Friday, May 29, 2015
Remember the halcyon days of the Dot-Com era? A frothy stock market, venture capital money flowing like water and famous sock puppets characterized the exuberance of the day. One company (Boo.com) spent $188 million in just six months to create an online fashion store. And 16 start-ups spent over $2 million each for a 30 second advertising slot during Superbowl XXXIV to crow of their existence. But, all of the money didn’t matter – the mantra was all about capturing “eyeballs.”
The business theory of the day was that if you could get people to your website (the eyeballs) then somehow the money would come gushing in. You were a heretic if you questioned how that would happen. Eyeballs were a very monetizable item, so the more of them the better. Of course, we know what happened. The Dot-Com era came to a crashing end when the market finally realized that these companies really needed to have a viable business model, rather than waiting for the eyeball prophecy to be fulfilled.
I can’t help wondering if the exuberance, and some might say blind faith, in big Data is similar to some of the fallacies of the Dot-Com era? Much of the Big Data mantra is all about creating and collecting as much data as possible because it has to be valuable. The more of it you have, the more value you can create.
Don’t get me wrong. There is huge business and social value to be derived from Big Data. There are numerous examples in medicine, education, business and government where data analytics has added huge value to the services and customer experience. There countless opportunities to use data analytics to drive ever new sources of value. The thing that I am challenging is the belief that by collecting huge amounts of data that it can be directly monetized – or turned into money.
Mobile users, public Wi-Fi, smart city deployments and user-centric applications are generating huge amounts of data. Typically, huge streams of personal data like location, preferences, application usage, and device type are being generated by these uses. The operators of these services believe that they are now sitting on a goldmine. Their dream is to turn this valuable personal data into mounds of cash by selling it to advertisers and others who want to better reach and target end users. There seems to be great excitement and expectations about how much this data is worth. Many business cases now seem to use data monetization as a kind of “Factor X” to justify otherwise questionable business cases.
Like the eyeballs of the Dot-Com era, data monetization is all about advertising. Advertising is a well-known business with well-established governing business principles. At its simplest, advertising is a function of the ability to target a customer times the number of advertising impressions, or potential customers, that you can reach. For example, a golf club manufacturer is willing to pay more to advertise to an avid golf player than the general public. This is why big data is so valuable. Personal information like location, device and app usage can be used to provide a much better target customer than general mass advertising.
We looked at the potential value of this data in considerable detail for a prospective large smart city deployment. We discovered that we could definitely make money by selling the data generated on our smart city network, but it wasn’t that different than traditional advertising models. Our proposed digital signage solutions generated roughly the same revenue as traditional billboards on the sides of bus shelters. Similarly, pushing ads to mobile user devices generated marginally more advertising revenue than handing out flyers to pedestrians. In total, we calculated that we could generate roughly $1.5 million in new annual advertising revenues. To put this in perspective, that is just 5 percent of the total revenues that could be generated from delivering the total smart city solution. The data can definitely be monetization, but it is unlikely to generate the mounds of cash that is eagerly expected from many operators.
As with Dot-Com eyeballs, once the hype and the naïve assumptions are wiped away, there is no real magic to big data monetization. While there is money to be made from data monetization, it is highly unlikely to be a major revenue generator. And, by no means should the promise of monetizing data be used to prop up weak smart city and Internet of Things business cases.
Big Data has been described as the “New Oil.” That may be a very attractive and compelling metaphor in a world where a barrel of oil sells for $100 or more. But, remember oil can equally drop to $40 to $50 a barrel as we are currently witnessing.
We are in the early days of another transformative technology revolution. Wired magazine described a new era where “the most mundane items in our lives can talk wirelessly among themselves, performing tasks on command, giving us data we’ve never had before.” The Internet of Things (IoT) is a world where up to 50 billion things (or devices) will be connected to the Internet by 2020; or, the equivalent of 6 devices for every person on the planet.
We are already starting to see the emergence of smart cities, connected utilities, connected railways, connected factories, connected cars, and even connected mines, to name but a few. The Internet of Things will fundamentally transform businesses, generate enormous economic wealth and create immeasurable social value.
What does the future have in store for IoT? The following are my ten predictions of what we have to look forward to:
- The platform is the key to success – The “things” will get increasingly cheaper, applications will multiply and connectivity will cost pennies. The real value will be created in the horizontal platform that ties it all together – the new OS. This platform will be composed of 3 different layers: management, infrastructure, and data analytics and insights.
- The industry will look completely different than it does today – Like in the early days of the Internet, IoT is a greenfield market. New players, with new business models, approaches, and solutions can appear out of nowhere and overtake incumbents.
- Business is the key market - While there is lots of talk about wearables and connected homes, the real value and immediate market for IoT is with businesses and enterprises. The adoption of IoT will be much more like the traditional IT diffusion model (businesses to consumers) than the Consumer-led adoption of social media and personal mobility.
- It will be about much more than the “things” – The currency of IoT will be “data”. But, this new currency only has value if the masses of data can be translated into insights and information which can be converted into concrete actions that will transform businesses, change people’s lives and effect social change.
- The “Connected Car” will be all about the car – There is currently a lot of hype about turning your car into a mobile entertainment center – music, video, social media and all of the apps that we currently enjoy on our smartphones. However, the real value and transformation is in connecting the car operations (e.g., service updates, advanced notifications of failures) and drastically improving safety (e.g., inter-car communications, semi-autonomous driving). These services will most likely be paid for by the manufacturer or through new, alternative business models, rather than directly by the driver.
- IoT will force business transformation – Businesses which connected to the Internet saw the real value when they re-designed their businesses models and processes for a connected world, and found new online products and services to offer. Some companies immediately embraced the Dot-Com world, many had false starts and many others took a long time to jump on, or the revolution passed them by completely. The same will be true of IoT. Businesses need to develop strategies and plans for how they can leverage IoT to transform all aspects of their businesses and capture the real value of this revolutionary technology.
- Trading mobile dollars for IoT pennies – It is no wonder that the mobile operators are salivating at the prospect of a windfall of new revenue to be earned from connecting the projected 50 billion devices, or things, to the Internet. However, it is not that straight forward. While some of the traffic will flow over mobile networks, the majority of the connections will be made over wireline or unlicensed wireless networks. And, many of the IOT devices require very low bandwidth - simply conveying their status on an occasional basis and then remaining dormant until this status changes. Mobile operators will need to do more than just sell mobile connectivity to inanimate objects to reap the full rewards of IoT.
- There will be a battle for IoT application mindshare – With billions of devices devices projected to be spewing out petabytes of data, application developers will have a field day launching thousands, or even millions, of new and cool apps. But, like the smartphone world, all of these apps will be fighting for mindshare and only a few will rise to the top to be valued by businesses and consumers.
- All cities will be smart – With more than one-half of the world’s population living cities innovative new IoT solutions, such as smart parking, connected waste, and traffic management, hold great promise for combatting the major challenges of rapid urbanization. We are unlikely to see many Jetson-like smart cities of the future appearing overnight. However, like in the past with the adoption of revolutionary technologies such as sewers, electricity, traffic lights, and the Internet, mayors will slowly implement IoT solutions to save money, shape the future and make their cities better places to live.
- IoT will cease to exist – Terms like “eCommerce”, “the Net” and “WWW” are all quaint reminders of how the Internet has ceased to be an exciting and mysterious new thing, and, like electricity, is now just part of our daily lives. The Internet of Things will go the same way. One day soon, it will be hard to imagine that all things weren’t connected and that the extraordinary benefits of IoT hadn’t always been with us.