When the Internet of Things Doesn't Make Sense

IoT is hot, it’s trending, and you would think that there is no product in the world that does not merit being IoT enabled.

One is then reminded of the old saying: Just because something can be done does not mean that it should. Certainly, the potential value proposition for IoT can be huge. It can drive the creation of new companies, improve efficiency, and create new value propositions for companies with mature products. But there are considerations for where the IoT may simply not make business sense.

The Value Proposition Is Not There

Here is an example of a bad value proposition: One can create an IoT solution around a coffee mug, e.g., one that senses how much coffee is left in the mug and the temperature of your drink. The mug can be location-aware. This data can then be wirelessly communicated to a cloud system that is connected to other web- and server-based data sources.

At the server, the location and mug status (volume, temperature) can be combined with other GPS data to now link the mug to the nearest available service provider to deliver more coffee. This would trigger a concierge, who gets a message on a smartphone app telling him to go to the mug’s location and refill it with fresh hot coffee. It is the Uber Coffee Mug.

Ridiculous premise, right? Of course one could create the Uber Coffee Mug — it is technically achievable. However, it is unlikely to create sufficient value to warrant development. You can likely find many cases out there where investments are being made and products are being developed with very dubious user value.

The Cost/Benefit Trade-Off Is Unattractive

There is no way around it. An IoT-enabled device (and solution) will cost more than a “dumb” device. While costs for the hardware elements are dropping, they still represent an increase in bill-of-material cost. In addition, the cost and time required to create an IoT solution is significant and often underestimated. Any of my peers who have tried to provision a wireless device onto a carrier cellular network know what I mean. A successful IoT solution requires hardware technology and integration, as well as significant software development and data analytics expertise.

If a company is going to make this investment and greenlight the increased product expense, is there enough value to the user to warrant the price increase? Is there a sufficient margin in the solution for the company to balance against the significant cost and time required to create the solution? Is the risk exposure-to-reward ratio high? A commitment requires a thorough understanding of the opportunity and the value proposition to all constituents.

The Company Is Not Ready for New Business Model

Going back to the Uber Coffee Mug example, one can imagine the local cafe delivering coffee as being a company which theoretically could find a value proposition in a smart mug. The way to capitalize on the value might be having users subscribe to the service. For a monthly fee, the cafe will deliver you coffee any time during business hours, five days a week.

But… is the cafe ready to accept a new business model? Is it ready to hire concierge delivery people? Will the company adopt a model where coffee is not sold by the cup but by monthly subscription?

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This may be a ridiculous example, of course. But consider a large corporation that sells retail consumer products. Its traditional revenue comes from the sale of individual units through channels of distributors. What if the revenue was not from sale of devices but from sales of subscriptions where the device is free? You get the device and the web/smartphone-based application based on a monthly fee.

Now, instead of revenue from $150 devices, you take in $10/month subscriptions. But direct and channel salespeople were compensated based on unit sales. Perhaps the company has no means in place for taking in and managing subscription-based revenues. The company may not even have the design and technical skills required to create such IoT solutions, though the right consulting partner can help there. There is much to consider, and there is no one-size-fits-all answer.

Insufficient Funding to Go the Distance

Many companies are not cognizant of the full cost in realizing lofty IoT solution goals. Certainly, a small startup of a few people may be able to put in sweat equity for some amount of time, but few are able to do it for a year, 18 months, or two years. The team also may not have all the skills necessary to realize the complete solution and may not have the resources to bring in development partners to help fill the gaps.

As with Olympic ice skating, an IoT solution might look simple and elegant. Everyone can do it, right? However, as those who have been developing hardware-software systems for years know, new product development is messy. The more elements in the solution, the more things can go wrong. It costs money and takes time. It is also not always possible to brute-force through a product solution.

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There is much to consider in heading down an IoT-enablement path. Certainly, there are many new product categories and value-added products which can be created that leverage smart connectivity. Careful consideration of the factors involved in a successful IoT development project is warranted. The cost of a mistake can be very high but so too are the rewards for the picking the right targets.

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Mitch Maiman is the president and co-founder of Intelligent Product Solutions (IPS), building on a vision of delivering a new model for software and hardware product development that integrates the full spectrum of design and engineering disciplines as a single-source solution.