From where I sit, I look out over a long downtown street in the heart of Providence. The far side of the street is flanked with parking meters and omni-present urban ginkgo trees. These parking meters are a lot like parking meters everywhere else: the displays on these meters blink happily away as the sun recharges the meter through a top-mounted solar panel, they accept credit cards, and the city has access to a trove of usage data on the back end of whatever program monitors the meters. I genuinely love- not like or enjoy or appreciate but actually love- these meters because they demonstrate the power of both disruptive innovation and the meteoric hockey-stick growth of connected devices in the world around us.
I love the fact that someone (probably an employee of the company, IPS Group, that invented and patented the connected parking meter in 2005) sat down and decided that they needed to understand the parking meter more completely. This someone probably spent days upon days watching other drivers use parking meters and plotting out a user experience map before executing a full-fledged development of the underlying technology. Ultimately, the technology massively advanced one of the primary ways in which people interact with government services- the payment of fees and taxes- towards a reality where payment becomes more seamlessly integrated with daily life. No more digging for coins. What a simple premise!
Derision for this type of innovation is always more noticeable when the gravity of the advancement is cloaked in minimalism under the supposed guise of incremental improvement. Undoubtedly many motorists asked themselves and others why coin payment, which had worked exceedingly well as a concept up to that point and upon which many systems were built, was no longer enough. In response to a brief article published by DCist.com in April of 2010 that notified readers that Washington, DC would soon run a test pilot of Internet-connected parking meters one commenter opened a Pandora’s Box of contempt and wrote:
You know a squirt bottle full of salt water does some amazing things to electronic parking meters and vending machines. And if you can’t afford salt water, there’s always urine…
The following comments, while certainly less revolting, carried the same undertones of ridicule and generally questioned the utility of such an advancement. While the initial dismissal may have been intense, imagine if Internet-connected meters were now phased out across a whole city and the municipality reverted back to coin payment. Presumably:
You know a squirt bottle of salt water does some amazing things to the eyes of our elected officials…
You get the idea.
Quantifying Innovation and the Danger of Ignorance
Given the infallibility of Internet-connected meters (there’s no period at which the device is unmonitored as with manual meters, many sense when a car leaves and enters the spot preventing drivers from feeding the meter for an extended period of time and then notify parking enforcement if a violation occurs, and some even issue tickets on their own) usage would presumably drop with widespread installation as users are more apt to be caught with parking tickets and the like. From a very simple economic perspective, this is a huge disincentivization of use which would lead to a decrease in revenue. Data shows that this has not happened at all and in cities like Minneapolis where Internet connected meters were rolled out over a two-year installation at a total cost of $7.3 million, revenue from parking meters has skyrocketed:
Data from the city’s public works department show that since the implementation of credit card parking payment began in 2010, net profits have nearly doubled from $4.7 million to $8.6 million in 2014…A city report found [that credit cards] accounted for nearly 75 percent of the meter revenue.
In what is now far more than a sour deal, former Chicago Mayor Richard Daley leased the entire parking meter system out to private investors in 2008 for a period of seventy five years at a price of $1.16 billion. The investment consortium promptly installed Internet connected meters, revenues skyrocketed to $134.2 million in 2018 alone, and the group is now scheduled to make their money back by 2021 with 62 years left on the lease. At best, Mayor Daley lacked the foresight to see what the Internet of Things would bring to his city and one of its core revenue streams. At worst, this decision borders on extreme negligence.
In any case, this is a great example of what happens when massive entities fail to realize the importance of innovation while also failing to address prevalent market forces and development trends.
More is More: An Undervalued Market
According to Bain Consulting, $235 billion was spent in 2017 on all IoT markets combined with that number more than doubling to $520 billion in 2021. While this number is massive and very telling of the latent potential of IoT technologies, I believe that it actually underestimates total market value and growth. Bain’s analysis seems to largely capture data on devices that are directly connected to the Internet via their own dedicated IP address (smart fridges, connected lightbulbs like the Phillips Hue, smart electrical grid control systems, etc.) while not accounting for devices that are indirectly connected to the Internet via an intermediary like an app on a cell phone. Devices in the latter category are already widely available in the consumer and industrial markets. For example, the Tile Bluetooth device and its corresponding app allow for a user to see the last known location of a Tile from any device in the world via the Internet but the Tile device itself is only Bluetooth enabled. This system architecture is also found in the industrial sector in things like garment-tracking RFID tags and their registration infrastructure or the centralized repair and analysis sensors that truck mechanics plug into ODB2 ports. These devices are all indirectly IoT-relevant.
