Capgemini has estimated that the connected products market will reach between $519 billion and $685 billion by 2020. Manufacturers, the firm says, are estimating that nearly half of their products will be ‘smart and connected’ by 2020, whilst 18% claim that they plan to cease manufacture altogether. Instead, they will move to a purely service-based business model.
These predictions show servitisation – the process of adding services to products – in action. And it is one of the most powerful and influential evolutions to have emerged from the Internet of Things.
Servitisation can benefit manufacturers in a number of different ways, but broadly speaking these can be understand as either internal – that is, developing intelligence than can be used to develop new offerings – or external – that is, offering improved or all-new services to customers directly.
It all starts with manufacturers using the IoT to gain deeper, more detailed insight than ever before into how their customers are actually using their products. Once those products are embedded with sensors to capture key information, and internet connectivity to transmit that information back to an analytics platform, manufacturers suddenly have access to previously untapped data on customer usage, ‘in the field’.
What kind of data? Anything from when products are used and what environments they are used in, to where they travel to and how many times they are used before being upgraded or repaired. In short, rich information on product performance and usage, with real-life context. Rather than relying on customer feedback, which may be difficult to gather or filtered through several different groups or individuals before it reaches them, manufacturers suddenly have immediately access to knowledge ‘in the field’. This can be consolidated, combined with other data sources, analysed and used to drive tangible enhancements in next-generation products, or even entirely new product lines.
The same sensors and connectivity can also transmit information back to customers in real-time, enabling manufacturers to provide advice, say, on how to optimise performance. Think about black boxes in car engines which provide advice on accelerating, braking and driving behaviours in order to achieve maximum fuel economy. Or smart home systems which can advise customers on how to save energy on unused or poorly performing appliances.
These are consumer-facing applications but the same mechanisms can also be used on a corporate scale, helping entire organisation to reduce the energy use in a building or optimise the performance of a fleet of vehicles.
There are also opportunities for manufacturers to sell directly to customers using IoT connectivity, by delivering optional (paid for) applications and services over the same mechanism. Car manufacturers, for example, can generate new revenue streams by offering in-vehicle software downloads such as GPS navigation systems or entertainment solutions. Subscription models are another option, ensuring regular payments for customers in return for software-based products which simultaneously form a valuable new marketing channel.
Overall, servitisation is one of the most transformative trends to hit the manufacturing industry for decades. Little wonder that nearly half of all UK manufacturers planned to increase their investment in servitisation this year. Are you one of them?
Want advice on how to harness the power of servitisation or want to know how to get the best value from your IoT investment? Get in touch and we’ll talk you through what’s possible for your business.
IT is becoming an integral part of the product itself, and these smart, connected products:
The 10 Strategic Choices
To capitalize on these opportunities companies face 10 new strategic choices, for example:
This article provides a framework for developing a strategy and achieving competitive advantage in a smart, connected world.