitous, and success will depend on the ability to envision and roll out unique smart services, and utilize the big data collected by IoT devices to forge strong customer relationships.
Current players have been quick to bring new and competitive offerings to the table, but the market includes an ample number of startups and entrepreneurial ventures. Incumbents have the advantages of war chests of cash and existing industry partnerships, but many exciting innovations are expected to come from startups.
Forging Ahead with New Service Offerings
The biggest challenge faced by telcos and other providers to deliver IoT-driven services is a fundamental change in mindset, followed closely by innovation and new strategies. Instead of viewing services as a cost center, companies should think of them as revenue generators. And, in order to create those service-driven revenue streams, companies are required to act swiftly and boldly.
According to Capgemini, 70 percent of organizations are not yet generating revenues from their IoT solutions.1
There are still obstacles to overcome. For example, privacy concerns can complicate matters, while consumers remain worried about the transmission of personal data. If companies provide education in a straightforward and transparent manner, consumers will begin to realize that the data being transmitted is largely use-based and will ultimately deliver better services to them.
New standards for interconnected services are among the other challenges that have not yet been fully resolved. To reach its full potential, IoT must be able to connect more than one thing or one household full of things. All things that touch the consumer should have the ability to connect. To meet this challenge, new platforms are emerging, but the capacity for any IoT solution to easily integrate with other third-party systems will be essential to the development of new service layers.
How Big Data Drives New Services
Big data alone means nothing. More important is relevant data. Early on, big data trends focused on accumulating as many data points as possible, without a specific purpose, and employing analytics tools to spot trends. There is a certain amount of value in this method, but the better approach – one that yields more useful results and new applications – is to begin the big data process with a goal in mind, focusing on accumulating the right type of data, and using it to find solutions to specific problems.
IDC reports that, by 2020, Internet of Things will generate annual sales of $7.1 trillion2, and Cisco predicts that, by the same time, there will be over 50 billion connected devices.3 How can companies capitalize on this value? Certainly, manufacturers of embedded devices that put the “smart” in smart home have a rosy future. But the bulk of that $7.1 trillion won’t come from selling tiny embedded sensors to the manufacturers of home devices, or even from the devices themselves. The big revenues will come from services.
The trend is moving towards using big data as a means of getting closer to the customer. According to a report funded by IBM, 93 percent of communications service providers will focus on “getting closer to the customer” over the next five years, and 70 percent will concentrate on improving collaboration with other organizations in their ecosystem.4
While tremendous innovations in services have already been delivered, a different world will emerge in five years as a result of increased innovation in within the IoT. The same IBM report5 offers the following predictions on how IoT will change the way people live, and enable a new set of services that will evolve the nature of IoT, interactivity, and the smartphone experience.
- Touch. New surfaces will allow users to touch “through” the smartphone, enabling a new set of applications that are literally hands-on.
- Sight. Visual big data will allow computers to gain a deeper understanding of images on the screen, with new applications that understand the context of images. The potential for medical applications and highly individualized services are endless.
- Hearing. Today’s television commercials that show people talking to their smartphones aren’t very realistic, but that may soon change. Newer sensors will allow computers to “hear,” gathering sonic information about the user’s environment.
- Taste. Cognitive systems will create new recipes that appeal to the user’s sense of taste, creating optimized menus for each individual, and automatically adapting to local ingredients.
- Smell. Will your computer be able to smell your surroundings? IBM says yes. Healthcare facilities will be able to use scent to detect infections, sniff out bacteria, and detect the chemical composition of substances.
Five Best Practices to Stimulate IoT Services Revenue
Today’s business has shifted towards shorter up-front and longer periods of subscription, service-, and maintenance- based revenues.
- Establish and maintain long-term relationships that work to the benefit of the customer and create new revenue opportunities for service providers. Earlier practices focused on front-loading the revenue stream, but today’s business has shifted towards shorter up-front and longer periods of subscription-, service-, and maintenance-based revenues. The traditional model allowed a provider to focus on a single big push at the beginning, then relaxing once implementation was complete. Unfortunately, doing so often resulted in a client who came to feel ignored and neglected. Newer ways of doing business encourage providers to change their way of thinking about their customers, to deliver a steady stream of services, and to provide them with continuous and long-term attention.