Translating Insight in Action
While the opportunities provided by IoT incorporation seem endless, the main potential falls within three distinct opportunity areas:
- Hardware-enabled IoT Reoccurring Revenue Models (HIRRM)
- Increased data collection and personalization
- Efficiencies in maintenance and product longevity
The Google Play store and App Store are replete with apps that offer a subscription as part of their service offering, a micro-payment for temporarily enhanced app functionality, or for some degree of increased benefit in return for some amount of payment on a predictable basis. This digital banality- prior to the integration of connected technologies- was largely difficult to replicate in the real world of atoms. Online retail market leader Amazon.com introduced the Amazon Dash button to widespread consternation at the decline of American society at large in April of 2014. Ian Crouch of the New Yorker wrote:
All that stuff, the same stuff, used and discarded day after day. It’s the kind of montage that a movie director would use to show just how sad and soulless a character’s life was. And the idea of shopping buttons placed just within our reach conjures an uneasy image of our homes as giant Skinner boxes, and of us as rats pressing pleasure levers until we pass out from exhaustion.
The Dash button, a WiFi connected button that adheres to any surface and orders one specific product at the push of the button, saw a 650% increase in use between July of 2015 and July of 2016. Meanwhile those brands that sell via Dash are seeing double digit increases in customer loyalty. Outside of CPG and consumer retail, major brands like Tesla are using HIRRM to offer over-the-air performance upgrades on their vehicles such as increased autonomous driving ability and increased battery capacity. As of publication, a new Model 3 can be spec’d with full autonomous driving capabilities from the factory for $5,000 or it can be enabled after the fact for $7,000 as an over-the-air upgrade; all the hardware to enable the upgrade is already in place stock from the factory.
Increased data collection and personalization
Progressive Insurance, one of the oldest and largest automotive and home insurance providers in the United States, built out a system to better track their automotive insurance subscribers’ driving habits. The system, called Snapshot, is a sensorized dongle that plugs into a car’s ODB2 port and tracks user driving behavior including instances of hard braking, overall miles driven, location and speed, and the time of day during which the insured vehicle is in operation. Progressive identified these metrics as being key indicators of overall driving safety and accordingly offers a discount (by claiming to be able to more accurately price risk) to those drivers that the system determines represent the least exposure. At least in part, this kills the age-old need for extrapolated risk analysis by actuarial table.
The market has responded favorably to this innovation. Since the launch of the service in 2012, Progressive’s market capitalization has increased by 3.88x. One of Progressive’s leading publicly traded competitors, Allstate, increased 2.93x. Meanwhile the Dow Jones increased by 1.98x during the same period. Given that overall service offerings between competitors are largely similar, it seems likely that Snapshot- or at least the perception that Progressive is widely engaged with IoT innovation- contributed to Progressive’s rapid growth rate.
Efficiencies in product maintenance and longevity
General Electric is, as of this writing, going through a turbulent moment in its storied history as it sells of major portions of its corporate structure and begins to rethink the very nature of its core businesses. Nevertheless, it has made a sizeable investment in industrial IoT and this decision will likely carry through to whatever GE looks like when it finally comes up for air. The company is now vertically integrated in the industrial IoT space; it offers the sensorized componentry necessary for remote monitoring of industrial infrastructure, the platform (Predix APM) used to monitor the data coming in, and also a monitoring service (also part of Predix APM) that handles the management of all that data in real time using predictive analytics backed by actual people. It’s a lot like the Brinks Home Security model- sell the door alarm, sell the keypad that reads the door alarm data, and sell guarantee that someone from Brinks will call when the alarm is triggered.
Interestingly, the GE strategy is also a lesson in what not to do with IoT. By vertically integrating the entire system, they put themselves in direct competition with companies like Amazon and Microsoft who also operate in the same space by offering server capacity to IoT companies and their processing needs. Building and maintaining physical server farms is by far one of the largest components of any vertically integrated IoT play so General Electric gave up on that portion of their gambit:
GE abandoned its go-it-alone cloud strategy a year ago. It now relies on AWS and expects to be using Azure by late October, four months behind schedule… As GE pivoted away from building data centers, its engineers focused on applications, which executives now saw as more useful for winning business and more profitable than the platform alone.
Over and Out
MMID believes that IoT is the way forward for a lot of companies and that’s why we push our partners to execute digitally-integrated hardware development strategies whenever possible. As a consequence, our portfolio of IoT products now includes security gates for Boon Edam, a traffic control system for Dynniq that reduces cost on both unit and system levels, and a smart thermostat for Plugwise’s consumer products division. Regardless of implementation, all our IoT devices adhere to identical core goals: deliver efficiency gains, increase cost savings, and increase the ease of data collection and the quantity of data upon which our customers and partners build their business models and growth targets.