5 Strategic Learnings for the Age of IoT

In his influential book The Tipping Point, Malcom Gladwell describes how, when, and why shoe brands, movements, and even diseases can “tip” into sudden, widespread acceptance. This concept has gotten a lot of traction in our innovation ecosystem, and the “smart home” and the Internet of Things are no exception. Of course, despite the multitude of product launches and ecosystem offerings that have flooded the market in recent years, industry experts agree that the smart home market has yet to “tip” — but that hasn’t stopped numerous companies (start-ups and more established entities alike) from trying.

Longstanding innovation leaders are struggling to understand what this flurry of activity means for their organizations. The prospect of getting involved in the connected space is daunting for many, yet the market seems too big to ignore. Over the past several years, Newry has worked with a number of traditional product companies facing this dilemma, and in helping our clients move into this exciting but unpredictable new area, we’ve learned a lot about what works — and what doesn’t. Here are five of the big ideas:

1. Determine what real problem(s) actually exist that you should solve

In the world of innovation, there are problems you can solve, and then there are problems you should solve. Unfortunately, in the smart home space, there’s been a disproportionate amount of activity around the former, which has resulted in a glut of amusing but ultimately low-value gadgets. There’s a smart fork that vibrates when it senses the user is eating too much, and a smart egg tray that eliminates the need to open the fridge to see how many eggs one has left. Unfortunately, the “smart” aspects of these products are merely additive, not transformative, and thus they have not achieved mass commercial success.

Many “smart” products have little actual value beyond novelty

Contrast these offerings with Chamberlain’s foray into connected home products: MyQ, a WiFi-enabled garage door opener. The product has created tremendous value for consumers by helping them feel more personally secure through the ability to monitor their garage door through their smart phone, and open/shut it remotely via the app — and Chamberlain has reaped the rewards.

2. Design for a multi-faceted user experience

Consumers often surprise companies with where they derive value from a product. Take, for instance, the Nest Protect Smoke and CO Alarm. Nest found through extensive consumer research that customers would value a connected alarm that sends an alert when the battery needs changing, thus preempting the 3am low battery chirp. In addition to this somewhat predictable desire, however, consumers also expressed appreciation for the nightlight-like glow of the device, as well as the calming voice that sounded from the alarm before it went off. These seemingly incidental features turned out to be extremely important in driving people to share their positive experiences with their family, friends, and neighbors. People will buy a product for what they expect it to do, but they will promote a product if it goes above and beyond in creating a pleasant interaction and a value they didn’t foresee.

3. Build a dynamic ecosystem, not just a product

When companies enter the connected product zone, consumers start to expect different things from them. No longer is it acceptable to wait 3–5 years for a refresh; connected consumers desire near-constant functionality updates and expansion of offerings, with no interruptions in service.

A product can only take you so far — a partial or whole-home ecosystem solution offers many more opportunities to capture value

August is an excellent example of a smart home product company that has built out an entire ecosystem at breakneck speed, all while keeping its core value prop intact. In the year after the mass launch of its first product (a connected door lock) in October 2014, August completed a product update and increased functionality, introduced a Gen 2 version of the lock, added two additional products (a doorbell camera and keypad), and launched partnerships with various service providers. This rapid pace may seem overwhelming, but August’s commitment to developing an ecosystem around everything associated with the front door has positioned them well to develop additional business models around services associated with home access (e.g., deliveries, dog walking, etc.)

4. Invest in IT

An ecosystem is more than just an offering of related products. In fact, it’s as much or more of an IT focus than anything else — and your current IT department probably cannot keep up. A 2015 McKinsey Global Institute report estimated that connected hardware was a $20-$30B global spend, but likely to decrease, but that software and app development was a $20-$35B spend and likely to increase. To keep pace, traditional product companies will need to put significant resources towards developing a connected software stack, updating apps, making API connections with partner devices, and hiring data scientists to determine and extract value from sensor nodes. Partners can (and, in many cases, should) be utilized for many of these needs, but ultimately, it is the flexibility of a company’s IT architecture and their ability to capture and analyze data that will drive long-term success and value capture — both by enabling excellent user experience, and laying the ground work for new partnerships and business models.

5. Grow non-traditional channels

Consumer awareness is still a major obstacle in the smart product space. While a store like Target is an excellent channel to millions of potential customers, they have little incentive to push a connected version of a product (like a window AC unit) over a traditional version, and their sales associates likely lack the knowledge to make the case for purchase effectively. However, aligning with channels that do have a vested interest in IoT — e.g., Nest’s partnerships with over 75 utilities and insurance companies — enables them to act as your salesforce. The key is to find allies who can monetize the value-in-use of your product; otherwise, they have no incentive to get involved.

An ecosystem is more than just an offering of related products.

An industry expert at the Connections smart home conference recently said that, for IoT products, “there is no single point of inflection. This industry is molasses flowing downhill that will eventually cover everything.” This perspective (and our experience) suggests that adoption of connected products will grow steadily as companies layer on features, services, and the IT backend to support them, until “smart” features are just the norm. The key is to prepare now to interact with end users in a new way, and through different partners and channels altogether.