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L’Internet des objets

 | 
Pierre-Jean Benghozi
, 
Sylvain Bureau
, 
Françoise Massit-Folléa

The Internet of Things

Chapter 4

Which performance, investors and business models ?

Texte intégral

1One of the key factors in the success of the Internet of Things stems from the fact its development offers opportunities for profit and also for improvement of service quality in almost every type of activity, whether local or global. Its economic importance should therefore be examined from two different but complementary perspectives. The first concerns the way in which, for various organizations, an improvement in results is favourable to investment. The second relates to opportunities for growth resulting from the transformation of business models, and the new relationships created between stakeholders and economic players who contribute to the same activities.

Performance factors

Performance measured on several levels

2In the context of “traditional” RFID uses, the performance factors of the IoT are not unique. They appear at both organizational and activity sector level. The diversity of productivity and performance gains associated with the implementation of the Internet of Things originates not only from the improvement of services for individual consumers, but also from the increased efficiency in industrial processes within and between companies. In the first case, we can identify positive returns on investment within the context of a specific project. This aids dissemination but limits its scope : the fitting of chips onto pallets of processed foodstuffs in order to reduce logistic and handling costs is an example. In other cases, performance factors stem from the ability to rationalize the management of the entire production process to allow better integration of physical flows and information systems through an interface with ERP or CRM applications. Lastly, the capacity to make IoT use profitable may proceed more fundamentally from the adoption of new business models and the development of new billing opportunities – through selling information collected, or by means of offering new services with added value.

The search for economies of scale

3Targeted gains are more ambitious (but often more difficult to attain) when they aim for “collaborative” efficiency and the improvement of productivity in general. Then, performance gains are distributed throughout a sector or industry. In the case of all information and communication technologies, such dissemination can only be gradual and cross-functional so as to ensure the solid integration and optimization of physical and information flows : from manufacturer to distributor, from distributor to client using transportation networks, and intermediary and transactional platforms. This is a case of traditional economics : it relates to the manner in which the profits made – the surplus – are shared and distributed between all those involved, and how they can contribute to the investments necessary. The IoT could face a type of trivialization that might lead each of the economic stakeholders to wait for uptake from its partners. Productivity gains could thus be very unequal within the same sectors, leading to a “productivity paradox”. There might be a surge in the use of chips, without any real value being added to the profits of the company or economy, the profits being either lessened by non-optimal wait-and-see strategies, or attributed to a limited number of firms.

Market opportunities for new entrants

4As already mentioned, the development of the IoT depends on several factors of performance. Chips currently available contain a much larger memory capacity compared to other existing technologies and barcodes, and the cost is decreasing, which now make their integration in the industrial process predictable in the short term. In addition, implementation and dissemination may result in profit from the lowering of the price of readers and processing applications : these costs are directly impacted by the development of communications networks (fixed and mobile) and terminals (computers, mobile phones, etc.).

Market driven progress

5The diversity of performance factors may largely account for the wide range of applications in the IoT. The first identifiable factor originates no doubt from offer rather than demand. This concerns the improvement of the services and applications offered to individuals, enabling them to make direct savings in terms of time or money, and, in certain cases, the gains thus obtained may justify billing or financial transactions. This may pertain to the management of transportation flows such as motorway tolls or access to parking lots, and also to widely differing situations as in the monitoring of sportsmen during various events : for instance, in marathons. Other frequently cited examples are individual cards which have a dual function of payment and access such as in public transportation, libraries, petrol stations, public buildings and for entry to special events or shows. Lastly, some specific and less usual applications are relevant to the field of security at large – the development of communicating cars, the traceability of pets and the monitoring and support of dependent or fragile people.

The improvement of industrial processes

6The increase in the efficiency of industrial processes represents a second performance factor for the IoT. Here again, many examples spring to mind : one particular improvement relates to logistics. The automation of identification processes and product flow management enables companies and organizations to standardize the monitoring and security of containers, to optimize the management and logistics of pallets, and to monitor stocks and manage fleets of vehicles. The rationalization of maintenance operations contributes to these improvements. There are benefits from integration and matching with different sensor technologies : it is supported by improved prevention and identification of bugs and better tracking of faulty items. The performance of the IoT is also relevant to production processes for goods and services, that is, management of documents and plans, monitoring and real time monitoring, and rationalization and coordination of assembly functions. In addition, the IoT assists companies in the improvement of sales monitoring through real time control of product movements. Finally, more generally, it offers economic players the opportunity to improve the quality of overall service provision, whether in relation to reducing errors through guaranteeing the quality of goods sold or ensuring better security and avoiding counterfeits by using a process of authentication ; it also enables faster production or service supply.