- Mine and leverage customer-specific big data. Discovering long-term service revenue opportunities within the Internet of Things paradigm involves more than providing basic ongoing maintenance and service. Telcos and other providers must devote their entrepreneurial energy towards creating and delivering new services designed to make their customers’ lives better. These opportunities may be discovered in a creative brainstorming / instinctual way, but in order to be effective, they require a foundation in big data and analytics. The beauty of big data is not found in the tremendous volume of information that can be held. Rather, the greatest potential of the big data and analytics environment is in finding the small groups of highly meaningful data (the needles in the haystacks) that tell providers exactly what their customers need, often before the customers know it themselves.
- Engage in new ways of selling. A service-driven IoT environment requires an entirely new type of sales structure. In the past, a sales organization focused primarily on the initial sale, and customer service was secondary. Today’s environment, which is increasingly delivered on an as-a-service basis, requires the sales cycle to be reconsidered, with a greater focus on continuing services as revenue generators that make up a larger percentage of total income. As more service-focused sales organizations emerge, the nature of sales forces will adapt to the change.
- Ensure that customer relationships take on a different character. Deeper relationships no longer depend on the existence and good will of gregarious salespeople who know the right jokes and remember birthdays. Instead, a more scientific approach relies on big data, enabled by IoT, to collect vast quantities of information about customers, what they want and need immediately, what they might want and need in the future, and what they already have. Gaining a critical understanding of what is in the customer’s home, how it is being used, and how customers interact with that – along with information about what’s working and what’s not – will serve the customer better, and reduce churn while increasing per customer revenue.
- Focus on innovation. The first phase of IoT included early adopters with a heavy concentration on technology. IoT is now in its second phase, which involves the creation of more innovative IoT-driven services. Unlike earlier services that were considered an extension of a primary product, the services themselves have become the primary product. Today’s developed services are based less on instinct and more on scientific data gathered from the big data that underlies IoT.
Operational Efficiencies Achieved
As the primary focus is directed towards developing new revenue-generating IoT-enabled services, it should not be overlooked that IoT and the related big data will inherently drive operational efficiencies that contribute to the bottom line.
In addition to providing new services to customers, forward-thinking enterprises will “eat their own dog food,6” and use their own big data and IoT platforms to refine their own operations.
A second set of drivers involves productivity and cost savings, which may reduce capital expenditures and labor, and possibly cut energy costs. For example, utilities are using smart wireless readers to get more accurate readings from homes, lessening the need for human meter-reading. In addition, Verizon saves millions of kilowatt hours every year by deploying wireless sensors throughout their data centers, reducing significant amounts of greenhouse gasses.
Adopting a New Customer Service Architecture
Providers who want to aggressively monetize the Internet of Things must significantly transform the customer experience to succeed. This is not solely a matter of pleasing customers in an abstract sense. Making the shift will impact the bottom line in a very real way, opening the door to new professional services, value-adds, cross-sells and up-sells – all of which will offset the lower up-front charges that cloud and as-a-service providers have become familiar with.
The biggest factors in developing new services that will contribute to the bottom line in an IoT environment are:
- Taking full advantage of the big data that is a natural part of IoT.
- Re-thinking the customer relationship.
- Using a foundation that includes intelligent customer service architecture.
Today’s customer service architecture is more than a simple value-add. It is a revenue-generating business mainstay and has become an essential contributor to the bottom line.
Value Creation for IoT Services
Services driven by IoT often contribute to the creation of strong customer intimacy. The big data foundation of IoT is the strongest driving force behind its increase, sometimes collecting millions of data points that can be analyzed to support the customer in ways that have never before been possible.
For example, an intelligent customer service architecture – now enabled by IoT – allows for greater knowledge about the customer’s needs and desires, facilitating more opportunities for cross-sell and up-sell. In addition, this heightened level of customer intelligence allows for the discovery, cultivation, and dissemination of many new types of profitable services.
About Digital Service Cloud
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An early leader in fulfilling the potential of the Internet of Things, iYogi is a global software and services company providing solutions to consumers and businesses across the world. With a growing global footprint, iYogi services are available in 11 countries including the United States, the United Kingdom, Canada, Australia, UAE, the GCC, India, and Singapore.
Leveraging its proprietary Digital Service Cloud IoT platform, iYogi delivers support to millions of customers globally and its services are available on a 24/7 basis, 365 days a year. Learn more at: www.iyogi.com.