By Russ Banham
The internet of things (IoT) was big for many large enterprises in 2016, but only 18 percent of small companies and 13 percent of those in the middle ranks identified it as a top-three priority.
With projections that the IoT market will reach $3.7 billion in 2020, up from $900 million in 2015, and the installed base increasing from 15.4 billion to 30.7 billion devices over this period, are SMBs hurting themselves by not investing in IoT now?
Certainly, there are benefits in making this leap. Manufacturers, for instance, can integrate the data sets that emerge from internet-enabled semiconductors and sensors in machinery with other data sets coming in from across the value chain. Sophisticated algorithms can be applied to the collected information to discern ways to improve productivity, deploy manufacturing capacity more efficiently and shorten time-to-market time frames. Wider profit margins are the outcome.
But these various benefits are a hard sell to SMBs, given the investments required.
“If you’re Southwest Airlines, and you invest in the IoT to lower your gasoline costs by 1 percent, that can add up to savings in the hundreds of millions of dollars,” said Gaurav Dhillon, chairman and CEO of SnapLogic, a platform-as-a-service provider.
But if you’re an SMB, will the benefit of applying IoT technology to your processes be worth the cost?
Dhillon, who previously co-founded and led data integration pioneer Informatica, retold a joke he’d heard in business school to illustrate the conundrum.
“A man had a shoestring investment and doubled its size. He now had two shoestrings,” he said. “But if you double a billion-dollar investment, that’s a heck of a return.”
SMBs are investing in the IoT, just not to the degree of their larger counterparts. Many retail businesses, for instance, have switched out their 20th-century cash registers for computer tablets that can record consumer purchases with a finger-swipe signature. Others have invested in IoT-enabled thermostats, smoke detectors, surveillance cameras and appliances that reduce energy costs, improve security and allow remote operation.
These investments are just table stakes. Because IoT devices are not fully integrated, the information they generate cannot inform decisions around product and service quality and management processes. It’s a step in the right direction, but there’s a long staircase ahead.
For instance, many midsize manufacturers have implanted IoT-enabled sensors in factory equipment to troubleshoot maintenance issues and ferret out the cause of bottlenecks. But they have yet to connect these machines to supply chains, much less equipment that supports other activities that add business value to a product or service. Without this broader connectivity, data cannot be aggregated and integrated for analysis and action.
Incentives To Invest
What will it take for SMBs to move forward? Anand Rao, innovation lead at PwC Analytics, suggested two potential motivators — tax breaks and insurance premium discounts.
“Both will make investments in the IoT more financially feasible for SMBs, particularly as the cost of the technology decreases,” Rao said.
The latter is indeed the case with IoT-enabled sensors, which have fallen in price from an average $1.30 per sensor in 2004 to a predicted 38 cents in 2020.
But Rao acknowledged that lower cost alone would not make the IoT a priority for SMBs.
“They have to determine the value proposition — a cost-benefit analysis that demonstrates a clear investment return,” he explained. “They need to see what’s in it for them.”
Dhillon has the same perspective, adding that it will take time for SMBs to realize this value. Asked to elaborate why, he described a hardware store in the town where he lives. The store owner, “a wonderful guy named Henry,” he said, could invest in the IoT to reduce his HVAC bills, improve his inventory management and use IoT-enabled heat-mapping technology to electronically track his customers’ behaviors for sales purposes. But Henry can already do all of this without investing in IoT.
He knows when to turn the heat or the air conditioner up and down during the day; knows his inventory inside out; and, in many cases, knows his customers on a first-name basis.
“That’s what’s great about an SMB — the intimacy and friendliness,” Dhillon said. “I go to Home Depot and can’t find my way to what I need, much less a human being to help me.”
A similar scenario applies to other SMBs — the car dealerships, lumberyards, professional services firms and assorted “mom and pop” shops dotting Main Street. “For smaller companies, it’s still the early days of the IoT,” Rao said.
Undoubtedly, the IoT is a big thing for big business. But for smaller companies, investing in it must be carefully considered.
After all, if customer service and efficiency are already top notch, what benefit can the IoT provide?
Russ Banham is a Pulitzer-nominated financial journalist and author of 24 books.