Links between different types of performance

7This categorization of performance factors conceals the fact that, in practice, all are closely linked, for the players in each sector have an overall view of the reorganization of their activity. Thus, through a reduction in the number of warehouses and centralization of logistics operations, manufacturers and distributors optimize supply channels and supply chain management becomes a key motor of diversification strategy in the field of services.

Who should invest, and how ?

8The diversity of contributors to performance is useful not only to gain a better understanding of the dynamics of IoT development, but also has very direct consequences on the selection of economic players and the way in which equipment decisions are made. Indeed the factors mentioned above create a favourable environment for businesses although they are not an automatic factor in adoption. To understand the conditions that favour dissemination of the IoT, it must be remembered that the investment choices made by organizations originate from structured decision-making processes.

The complexity of investments

9The profitability of applications must be examined through a differentiation between initial equipment costs (the stepping up of the level of infrastructure and equipment) and current operations. The economic improvement of production processes does not always suffice to justify an investment decision, for it depends on how the initial equipment (chips and readers) is managed and written off. These upstream investments (reconfiguration of processes and R&D) are all the more important in this context because the Internet of Objects encompasses a large diversity of technologies and implies the competent management of a large range of tools and components – from chips and sensors to middleware. In addition, company expenditure on the IoT is not limited to the acquisition of the technical system (chips, readers, middleware) and the installation of the relevant infrastructure : experience shows that where information and communication technologies are concerned the hidden costs of implementation must not be overlooked. These are often very high and – as equipment such as the ERP has shown – they may lead to initial investments being put into question. Indeed, beyond the simple matter of the technical equipment, both the selection of application settings and the acquisition of the organizational knowledge that enables better control of the associated flows can be long, difficult and costly.

Designing economic solutions adapted to each level of investment

10Each performance indicator and measurement corresponds therefore to specific economic solutions that generate profitability from the many investments necessary, for example in R&D, infrastructure, development of new applications, and the equipping of a sector with chips, readers and sensors. If we consider the opportunity of creating value for a given economic sector, the absence of a clearly identifiable return on investment in the short term is penalizing ; in this context, it is rather the operators and technology suppliers who will be urged to invest in order to ensure the expansion of the market and the realization of a critical mass of applications. However, when savings can be made in supply chain costs and by linking information systems and material resource management systems, intermediary firms (platforms or distributors) may be induced to invest. Indeed, these benefit directly from performance gains in logistics and the lowering of transaction costs ; at the same time, they can plan to bill associated services to partner firms or even to consumers. The main industrial companies can self-finance their investments if they can generate revenue and savings through innovative applications which lead to the optimization of logistics and maintenance, stock reduction, lowering of management control costs, etc.

Developing new services for consumers

11The creation of extra services with added value through the configuration of new offers also provides the possibility of considering payment by the consumer or the end user. These new offers may take different forms : first, they can result from the aggregation of niche markets, as in the case of applications for use with animals. These are based on one type of chip but produce very different applications depending, for example, on whether they target bovines, equines, dogs or cats. New offers could also be created for traditional markets by extending the range of services on offer. Fresh opportunities exist in vehicle marking and embedded electronics, instigating new added value services such as assistance (e-call), active driving aid, and also new forms of insurance (pay as you drive). Lastly, innovative offers can originate from the creation of new markets such as personal protection (surveillance of young children or of the elderly, security of goods and access, etc.). These new services currently being developed are not isolated, but can be found in all sectors.

Guaranteeing the financing of the total value chain

12However, in all cases, the dissemination of the IoT can be challenged if each industrial participant is tempted to avoid investment costs by transferring expense to other stakeholders in the value chain. This threat is not purely theoretical. The recent example of EDI (Electronic Data Interchange) and the development of electronic market platforms show that major players in a sector are always attracted to using these innovations to reinforce their control over all production processes and associated players, whether these are subcontractors, suppliers or consumers. In such cases, depending on the business models adopted, there is considerable risk that SMEs either be excluded from the modernization and performance processes associated with the IoT or, on the other hand, that they be obliged to bear the mains costs, to the sole profit of the major players.

13This is a particularly sensitive point, for the success of IoT applications rests on their simultaneous dissemination in all sectors and among all partners involved – from manufacturers and decision-makers to distributors and users – whatever the area of application. When this is not the case, the integration of information throughout the process is impossible, and, for all the partners, the success and pertinence of the application are jeopardized. To promote the dissemination of the IoT in different sectors, it appears essential to ensure that investments are indeed funded at all levels of the industries involved : this may be carried out through industrial projects (with public funding, for example) or by encouraging the partners of a given sector to unite their resources (through a consortium, for instance).

