Do we truly understand the economic value that the Internet of Things is able to provide as an Environment as well as to a specific Business Activity? It’s pretty amazing to think what will probably be connected with the resulting amount of data made available, but that’s not a Business argument for making use of the Internet of Things. In fact Business value is created by the context specific, not from the volume… normally. BUT around the late 80s pretty similar arguments were being made about the lack of a Business case for Local Area Network connectivity, and the deployment of email. Ubiquitous, as in everyone being connected and on email, turned out to play a substantial part in why connect, or why adopt email argument. If everyone else works this way then you, or your Enterprise cant survive dis connected. So what’s happening this time to the Internet of Things, or IOT?
Research report now available: The Foundational Elements for the Internet of Things (IoT)
There has to be a business model for an Enterprise to invest in, and use, the Internet of Things, and that in turn should be driving the Business approach to the Internet of Things, rather than the technology capability.
In respect of Network connectivity then most people know something about Metcalf’s Law that calculates value by the number of connections that in the 1980’s networking boom became a fair justification for email. More recently Reed’s Law updated Metcalf’s law in the context of Social Networking, introducing limitations to the apparent unlimited increase in value through increasing connections that Metcalf proposed. Reed suggesting the people have personal limits to the operational capability to interact with more than certain numbers of ‘friends’ and in fact the value of a network is finite.
Unfortunately neither of these laws fits an economic model that sees vast numbers of interconnected ‘things’ able to publish their data to the open networked architecture of the Internet, particularly based on Machine to Machine, M2M, interactions.
The best answer for this is the very little known Beckstrom’s Law that aims to answer the economic question of ‘how valuable is a Network’ and if that Network is of Devices and Machines transacting. Beckstrom’s Law is under pinned by a complex theorem, and detailed set of academic papers so follow the link to Wikipedia as a useful starting place.
In summary Beckstrom’s Law states; "The value of a network equals the net value added to each user’s transactions conducted through that network, summed over all users."
Perhaps herein lies the answer to quantifying at least some parts of the difficult issue of investing in Internet of Things in order to acquire seemly useful capabilities. A difficult proposition without any understanding of exactly how to value, or quantify, returns. Actually there are two distinctive and different paths for investment; In the first is the broad investment necessary to get a ticket to the game of Digital Business where to participate demands a set of capabilities, call it your Digital Business Infrastructure as its more than a traditional Technology definition of the term Infrastructure. The second ideally will be occurring in parallel, but is more likely for many enterprises to have occurred first. To select to invest against specific business opportunities with a narrow focus on what is deployed suiting only the immediate opportunity.
There is nothing wrong with this; it’s just the business metrics are by necessity narrow and linked to obvious traditional measurements of Revenues, etc. and, the short term can lose sight of the longer term with expensive ramifications as scaling up occurs. A previous blog ‘Digital Business in Smart Cities using the Internet of Things’ used Building Management as an excellent example of focused investment coupled with understanding the bigger issues.
In addition a further blog, ‘Digital Business; mastering new financial controls’, addressed the topic of how to achieve a better and wider understanding of new cost allocations versus the revenues/margins for a Digital Business. But that’s deliberately focusing down into the very necessary aspect of good operational management. Together these blogs give a reasonable picture of how to tackle the first path of identified and focused investment for a specific opportunity, but the case for the second path towards bigger picture of Business Infrastructure investment in the Internet of Things is more difficult.
The basis of The Internet of Things, (IoT) is of big picture created by millions of Devices contributing value. It will be necessary to invest in your own Enterprises IoT devices, as well as using the data from other Enterprise IoT devices. Something new is needed to make sense of what and where value is being created from this amazing new and complex environment.
There is a lot of focus on the use of Big Data and turning it into Smart Data, again see a previous blog ‘The Internet of Things requires Big Data to be Turned upside down into Smart Data’, but what about measuring the sources and the transactional value they contribute? Okay that’s about Machine to Machine, M2M, but then so is the Internet of Things, IoT! There is nothing in Beckstrom’s Law and its Theorem that requires ‘the user’ to actually be a person, in fact its arguable that it applies equally well to Internet of Things devices!
The American Marketing Association updated its definition of Marketing in 2013 to be very much more reflective of the Technology based World of today to read as follows; ‘Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large’. That seems to reflect the realities of Digital Business with its massively interconnected Internet based World pretty well, and to be inclusive of Internet of Things devices too.
In conclusion it would seem that Marketing for a Digital Business is going to have to include assessing data obtained from choosing, and using, the right Internet of Things devices. There is a definite need for some serious thought on how the conjunction of new ‘digital’ technologies is going to address this. Better mathematical algorithms such as Beckstrom’s Law are highly important new tools to become aware of and use. Business Value is usually created by Transactions so lets start measuring this!
Research report now available: The Foundational Elements for the Internet of Things (IoT)
