MY OPENING KEYNOTE AT INTERNET OF THINGS WORLD 2016 EPISODE 53 PODCAST TRANSCRIPT Slide 1: Welcome Slide 2: Build a better mousetrap, and the world will beat a path to your door. This quote is attributed to Ralph Waldo Emerson over a hundred years ago and it still rings true today especially here in the Silicon Valley. But it s not enough in IoT. Slide 3. For me, the great thing about being in the Internet of Things is I get work with all kinds of interesting companies in industries I know little about. My most interesting client is a third generation company that was started by a Hungarian chemist 64 years ago - he discovered that mice kept on sticking to his wallpaper glue. And like any good entrepreneur he made a pivot he moved from Europe to Brooklyn NY and he changed from selling wallpaper paste to mousetraps. After he retired, his business was grown into a tremendous success by his son, wh o expanded the product line and moved into the B2B market. Today I m working with his two grandsons who want to make their own mark and are doing so by incorporating the Internet of Things into the mousetrap. Ethical issues aside, this is the best client ever! We are literally building a better mousetrap! But we have been experiencing problems. Our early prototypes would send a text message when the mouse was caught. Unfortunately, like is often the case in IoT, our first iteration failed miserably. We didn t realize this but mice are still using flip phones so it takes a while for them to send a text. Like the 99% of all IoT companies I ve worked with, we needed to make a pivot Slide 4. IOT-INC. 1 AUGUST 16, 2016
For us to reach the true business potential of the Internet of Things, for us to get to an outcome-based economy, we need to move past the smart product, past the connected product and we need to build true IoT products. We ve had smart products for decades, using embedded systems to provide local intelligence. And connected products that only provide remote control capabilities are not valuable enough - customers expect simple connectivity as part of contemporary products today and won t pay more for it. What we need are IoT products products that are virtualized into software that can be interfaced with the Internet to bring to bear its force on the problem at hand. More important than IoT products, we need to build true IoT businesses. Slide 5. There s a lot at stake here. I m not sure of their accuracy or the assumptions upon which they are based but the numbers are big! So big that they are difficult to contextualize - except when talking in terms of GDPs. Sure, there s a lot of hype. In fact, IoT is so hyped up we have our own hype cycle! But despite the hype, the Internet of Things is not a revolution it s an evolution. IoT is simply the Internet expanding into physical objects. The definition of IoT is no more complicated than that. And despite the hype the Internet of Things is real. This is demonstrated by the largest of companies all going after the early adopters. Why? Investments are being made today because in the outcome -based economy, the majority of the spoils will go to the consolidators that establish industry platforms and ecosystems. Slide 6. All incremental value of an IoT product comes from transforming its data into useful information And incremental value in IoT is created in one of four ways: make products better, operate products better, service products better and make new products. And with an IoT product you have a 24/7 window into your customer s business. It is this information that is the key to business nirvana and key to building an outcome - based economy. Slide 7. But we have challenges big challenges to overcome. Two of the biggest hurdles facing IoT today are security and standards. IOT-INC. 2 AUGUST 16, 2016
Cyber security is complicated because not only do you have data at rest, like in IT, but you also have data in motion. Not only do you need to consider networking security like in IT, but you also have to consider mobile security, cloud security, application security and system security! Silo d or proprietary technology increases costs and decreases innovation. This problem arises in the OT or operational technology network where there are hundreds of proprietary network protocols that grew out of M2M. Name an industry vertical and it s very likely there is a proprietary protocol attached! But the biggest problem holding back IoT today is that it is being looked at a s technology rather than a business. Shiny things can be very distracting. Starting at the things is like the tail wagging the dog. Slide 8. The tech is relatively easy, but to overcome these challenges we must get business involved. Security will not be solved until business makes it a priority. The business counterpart to cyber security is risk management calculating your security investment by looking at each attack surface and determining the risk by multiplying its likelihood with its liability. Business can make this happen by voting with its dollars by buying only IP. This will force vendors to either put it in their product or on their road map. Most importantly we must