Promoting public use of the IoT

14The role of public authorities may prove all the more important in that the above examples demonstrate that benefits from the IoT do not accrue to only certain players in the value chain. In many cases, dissemination throughout all sectors contributes to the overall improvement of social well being, and is not limited to bringing specific advantage to any particular player.

15This is true, quite naturally, in sectors that are traditionally part of the public sphere in Europe : health, education, culture and administration. Many proven examples of useful applications already exist : the monitoring of health expenses, the battle against the risk of counterfeiting, the improvement of the treatment of patients and of dependent members of society, improved access to public libraries, and increased security of administrative documents.

16Nonetheless gains for society may also arise from products and services provided by private enterprise. For instance, the widespread adoption of RFID chips in supermarket distribution will no doubt lead to major improvements in the waste disposal chain, whatever the profits made by distributors. These technologies will also be at the core of the development of “sustainable” and “intelligent” cities.

The redefinition of value chains

17The individual strategies of the economic stakeholders are all altered by the diversity of the disseminations associated to each application, the multiplicity of performance sources and the types of investment in the IoT. At the same time, these contribute to the transformation and redefinition of markets and value chains corresponding to application sectors where demand is concerned, and to electronics and telecommunications sectors regarding supply.

The industrial value chain

  • 1 See in particular RFID Technologies : Emerging Issues, Challenge and Policy Options, JRC 2007, op. (...)

18The industrial landscape of the IoT is often depicted using identification of the principal categories of technical providers. Software editors and technology suppliers develop software tools that support the technologies of the IoT. Technical suppliers manufacture, configure and encrypt chips. Providers, in the role of intermediary between end users and the production process, can track objects, manage access rights and sometimes collect payments. Several academic authors have suggested a breakdown of this structure into categories. Most of them group companies according to the usual successive technical layers1 : chip manufacturers (Hitachi, Motorola, Philips, Siemens, Texas), component developers and assemblers (Allen, Avid, Sirit, UPM Raflatac, Zebra), system integrators (Checkpoint, Savi, RF Code), software editors (Cisco, Microsoft, Oracle, Sybase, TIBCO), software and computing services companies, and consulting firms (Accenture, Atos, CapGemini, IBM, Lockheed, SAP, SUN MS).

The new players in the value chain

19This rigid categorization in limited insofar as the IoT creates a new operations chain between encoders, servers, terminals and administrators of rights : the “technical” chain is now intertwined with the more traditional production chain of goods and services. Thus, the importance of B2B signifies that some sectors with heavy users (namely supermarket distribution and aeronautics) may have a decisive role in the configuration of the structure of the IoT ; while at the same time, content industries (for example culture) have an equally strong impact on market transformation (this is particularly the case for recorded music). The ecosystem of the IoT is therefore influenced by the development of networks, partnerships and complex interrelations, and by the transformation of value chains, industrial and market reconfigurations, and the blurring of traditional boundaries between firms and sectors. This perspective clearly indicates that the description of this type of structure in terms of technical layers is now unsatisfactory, contrary to the case of more established sectors which have converged (telecommunications, information technologies, general public electronics, the Internet and the media).

Specificities of the IoT in relation to the electronics sector

20In reality, it can be observed that the landscape of the IoT demonstrates characteristics that distinguish it from the traditional electronics ecosystem.

Information intermediaries

21Firstly, the IoT is influenced by the importance of new layers in existing industrial sectors. These new layers result from the weight of activities associated with middleware and data management, such as storage, data history, answers to queries and massive data processing. Corresponding transformations are seen in the appearance of new intermediaries belonging specifically to the world of RFID (cf. EPCglobal), information intermediaries also involved in several competing technologies (object naming, logistics information), or intermediaries specializing in particular applications and associated sectors (environment, health, culture, etc.).

Local anchorage

22The value chain of the IoT is also bound to lead to the appearance of new local representation in sectors with clear local anchorage, such as distribution, tourism, and cultural and natural heritage. The weight of such intermediaries may in fact hinder the relocation of services in the context of the IoT, contrary to frequent evidence concerning current on-line services. Large investments and commitments to middleware and information systems will be essential to benefit from resources resulting from anchorage in European locations.

