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© Ana Isabel Canhoto, www.anacanhoto.com 1
Introduction to the
Internet of Things
for Marketers
Ana Isabel Canhoto
January 2017
© Ana Isabel Canhoto, www.anacanhoto.com 2
Table of Contents
1. Introduction ............................................................................................................ 3
1. Definition, types, and key components of IoT ....................................................... 4
2. Evolution and key applications .............................................................................. 6
3. Benefits of IoT ....................................................................................................... 8
4. Customer behaviour issues .................................................................................. 10
5. Marketing management opportunities and challenges ...................................... 12
6. Impact of IoT on the organisation ....................................................................... 13
7. Structural issues ................................................................................................... 14
8. Final comments .................................................................................................... 15
References .................................................................................................................... 17
© Ana Isabel Canhoto, www.anacanhoto.com 3
1. Introduction
The Internet has changed how we live and conduct business, and the Internet of
Things (which may be described as the third wave of Internet), is no exception. As
such, it is imperative that marketing managers, as well as researchers, understand
what it is, and how it impacts on marketing.
This paper aims to demystify the Internet of Things (IoT) for marketers. It
provides a non-technical introduction to what the IoT is and how it creates value for
users (and, hence, why there has been so much excitement about it). The paper also
presents a general overview of key implications for marketers to consider, in terms of
customer behaviour and marketing management. There are also numerous links to
practitioner and academic sources, for those readers who want to know more about
the topics discussed.
The remaining of this paper is organised as follows. Section 2 describes the two
different types of IoT, and the key components of the IoT eco-system. Then, section 3
outlines how the technology and the range of applications are likely to evolve, and
where growth is expected. After this, section 4 looks at the benefits of IoT for
different types of users. After these three overview sections, we turn our attention to
the implications of IoT for marketers. Section 5 explores customer behaviour issues
associated with the adoption and use of IoT. Then, section 6 builds on this, to explore
the opportunities and challenges that IoT present for marketing management. Section
7 goes one step further to consider the broad implications for the organisation, before
section 8 goes even broader and looks at industry issues. Section 9 concludes this
paper.
© Ana Isabel Canhoto, www.anacanhoto.com 4
2. Definition, types, and key components of IoT
The term IoT refers to devices enabled with an internet connection. Because they
are internet-enabled, these devices can collect and transmit data about how they are
used, and/or about their context, with little or no interference from users. Some
devices can also interact with each other.
There are two types of IoT devices (Figure 1). On the one hand, we have machine
to machine devices, which are those devices that communicate, interact or drive
action with each other. For instance, industrial automation or smart grid systems.
On the other hand, we have machine to human devices. These are machines that
communicate, interact or drive action with human users. For instance, these devices
may require input from the user; or they may collect data about the environment and
then propose an action to the user. Examples of machine to human devices include
smart home equipment and fitness devices.
Figure 1. Types of Internet of Things devices
Source: Holdowsky et al. (2015)
© Ana Isabel Canhoto, www.anacanhoto.com 5
The distinction between machine to machine and machine to human devices is
very important, because each type of device presents different challenges for
manufacturers, for marketers, and for researchers working in this area. While all IoT
devices present technological challenges related to the collection, transfer,
aggregation and analysis of data, machine to human devices also present behavioural
challenges because we need to take into consideration how the user is going to
interact with the device (Miltgen et al, 2013; Holdowsky et al., 2015).
As can be inferred from this brief description, the IoT is not one, single
technology or type of device. Instead, it is an eco-system of different technological
products and services. The following technologies are part of the IoT eco-system (Lee
and Lee, 2015; Botta et al, 2016):
1. Radio frequency identification (RFID) - allows automatic identification and
data capture using radio waves, a tag, and a reader;
2. Wireless sensor network (WSN) - monitors physical or environmental
conditions;
3. Application software – is used to develop industry-oriented or user-specific
applications;
4. Middleware – is a software layer that mediates between applications;
5. Cloud computing – enables on-demand access to a shared pool of resources.
To this list of key components, Holdowsky et al. (2015) add another one:
standards. Standards are ‘(c)ommonly accepted prohibitions or prescriptions for
action (which) enable processing of data and allow for interoperability of aggregated
data sets’ (p. 3). They are critical for interoperability between different IoT systems
(Manyika et al, 2015).
© Ana Isabel Canhoto, www.anacanhoto.com 6
3. Evolution and key applications
The technology underpinning the IoT is constantly evolving. Table 1 provides an
overview of how IoT technologies have evolved, and are likely to develop further.
Table 1. Evolution of IoT technologies
Source: Lee and Lee (2015)
Likewise, the range of settings in which the IoT has been deployed continues
to expand. Table 2 illustrates the broad range of applications of the IoT. The ever
expanding range of applications, associated with the decreasing price of underlying
technologies, the improvements in functionality (particularly around fine decision
making), the use of gamification techniques and feedback loops that encourage user
engagement, and the socialisation of consumers and peer pressure, have resulted in
exponential growth in this industry (Gao et al, 2015; Holdowsky et al, 2015).
