Manufacturers of connected products need to get their ROI calculations in order if they hope to profit, says new report.
Despite the barrage of headlines about IoT security – or the lack of it – it isn’t the biggest challenge faced by companies looking to launch connected products, at least to their minds. A far tougher task, in fact, lies in getting a return on investment (ROI), according to a report out this week from Canonical, the company behind the Ubuntu operating system.
The report, which surveyed over 360 IoT professionals including developers, technology suppliers and enterprise users, highlight that over half (53 percent) believe that “quantifying ROI and providing a clear use case” is their most immediate IoT challenge. The need for improved device security comes in second place, cited by 45 percent of respondents, while in third place is a lack of available infrastructure, cited by 40 percent.
Business case complexity
It’s an interesting study, because it looks specifically at the needs of companies that are under competitive pressure to launch connected products and services and the complexity of building a business case that provides an effective launchpad for doing so. Here, there is much complexity to be found.
Much is made, for example, of the falling cost of hardware components to go into these products, which certainly lowers the bill of materials (BOM) associated with creating them and, in theory, should increase profit margins. But the reality is very different, says the report, because commoditization means that the price that end customers are willing to pay for connected products is also falling.
“This leaves hardware vendors with little choice;” says the report. “[They can] either choose more expensive custom components with a price premium and serve less price sensitive, niche markets, or use commoditized components and try to differentiate.”
Other revenue streams
As a result, many must look to other areas to make their money, beyond the simple, one-off sale of a piece of kit – and more specifically, at the ongoing revenues that this product might generate once in use by customers. In other words, profits will increasingly be driven by services and software, such as value added service and maintenance, for example.
Similarly, product enhancements, delivered by the manufacturer to the customer, ‘over the air’ from an app store, for example, might be another source of revenues.
There’s also the role of data to be considered: what great new insights about customers might be gleaned from analysis of the data the product generates and how might those insights be turned into cold, hard cash?
A major mindshift
All this, of course requires a major mindshift by manufacturers – and that’s a significant stumbling block for many in calculating ROI. Beyond that, there’s the cost of the skills and infrastructure needed to monitor and manage a connected product effectively throughout its lifecycle, as well as the considerable security risks that will need to be mitigated by any responsible provider.
“The early internet of things was something of a gold rush, with vendors and developers jumping in to secure their share of an exciting and rapidly growing new market. Unfortunately, many of these businesses simply didn’t understand or evaluate how the IoT was going to deliver value – and apparently – the majority still don’t,” said Mike Bell, executive vice president of IoT and devices at Canonical.
“As we move towards 2018, businesses are looking for new ways to ensure that their investments in the IoT are driving financial growth and that their business models will remain sustainable in the years to come,” he added.