The principal challenge of interoperability

23The reconfiguration of different sectors also hinges around the central challenge of developing interoperability. The latter operates via bridges between applications or the development of mashup technology that contributes to an increase in the impact and applications of the IoT. Several projects show that transformations have already emanated from this interoperability – for example, the new opportunities that arise from chip identification and barcode scanning tools already found on some mobile phones. Beyond simple economic considerations, the progression of interconnection and interoperability has created many development opportunities while promoting possibilities for innovation. In the world of the Internet, these have been a major growth factor for companies such as Google and certain access providers. The same should apply to the world of the IoT. There are already some references to M2M applications – machine to machine – perceived as “killer” applications : they concern household appliances (fridges with refill themselves alone, washing-machines which “communicate” with dirty linen to adapt their washing cycles), tools which manage their own maintenance, and the more recent applications offered on the iPhone via the Apple Store.

24This notion of interoperability is at the core of issues pertaining to the economy of the Internet. Beyond simply the interconnection which ensures compatibility between hardware and software components – through the design of transportation interfaces and application formats – interoperability involves the definition of common standards, which are openly accessible, so that they can be reused by all within the framework of the technical solutions they develop. The idea that interoperability should be a public policy priority, as well as a priority for the private, appeared at a very early stage. The complexity of technologies and of the knowledge mobilized in interconnected networks limits strategies for integration : the players that specialize in one of the technical components may become extremely powerful and impose their specific architecture (technical and economic) on the entire system.

25The convergence of communication technologies and systems also renders the standardization process particularly complex, since the IoT comes within the province of several standardization organizations. First there are international organizations such as the International Telecommunication Union (ITU), the International Organization for Standardization (ISO), and the European Telecommunications Standards Institute (ETSI). These are non-specialized organizations and their different standardization committees cover the whole spectrum of IoT technologies. Secondly, there are more specific organizations. These are often regional, national or sectional, and focus on one technical aspect or a specific part of the process (RFID standards, networks protocols, data encoding, frequency allocation, etc.). The standardization and dissemination of the IoT is being based on the combination of the different forms of standardization such as proprietary systems, voluntary sectional standardization, public regulation, “multi-stakeholder” committees, etc.

Chart 2 Mapping of the IoT International Standardization Bodies

Chart 2 Mapping of the IoT International Standardization Bodies

Source: ITU, in FMI-ADC1 TAG, “The Roadmap to International Auto-ID Standards”, January 2003.

Constantly evolving demand

26Scientific literature characterizes the structure of these application domains by listing in general the various industrial sectors and the support activities involved in IoT dissemination. The development of chips in the field of ICT (mobiles phones, position determining technology) appears to be highly advanced. In the veterinary domain, RFID has been developed for the identification of animals, as a complement to pre-existing systems (for bovines, cats and dogs) and through the increasing and systematic use of this type application (for bovines or equines). In the field of health there are also many illustrations of the wide range of applications that are likely to be developed : the tracking of objects (surgical instruments) and of individuals (patients) ; quality control (medication) ; optimization of processes and service quality (patient management in hospitals) ; and rationalization of healthcare practices. In this use, specific measures relating to the security and confidentiality of data are also envisaged. The identity document sector (biometric passports) shows that an application may be massively adopted even where there is no economic driver. Payment systems for motorways or public transportation – Oyster, Navigo, Vélib – are examples of an application which is mainly developed by transport operators to be self-financing, with the aim of obtaining gains in productivity (cost control, fraud limitation), improving service quality (ease of use) and in the perspective of offering added value services (including customisation of pricing, CRM, marketing). Lastly, the leisure, sports and cultural heritage sectors have significant influence in the development of applications (show ticketing, the tracking of sportspeople – already tested in the New York marathon – and access control). Paradoxically, these sectors are rarely mentioned although they demonstrate that certain applications based on RFIP chips may be widely disseminated while being perfectly acceptable to users.

27Let us stress that studies often refer to the same flagship applications and representative companies. Thus, the (same) examples, Metro, Wal-Mart, Gillette, Tesco, Marks & Spencer, Benetton, Procter & Gamble, Frakt, and Carrefour are mentioned regularly, not only as a result of the success and scope of their applications, but also – as in the case of Benetton recently – due to the opposition that these applications are likely to provoke among consumers.

28However, it is important to keep in mind that these large retail distributors will soon belong to the ecosystem of Internet services, along with Google, eBay, Amazon, etc.

Notes

1 See in particular RFID Technologies : Emerging Issues, Challenge and Policy Options, JRC 2007, op. cit.

Table des illustrations

Titre Chart 2 Mapping of the IoT International Standardization Bodies
Crédits Source: ITU, in FMI-ADC1 TAG, “The Roadmap to International Auto-ID Standards”, January 2003.
URL http://books.openedition.org/editionsmsh/docannexe/image/100/img-1.jpg
Fichier image/jpeg, 250k

© Éditions de la Maison des sciences de l’homme, 2009

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