Tag Archives: internet of things

How Internet of Things Puts Industry at Risk

To put the  impact of the Internet of Things (IoT) into context, consider industry estimates: By 2020, there will be 8 billion people on earth and 50 billion connected things, with 5 million apps; that means nearly six connected things per person. By 2035, there will be 1 trillion connected things, with 100 million apps. That is powerful!

The IoT is so much more than a cool, emerging technology. And it can do so much more than change a process in the business value chain. The IoT is transformative … because it is about fundamentally changing business and revenue models.

Companies that are focused on using IoT only in selected areas of the existing insurance value chain will miss one of their biggest opportunities to reimagine the business of insurance. They will put their companies at risk. Why? Because other companies and industries are thinking bigger and including new services and integrated offerings that are made possible by the IoT. Their transformations will potentially change every aspect of insurance.

The Internet of Things is rapidly transforming standalone products into complex business solutions that combine or integrate sensors, software, analytics, processors and digital user interfaces into the product, all connected to the Internet. The IoT creates the opportunity to reimagine a product, taking it from what it was to what it could be, redefining the customer experience by providing real-time information, alerts, services and much more. In so doing, the IoT counters the rapid commoditization of products – new products can include integrated, valuable services.

As an example, one company that manufactures a “commoditized product” embedded sensors, at the company’s expense. At the time, 100% of the revenue was from selling the product. Today, the company has built services, both independently and with an ecosystem of partners, that use and analyze the data from the product. The result: The product is seen as more valuable; the company is experiencing market-share and revenue growth; the business model is now both manufacturer and service provider; and more than 80% of customers purchase services along with the product. The company’s service revenue is now more than 50% of overall revenue. And this was all done in just three years!

For insurance, the first foray into the IoT was in telematics, but insurers did so within the historic context of how the insurance product was defined, designed and priced. The added dimension of pricing for miles actually driven differentiated the pay-as-you-drive (PAYD) product. The majority of insurers have followed this approach, missing the bigger and transformational opportunity with IoT!

The IoT, whether using telematics or other sensors, has the potential to deliver a plethora of new services that can be purchased by customers, changing the definition of a product and flipping the business and revenue model. Products can go from being risk-protection products to risk-prevention products with embedded services that also provide protection.

Our inability as an industry to reimagine our businesses, our products, our services and our entire revenue model is why we will be competitively challenged by other industries … because they already are disrupting historical assumptions and business models.

Industries and companies outside of insurance are embracing the IoT at a rapid pace: automotive, manufacturing, retail, communications, healthcare, banking, agriculture, transportation, consumer products, food production and more. These companies are transforming their business and revenue models through new, smart, connected products with embedded IoT sensors that are merging products and services into a new product with new capabilities that redefine the value proposition. These companies are creating profound and personalized customer experiences that strengthen and deepen customer relationships, attract and draw customer loyalties, divert and capture revenue and more.

Examples from other industries, and the resulting transformation and innovation of business and revenue models, emphasizes the power and potential of IoT in a number of dimensions:

  • The connectivity of the devices with applications, analytics and services enables healthier, safer and more efficient, effective and enjoyable experiences for businesses and individuals.
  • IoT allows new business models that put the customer in control, enabling personalization of the products and services.
  • It fuels an emerging market shift where the customer will own her data, authorize use and expect something in return for that use.
  • IoT creates the opportunity to create new products, services and solutions and to enhance existing products to strengthen customer insights and loyalty, increase competitiveness, create new revenue options and grow market share.

Because insurance is part of every industry and reaches nearly every individual or business, the insurance industry has the opportunity to be at the center of this IoT revolution. But it will be necessary to flip the business model. Insurance must embrace the transformation from focusing on risk protection to focusing on risk prevention – with protection included in a personalized way. Insurance can become central to collective connectivity — with the connected car, the connected home, the connected life and the connected world.

Remember this quote from Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Change is coming with a connected world of everything. We can either define the change, or it will be defined for us by those companies and industries rapidly adopting the IoT.


This article is based on a new SMA research brief: “The Internet of Things: Creating a Connected World – Disrupting and Transforming Business and Revenue Models.”  Click here to learn more about SMA’s research.

How the ‘Internet of Things’ Affects Strategic Planning

When it comes to technology, the boardroom has been learning a new language: mobile, social, cloud, cyber security, digital disruption and more. Recently the National Association of Corporate Directors released an eight-part video series on the board’s role: The Intersection of Technology, Strategy and Risk. We have spent much of the past year focused on cyber security, an essential discussion given the widespread theft of intellectual property, privacy invasions and data breaches. A report on cyber crime and espionage by the Center for Strategic and International Studies (CSIS) in Washington, D.C., last year estimated that cyber crime costs the global economy $300 billion a year – an entire industry is growing around hacking! Research by PwC shows cyber insurance is the fastest-growing specialty coverage ever – around $1.3 billion a year in the U.S. As our boardroom agendas often get filled with discussions on risk, I asked Frontier Communications board director Larraine Segil how to shift the conversation to strategy. Larraine has a keen focus on opportunity and suggested we delve into solutions for governing “The Internet of Things.”

What exactly is the Internet of Things, and what are the implications for business strategy?

Think about connecting any device with an on and off switch to the Internet and to each other. This includes everything from cell phones, thermostats and washing machines to headphones, cameras, wearable devices and much more. This also applies to components of machines – for example, the jet engine of an airplane. If the device has an on and off switch, then chances are it can be a part of the Internet of Things. The technology research firm Gartner says that by 2020 there will be more than 26 billion connected devices. Think about Uber, the company that connects a physical asset (car and driver) to a person in need of a ride via a website. That simple connection has disrupted the taxi industry.

Airbnb has done the same for the lodging industry by directly connecting people with spaces to rent to those in need of accommodations.

What does this mean to for our companies? Larraine, what are you thinking when you hear about the Internet of Things for business opportunities? As a director, how can you help directors govern in this fast-moving digital age?

Frontier Communications provides connectivity services to a national customer base primarily in rural areas and is integrally involved in the Internet of Things. Frontier has a number of strategic alliances with companies that develop and market those very devices – or “things” – such as the Dropcam camera, a cloud-based WiFi video monitoring service with free live streaming, two-way talk and remote viewing that makes it easy to stay connected with places, people and pets, no matter where you are. Other alliances expanding the “things” will be introduced in the rest of 2014.

As a director, it is critical to be educated constantly about new trends, products and opportunities – competition is fast-moving, and customers are better-educated about their options than ever before. Strategically, the board has to think way ahead of the present status quo – and with the help of management and outside domain experts, explore opportunities for alliances. This requires using strategic analysis at every board meeting (not just at one offsite a year) and welcoming constant director education and brainstorming both within and outside of the company’s industry. The board should continually identify and evaluate strategic directions to keep the company fresh and nimble.

Remembering that we’ve only just begun, here are some critical questions boards should be asking about technology and the Internet of Things:

1. Are you including strategic discussions around technology at every board meeting?
2. Do your strategic directions include alliances within and outside of your industry?
3. How would you assess your current level of interaction with the chief information officer and chief technology officer? What can be done to improve the effectiveness of communications with them?
4. As a board, how are you helping to guide your company in innovative directions, taking into consideration disruptive technologies, competitor alliances and new ideas or skills coming from outside your industry?