look at everything from the perspective of value. Val ue drives everything. We must be disciplined and take a top-down perspective. The information we create supports value we generate. That information is supported by the data we collect, which in - turn drives our choices for sensors and information services, which drives our choice for our analytics packages and development environment. And all of the above must be supported by the IoT platform. So getting back to those distracting shiny things they re almost the last thing we should consider when looking at IoT from a value perspective. Slide 9. The outcome-based economy starts with outcomes. Let me give you an example from my client. A desired outcome for commercial bakers, one of our biggest customers, is, A clean and healthy environment that passes inspection. People don t want to own a mousetrap and especially don t want the mice inside, they want what the mousetrap can do for them. It turns out to provide the outcome for our Commercial Baker customer means three sub - industries must be involved. There is sanitation, to keep the environment clean in order to not attract the mice. There is construction, to maintain the building integrity in order to IOT-INC. 3 AUGUST 16, 2016
block the mice from entering if they do smell food. And only if the mouse has smelled something good and has somehow found their way inside, do you want to catch them. Therefore, to provide the outcome the customer really wants we bring together the technology and the business of sanitation, construction and extermination. Luckily there are two trends that are making this possible - I describe them as the IoT tech continuum and the IoT business model continuum. IoT tech continuum starts as a smart product. A smart mousetrap for example may close its door when a mouse comes in. This evolves into a connected product. A connected mousetrap has the intelligence and may allow you to interact with the trap remotely or maybe even send a text! Then comes the IoT product. The IoT product is not only smart and connected but it will leverage the Internet to access other data sources like weather data and apply analytics to the problem, adding value in a host of different ways. Continuing we have the network of products which represents our product line of traps and standalone sensors. In parallel these same activities are occurring in sanitation and construction - they too will have product lines consisting of networks of their IoT products. At the end of the tech continuum we have networks of networks of IoT products all working together to, in this case, provide a clean and safe environment. This is the technical underpinning of the outcome-based economy. Now shifting our attention to business, we also have an interesting evolution going on with business models. We start with today s product business model buy a trap and you re done. This is as far as possible away from the business model of our customer. They must pull together all the product business models and come up with an ROI to consolidate them to see if they make economic sense. The service-based business model is a little better. Often in IoT it s a physical product as a service. In our example, commercial bakeries don t want to have mouse catching equipment sitting on their balance sheet depreciating it would be much better paid as a service, like the business model of sanitation of construction. Finally, the outcome-based business model is aligned with the desired outcome. Here the customer will only pay for a clean and safe environment that passes inspection. We monetize this outcome in a way that matches the business model of the customer. So if it s a line operating expense on their P&L, that s how we structure it to be paid. This is the commercial underpinning of the outcome-based economy. The irony is that once we can technically deliver the outcome the customer desires, the only feature that matters is the business model and to minimize monetization friction, this business model will align with the business model of the customer, ultimately becoming the same. Slide 10. IOT-INC. 4 AUGUST 16, 2016
IoT tech and business are leading us to the outcome-based economy. Technology is leading us to the IoT platform and platform of platforms. That is a technical platform that supports the various product lines of all the companies that need to work together. Business is leading us to the IoT ecosystem and ecosystem of ecosystems. The ecosystem is the business counterpart to the platform. It brings together the producers and consumers of the tech in order to monetize it. In the case of our commercial baker, his desired outcome goes beyond clean and healthy. His desired outcome will include the supply chain, manufacturing and distribution each with their own ecosystem to be incorporated together. It is this coming together of more and more ecosystems that produces an outcome-based economy which both realizes the business promise of IoT and makes a lot of mice nervous. Slide 11. Welcome to Internet of Things World 2016. My name is Bruce Sinclair and I ll be your MC for the rest of the day. IOT-INC. 5 AUGUST 16, 2016