Apr 9, 2022

IoT Day: Strategy and Competitive Advantage

Over the past few years, the World IoT Day movement [1] has drawn considerable attention to the opportunities presented by IoT technologies. As the industry scales up, strategists will want to study long term and structural changes that will shape the market in years to come. This is important, both for organizations intending to adopt IoT and solution providers hoping to strike it big. 

Late in 2021, the strategy consultancy McKinsey updated its 2015 study and concluded that the IoT was coming of age [2]. If nothing else, the investment in making this update sends a signal that IoT is firmly on the corporate agenda. Firms need to treat IoT as essential to future business prospects. IoT is no longer a headline grabber, a discretionary investment, or a niche application. 

Connectivity Prevails 

Within the IoT supplier community, however, the focus remains on (IoT) connectivity. The industry is awash with reports about eSIM enabling switchable connectivity, edge deployments for localized connectivity, wider-area satellite connectivity, 5G connectivity and, the relative ease of connecting to hyperscaler platforms. Even the analyst firms frame the market opportunity in terms of numbers of connected device. 

The emphasis on connectivity addresses an immediate challenge. How can businesses connect and remotely monitor their field assets? Wide-area connectivity conveys the notion that early adopters can gain a competitive advantage. At the same time, it obscures the idea of strategic advantage. A timely illustration of this is the SigFox saga which sees the market visionary of the early 2010s, entering receivership and a forced sale of assets [3]. 

SigFox’s early success in providing low-cost, low-power, and small data payload connectivity began with applications to monitor advertising billboards. For organizations in keen to monitor remote assets, SigFox offered a competitive proposition. At the same time, it was obvious that the system would struggle to handle higher payload and more interactive use cases. Consider how the use of email in its various guises evolved over the past twenty years to understand the trajectory for IoT use cases over the coming decades. In 2020, SigFox’s executives recognized the required evolution from a connectivity to a data-oriented business model [4]. Evidently, this was not early enough to prevent SigFox’s troubles. 

Strategic Drivers and (temporary) Competitive Advantage 

As IoT Day celebrations draw attention to the value of IoT capabilities, now is a suitable time to reflect on issues of strategic vs. competitive advantage. The first insight results from EU initiatives to create a Digital Single Market, one consequence being its Digital Markets Act [5]. Right now, the priority is on defining rights for personal data and rules that would apply ‘gatekeeper’ platforms. Gatekeeper platforms have a significant impact on the EU’s internal market. They serve as an important gateway for business users to reach their customers and enjoy, or will foreseeably enjoy, an entrenched and durable position. This can grant them the power to act as private rule-makers and to function as bottlenecks between businesses and consumers. 

The gatekeeper business model will adapt, even if they are not EU-based businesses. There is a pattern for this in the way that businesses across the world and non-EU regulators are building on GDPR. This is inevitable in the United States, the home of many platform companies, partly because of their position of opposing domestic regulation. As this Brookings Institution story notes, the failure to develop American rules for the most powerful and pervasive platform in the history of the planet left the field wide open for others [6].

It won’t be long before rules being shaped in the EU apply to IoT (machine) and mixed (combinations of personal and machine) data. Interoperability – the ability for individuals to access and move their data across platforms – is an important theme. McKinsey’s report highlights it as one of a handful of IoT industry headwinds. Readers from a mobile communications background will be familiar with the technical details and benefits of interoperability for connectivity. This is what makes it possible to build networks using equipment from different suppliers. It also allows personal connected devices to roam across geographies and networks. Mobile communications standardization, as institutionalized by the 3GPP, evolves from one ‘G’ to the next through a series of releases. That offers a measure of forward visibility while setting the tone for continuous progress, a sentiment echoed by Henry Ford in 1926 [7]. 

Anticipate the Shift to Interoperability 

In the IoT domain, interoperability will supersede today’s focus on hardware and connectivity. This is obvious from looking at other large-scale, multi-user domains where customer expectations and regulatory pressure force the implementation of interoperability capabilities. Here is an example of how the evolution is playing out in Kenya’s extraordinarily successful mobile-money market [8]. 

There are many benefits to interoperability. IoT interoperability will enable cross-silo applications as well and multi-party models for controlled data sharing. Interoperability will also sustain outcome-focused business models that involve multiple parties. Examples include supply chain and multi-modal transportation systems among others [9]. 

 Platform-infrastructure providers, system integrators and solution providers from the open-internet economy are each staking out their position in the IoT market. Expect to see APIs as a way of addressing the interoperability challenge. However, the short-term convenience of APIs masks a strategic, lock-in risk. This is because users operate under the market power of the API providers. Users are also subject to private rulemaking in the form of technical capabilities and contractual terms that API providers offer. In the context of massive-scale industry, there are a shadow of the roadmap evident in the mobile industry. Moreover, as this article explains [9], open APIs are a start, but open standards are better. There’s a strategic lesson for solution providers and their users. Short-term competitive advantage from easy connectivity and on-boarding will erode over time. Without an industry-wide roadmap that adds to the connectivity element, users will find themselves re-engineering early deployments or switching to next generation platforms. 

[1] https://iotday.org/ 

[2] McKinsey: IoT value set to accelerate through 2030: Where and how to capture it

[3] Bankruptcy and $150m of debt – Sigfox’s American dream dies (as French sale closes) 

[4] How Sigfox hopes to rebound after becoming a cautionary IoT tale 

[5] Digital Markets Act: Ensuring fair and open digital markets  

[6] Brookings Institute: U.S. regulatory inaction opened the doors for the EU to step up on internet -  

[7] IoT Standardisation for Long-term Innovation 

[8] The Central bank of Kenya aims to compel Safaricom’s Lipa na M-PESA product to accept payments from other mobile money products 

[9] World Economic Forum: Unlocking Value in Manufacturing through Data Sharing

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