Interconnected

With GE and Juicero, the Internet of Things world has taken a battering this week

It's been a rough week for business and the Internet of Things.

Industrial IoT

On the industrial IoT end of things, GE - which has bet on "digital industrial" in a big way - has scaled back its target revenue in this space from $15 billion in 2020 to $12 billion. With industrial IoT we’re talking applications like remote monitoring of wind turbines, improved construction equipment utilisation, and smart power grids.

Even GE’s adjusted numbers are massive, but as Stacey Higgenbotham's analysis explains, the adjustment shows that industrial IoT isn't a problem that can be tackled as a horizontal platform play. She gives a couple of related examples, including

Samsara, a startup that formed in 2015, aimed to build a wide-scale industrial IoT platform that started with generic sensors. It has since narrowed its focus to fleet monitoring and cold-chain assurance, which is how some of the earliest users of its product used it.

For me, this is a healthy shift. The technology behind the sharp, physical end of the Internet of Things is stabilising but still in flux. And I mean everything: data centres, connectivity, monitoring tools, security, provisioning standards, and so on. For a company like GE, building platforms in a fast-changing platform ecosystem is a long way from core competency, and not a good place to be.

Instead, as I've said before, focus on applications. Provide real business value with whatever platform tools are at hand, and leave room to hop technology as and when.

Consumer IoT

Widely mocked startup Juicero is shutting down. Juicero raised $120MM to sell a $400 home juicer. Not any fruit; only proprietary Juicero packets. Using IoT technology to keep the consumer channel open, the projected lifetime value must have been enticing to investors. But the product made a number of missteps: a little too keen to tap that recurring revenue, it wouldn't work without wi-fi.

Despite this news, I remain convinced that

  • the smart home is interesting again now the platform wars are over
  • connected products should be seen as channels open for constant communication between the brand and consumer: in the future, all FMCG brands will be like Nespresso

However, we can take some lessons.

If the Juicero juicer is really a channel, not a product per se, shouldn't it have been managed by a brand strategist -- someone sensitive to the latent meaning of the product features (and anti-features) for the audience, and their impact? My hunch is that, with just a couple of small changes, Juicero would have felt high-value rather than money-grubbing.

Marketing matters!

(And if you need to be convinced, read Russell Davies on the iPhone TV ads and his concept of pre-experience design.)

With my startup hat on, I can see the reason to charge for the machine. For the consumer however it's simply paying to have the privilege of paying more. There's an equitable balance to be found, I'm sure, but maybe this the best it gets for business models in consumer IoT: there are nice businesses to be built (maybe even at scale like Nespresso), but they will always be a hard slog and never have the margins of a pure software play.

But but but. I remain positive:

As the Reverend of Revenue says, profitability means you can own your own destiny. Could Juicero have sought to build a business that worked small and allowed it to fund its own growth? And on that platform, for hardware startups, could there be discovered the scale of the non-hardware Silicon Valley-style startups? That was the Amazon playbook, after all.

Enterprise IoT

The ideal business model for consumer IoT remains elusive.

I ran the R/GA IoT Venture Studio earlier this year centred around what we dubbed Enterprise IoT, that sweet-spot which offers real business value like industrial IoT, but with the productised scalability - and faster route to market - of consumer.

The native business model of Enterprise IoT is hardware-enabled SaaS. The software-as-a-service mindset is cribbed from the online world, and it's not just a pricing model but a whole set of techniques about marketing, pricing, metrics, and growth. It's neat because it means recurring revenue, and that matches the cadence of the recurring operating costs necessary for these kind of server-heavy data businesses.

What "hardware-enabled" means is that although the hardware is necessary (it's a sensor, or a camera, or whatever), it's not core. It can be commodity. To take two examples from the recent Venture Studio, we worked with Winnow which is enabled with a smart food waste bin in the commercial kitchen, but provides ongoing value (and charges monthly for) the intelligence that produces. And Hoxton Analytics which monitors pedestrian footfall using machine learning. It uses commodity web-connected cameras (from Cisco) but, again, is primarily a data play providing ongoing value.

I’ve seen close-up how these hardware startups are able to focus on their true differentiation -- which isn’t the hardware.

Another benefit of this model is that these startups have customer retention literally bolted to the wall, yet they’re able to sidestep the friction and risk of custom hardware development and batch production.

Back to consumer

So if hardware-enabled SaaS is the model for Enterprise IoT, could there be a similar flip for consumer?

My instinct is that there's a freemium-like model to be found. Popularised by LinkedIn, freemium was the realisation that - with a digital service - 5% paying of a massive customer base is better than 100% of a tiny one.

This wouldn't quite the same for consumer, but imagine a fictional Juicero (to stick with that example) that was a great juicer for any fruit -- and also the ability to "upgrade" to a hassle-free monthly subscription of more exotic juice packets.

Of course LinkedIn innovated on both revenue and distribution simultaneously. It wouldn't have worked without the viral traversing of your address book. Consumer IoT hasn't yet discovered its virality, and that's a challenge.

Where next?

Conspicuous setbacks like those above damage confidence in the Internet of Things, but they're part of the process and it's important to learn from them.

IoT is an enabler, not a feature. Like machine learning, it's an interoperating set of technologies and approaches that opens doors in all kinds of sectors. For IoT, the immediate value is in bringing the dividends of the 50 year digital boom right into the real world.

This is a challenge for the business world (for corporates, for investors, and for founders) because there's no guarantee that (a) existing business practices will remain intact; or, (b) lessons learnt about the Internet of Things in one sector will translate to a second.

So what to do if you're in that world? Watch, learn, experiment, and share. It’s how we get through the idea maze together.