As more and more Original Equipment Manufacturers (OEMs) investigate the Internet of Things (IoT) for their products, we frequently are asked about how a company can determine the return on their potential IoT investment.
While much of the IoT “industry” struggles with defining concrete returns from IoT investment, we have led several successful IoT projects with OEMs and have determined how to define and conduct programs that not only meet new revenue goals / cost reduction goals, but frequently exceed them. We have found that ROI can be categorized in three specific areas that can be analyzed for very specific cost / benefit analysis.
First — what is the Internet of Things?
While there are many definitions of the Internet of Things, in this study we will focus on its meaning as it relates to OEMs. The Internet of Things describes connecting devices to the Internet to allow them to communicate with other devices and/or other IT systems. Generally, the inclusion of IoT technology in a product involves adding electronics and software to give it the ability to collect data about itself and provide the means to wirelessly communicate this data to the “cloud” (database servers on the Internet). Ultimately the goal is to use this data to make the product more appealing to the end-user and to provide detailed information to the OEM on how the product is used in the field and how it is performing.
Examples of IoT use in products are as varied as the products themselves. Imagine printers that not only warn you that you will soon be out of ink, but automatically place orders for new ink cartridges that arrive on your doorstep when needed. Or your car that not only automatically diagnoses itself, but also alerts the repair shop of the problem before you even bring the car in, allowing the shop to effectively manage the repair. Or imagine home healthcare monitoring that not only communicates vital daily monitoring information securely to your healthcare provider, but that also alerts a loved one if your daily activity pattern deviates from established norms.
In all of these cases (and many, many others) – there is no need to “imagine” them – they already exist and are rapidly finding their way into our daily lives.
The introduction of IoT capability to a product line can deliver ROI in multiple ways to the OEM:
- by adding value to the product from a customer’s perspective
- by providing meaningful information about the product in the field
- through data aggregation and associated analysis
By considering each of the strategies separately, it’s possible to answer the ROI question with a degree of precision and certainty.
ROI Strategy # 1: Making the product more appealing for the end-user
We have worked with several OEMs that wanted to adapt their existing products for IoT use. Why? Typically they want to give their product lines additional capability to provide a competitive advantage or sometimes they just want to give their products new “modern” capabilities. Consider the following:
- Adding a smartphone Interface to a product
Providing a connection between a product and a smartphone increases the user’s “attachment” to the product by giving the user:
- The ability to configure the product remotely
- The ability to monitor the product’s operation remotely
- The ability to receive alerts / notifications when something good or bad occurs during the use of the product
- Connecting a device to other “smart” devices
More and more, products are becoming “smarter” and are gaining the ability to communicate with each other to provide additional convenience, value, and efficiency when compared to non-connected products. Home automation is a prime example of this, but this is also true in manufacturing, in business settings, industry, retail, and many other environments. By including the capability to be part of this “community” with your product, its value is enhanced.
- New channel / market penetration
In addition, IoT capability allows for the design and development of new products that can create brand new channels and markets for OEMs. The ability to be in constant contact with the product in the field creates new opportunity to interact with an end-user, delivering new value and creating revenue opportunities that did not previously exist.
Determining the upside in product revenue is usually the first consideration in figuring out a cost/benefit analysis. The analysis should include the additional revenue that can be generated by products that are easier to use, that have additional capability, and that are better connected than competing devices.
ROI Strategy #2: Improving product understanding at the OEM level
In addition to the end-user benefits provided by the IoT, the OEM can benefit directly from the inclusion of this technology in their products.
- QA / QC during the manufacturing process before shipment
- We have worked with our clients to provide data collection directly from the product itself as the product is in its final testing, configuration, and check out phases at the end of the manufacturing process. Having the ability to capture QA/QC data at this stage provides for more consistent product quality at a lower overall cost.
- Data acquisition after product deployment
Once the product is purchased and deployed, OEMs can obtain near real time information about the product and the user
- How often do they use your product? And for how long? What is the most frequently used feature in your product? Is the product ever misused? If so, how?
- Product quality benchmarks — time between failure, time to failure, and other common QA measurements can easily be derived from the data provided by products that are supplying data to an IoT cloud as they are being used
- Marketing — establishing a direct point of contact to your customers. Target specific messaging based on product usage, etc. It is also possible to target market follow-on sales for consumables (i.e. ink for printers, etc.)
- Problem diagnosis / resolution
- Diagnosing customer issues becomes easier as product data is available for review by the OEM that can shed light on the customer’s problem. The OEM can also remotely monitor the product in real time to determine operational issues
- With IoT technology as part of the product, product upgrades can be delivered via software downloads “over the air”, frequently without the need to involve the end-user
This strategy gives the opportunity to both generate new revenue for the OEM as well as provide cost savings opportunities. In addition, the OEM now has data that will allow for the creation of better products with higher quality. It also can demonstrably improve customer/technical support, resulting in a higher level of customer satisfaction at a lower cost.
ROI Strategy #3: The value of aggregated data
The data acquired over thousands of devices over several months (or years) can have intrinsic value of its own. Without divulging specific data attributed to individual users (thereby eliminating data privacy concerns), the aggregation of this data can show trends in product quality, feature value, and market adoption.
- What is the most common point of failure in the product?
- What is the most/least commonly used feature in the product?
- Where are we seeing the greatest market penetration?
This data can be used to guide new product development, as a basis for improvement in manufacturing processes, to achieve better marketing programs, and ultimately better products and lower costs.
We have also seen OEMs that have been able to sell this aggregated data to third parties that combine the OEM’s data with other databases to derive additional value. Insurance companies, government agencies, and industry consortiums are examples of these kinds of third parties.
The OEM’s vendors can also be potential consumers of this data as well – as suppliers to the OEM, they are also interested in how the parts that they supply perform in the product as well.
This strategy also creates opportunity for new revenue streams as well as cost reduction opportunities that can be used to determine payback on the OEM’s ROI investment.
Frequently, the complete picture for increased revenue and/or cost savings that are attributed to IoT investment may be difficult to envision when beginning an IoT project.
While the initial case for inclusion of IoT technology into your product frequently can be justified on a single strategy (end-user value, OEM value, or the value of data aggregation), additional return on the same IoT investment can usually be obtained by considering the larger picture as illustrated above, giving the OEM a much larger return on the same investment.