How IoT Data Ecosystems Will Transform B2B Competition

Former Cisco CEO John Chambers got it mostly right when he said that every company today is a technology company. In fact, every company is becoming a technology and data company, and the consequences of this distinction are substantial.
The real value of the Internet of Things (IoT) lies in the data it serves up and the insights that result. Much has been written about how IoT is unlocking significant value for companies by enabling smart factories and connected supply chains as well as the ability to monitor products and deliver new services. But IoT isn’t just changing how companies operate; it’s changing the very nature of their businesses. In asset-heavy industries, the proliferation of IoT data is fundamentally shifting the customer value proposition from goods to services, and this shift is leading companies to adopt new business models that require new capabilities.
The majority of IoT solutions today are built around internal applications such as predictive maintenance, factory optimization, supply chain automation, and improved product design. But to fully capture the value of their IoT data, B2B companies need to think beyond their own walls. By collaborating with new business partners, including industry incumbents and players in other sectors, companies can form new data ecosystems. These ecosystems give their participants access to valuable collective data assets as well as the capabilities and domain expertise necessary to develop the assets into new data-driven products and services.
Data ecosystems will play a critical role in defining the future of competition in many B2B industries. They enable companies to build data businesses, which are valuable not only because they generate high-margin recurring revenue streams but also because they create competitive advantage. New data-driven products and services deliver unique value propositions that extend beyond a company’s traditional hardware products, deepening customer relationships and raising barriers to entry. They also build highly defensible positions, thanks to natural monopolies rooted in economies of scale and scope (similar to monopolies based on proprietary IP or trade secrets). Companies that secure advantaged positions in data ecosystems will generate significant value and competitive advantage across their entire business, including their traditional hardware offerings.

Digital ecosystems—networks of companies, consumers, customers, and others that interact to create mutual value—have enabled some of the most profitable and valuable business models that exist today. (See “Getting Physical: The Rise of Hybrid Ecosystems,” BCG article, September 2017, and “The Age of Digital Ecosystems: Thriving in a World of Big Data,” BCG article, July 2013.) In fact, the five most valuable public companies in the US (at the time of publishing)—Apple, Google, Microsoft, Facebook, and Amazon—are all orchestrators of digital ecosystems. These digital leaders have built platform-based business models that capitalize on the winner-take-all dynamic of ecosystem competition to reach enormous scale and establish dominant positions.

These orchestrators exploit three factors:

  • They scale up rapidly, capitalizing on virtually zero marginal production costs, network effects, and low barriers to geographical expansion (in the absence of protectionism).
  • They take advantage of the “data flywheel effect”; digital ecosystems enable unprecedented data accumulation and analysis, fueling improvements to products and business processes and stimulating further growth and data access.
  • And ecosystems are able to provide seamless and comprehensive digital experiences for customers by organizing business partners on a single platform to satisfy multiple customer needs. They thereby lock in customers and capture a greater portion of their attention, time, and value.

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https://www.bcg.com/publications/2018

By Massimo Russo and Michael Albert