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Internet of Things May Bring a New Economic Leap

Internet of Things May Bring a New Economic Leap

Internet of Things May Bring a New Economic Leap
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Internet of Things May Bring a New Economic Leap

The Internet of Things (IoT) may be more significant in reshaping the competitive landscape than the arrival of the Internet. Its productivity potential is so powerful it will deliver a new era of prosperity.

That is the argument put forth by Michael Porter, an economist at the Harvard Business School and James Heppelmann, president and CEO of PTC, in a recent Harvard Business Review essay. PTC is a product design software firm that recently acquired machine-to-machine (M2M) firm Axeda Corp.

In the past 50 years, IT has delivered two major transformations or “waves,” as the authors describe it. The first came in the 1960s and 1970s, with IT-enabled process automation, computer-aided design and manufacturing resource planning. The second was the Internet and everything it delivered. The third is IoT.

With IoT, “IT is becoming an integral part of the product itself,” wrote Porter and Heppelmann. It is doing this by infusing sensors, processors and software in every product imaginable and coupling it with analytics. That combination will change how businesses operate, how they deliver their products and how interact with customers.

“Another leap in productivity in the economy will be unleashed by these new and better products,” Porter and Heppelmann argue. “The third wave of IT-driven transformation thus has the potential to be the biggest yet, triggering even more innovation, productivity gains, and economic growth than the previous two.”

Internet of Things May Bring a New Economic Leap

That is a strikingly sweeping claim and there will no doubt be contrarians to Porter and Heppelmann’s view. But what analysts are clear about is that IoT development today is at an early stage, perhaps at a point similar to 1995, the same year Amazon and eBay went online, followed by Netflix in 1997 and Google in 1998. People understood the trend at the time, but the big picture was still out of focus.

Alfonso Velosa, research director of IoT at Gartner, believes a fundamental change is coming, but at a more distant horizon — 10 or 20 years out. "The interest in IoT is happening now because all the necessary ingredients, the semiconductors, sensors, software, communications, “have all come to align us on this path,” he said.

Velosa said IoT-related industry changes are just beginning. Usage-based insurance, for instance, based on mileage and driving behaviors, was a new thing just five years ago. Today it is a real option.It “highlights how an industry can change in five years,” said Velosa, “but it also points to the fact that we have just barely scratched the surface.”

The IoT is premised on the idea that products can become smart, and can communicate with each other on your behalf. Every product becomes part of a service, and no product will have significance as an independent entity, said Fiona McNeill, global product marketing manager at SAS, an analytics software firm.

To illustrate, SAS is working with a truck maker and is using IoT technologies coupled with predictive analytics to determine when a part might fail. It can now predict failure 30 days in advanced and with a 90% accuracy rate, said McNeill. That type of capability is being added to high-value equipment, such as locomotives, medical equipment and oil and gas equipment, but eventually will find its way into wearables, she said.

The IoT’s potential may be hard to realize because it takes imagination to consider how products change once they are enabled. What’s done with the data? What services does it create? What new products emerge from it? Are you now competing on price or services (or both)?

All the recent advances, cloud computing, mobility and big data, either extended or replaced existing business operations, said Seth Robinson, senior director of technology analysis at IT trade association CompTIA. But with the IoT, “the greatest opportunity for a business is to do something new.”

There is no map to how this may unfold and that makes some hesitant about it, said Robinson

“That lack of [a] direct map … highlights, actually, that there is great potential here.”

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