© Ana Isabel Canhoto, www.anacanhoto.com 7
Table 2. Settings where the IoT has been applied
Source: Manyika et al (2015)
The market is expected to continue growing. It is estimated that, between 2015
and 2020, the IoT market will register a compound annual growth rate of 34% in
terms of units, and 21% in terms of revenues (Barker, 2015). Growth is likely to be
particularly significant in the consumer end of the market (Barker, 2015) and, within
this, healthcare is predicted to be the fastest growing vertical market (Nokia
Corporation, 2016). There is also large potential for IoT in the developing economies
(Manyika et al, 2015).
© Ana Isabel Canhoto, www.anacanhoto.com 8
4. Benefits of IoT
The expansion of the IoT promises to bring various benefits for society,
businesses, and individuals. For instance, governments can design cost-effective
transportation or public health systems; businesses can improve relationships with
their customers; and citizens can make informed decisions about their own well-being
or that of an elderly relative (Canhoto and Arp, in press).
These benefits arise because IoT devices can report on their own condition and the
environment, allowing users to monitor key behaviours in real time, and to control
resources remotely (Porter and Heppelmann, 2015; Weinberg et al, 2015). For
instance, Merrifield (2015) describes how Disney uses the IoT to monitor the
behaviour of visitors to their leisure parks, and sends them information and offers that
are relevant to where they are in the park, and which reflect contextual factors such as
whether there is congestion in a part of the park the visitor is heading to.
Moreover, the data generated by the IoT sensors and transmitted via the Internet
can generate valuable insight, and create new opportunities for optimisation (Figure
2). ‘Data now stands on par with people, technology, and capital as a core asset of
the corporation and in many businesses is perhaps becoming the decisive asset’
(Porter and Heppelmann, 2015, p. 100).
© Ana Isabel Canhoto, www.anacanhoto.com 9
Figure 2. The value of IoT data
Source: Porter and Heppelmann (2015)
The IoT can also enable new business models (Dijkamn et al, 2015). For
instance, makers of industrial machinery can shift from selling equipment to selling
services (e.g., charge by usage), and can generate additional revenues by identifying
opportunities for upgrades and cross-selling (Manyika et al, 2015).
For these reasons, there are significant growth opportunities for the suppliers of
software and analytics (Manyika et al, 2015; Porter and Heppelmann, 2015), as well
as for those overseeing the maintenance and support of the IoT eco-system (Paredes,
2015).
© Ana Isabel Canhoto, www.anacanhoto.com 10
5. Customer behaviour issues
For the individual, business and societal benefits of IoT to be realised, it is
necessary that these products are widely adopted and used.
To understand acceptance of IoT products and services, we need to consider the
features and utility of the technology, the context of usage, and the user of the
technology (Miltgen et al, 2013), as summarised in Figure 3.
Figure 3. Factors that might influence the adoption and use of wearables
Source: Canhoto and Arp (2016)
First and foremost, buyers need to believe that the technology will solve a
specific problem, be pleasurable to use, and that the benefits will exceed the costs and
the effort of acquiring and using it. Trust has been shown to be a key factor in driving
adoption of IoT systems (Manyika et al, 2015) To improve trust, it is vital to ensure
customer privacy, which may go against the organisations strategic and operational
goals, given that data is key to improving the service (Weber, 2105; Weinberg et al,
2015). It is also necessary to protect customer data against leaks, or hacking and
cybercrime (Manyika et al, 2015). Moreover, organisations need to protect customers
against new categories of risk, such as harm or losses resulting from product failures,
© Ana Isabel Canhoto, www.anacanhoto.com 11
machines’ actions in unpredictable situations, or the malevolent use of product
features such as the unauthorised access to customer conversations via voice
recognition systems in smart televisions (Holdowsky et al, 2015).
Second, the technical context needs to enable the use of the technology – for
instance, patchy internet coverage is likely to discourage adoption of machine to
human devices. The social context, too, is important. Social influence shape
customers’ perceptions of whether IoT is a good or bad purchase, while product
visibility (physical evidence, as well as virtual evidence) supports further growth. For
instance, in the case of wearables, it is important to design distinctive devices that
consumers feel proud to wear, and which are also ergonomic and comfortable, so that
the consumers do not feel compelled to take it off; as well as make it very easy for
users to share their activity with their peer group, for instance via social media
updates, or league tables (Canhoto and Arp, 2016).
Third, the users’ personal characteristics, and their previous experiences with
technology, are also likely to impact their behaviour.
Moreover, research has shown that the drivers of initial adoption may not be
enough to sustain continued use (Merrifield, 2015). For instance, in the context of
fitness wearables, the availability of features such as step counting or heart rate
monitoring are important in the adoption stage, whereas information accuracy and
battery life are key for continued use (Canhoto and Arp, 2016). Therefore,
manufacturers need to develop and emphasise different features and benefits to new
vs. experienced consumers.
© Ana Isabel Canhoto, www.anacanhoto.com 12
6. Marketing management opportunities and challenges
Offering devices that are embedded with sensors and software, are able to connect
to the Internet, and regularly collect and transfer data about their use and their
environment, is likely to impact how the company relates to their customers, too.
According to Porter and Heppelmann (2015), these are the marketing management
activities most likely to be impacted by the IoT:
- New ways to segment and customize, because the IoT data provide a detailed
picture of product use;
- New customer relationships, because the company remains connected to
customers via the product, there are opportunities for continuous dialogue with
them;
- Broadening of the value proposition, because products become components of
larger systems;
- Preventive after sales services, because the company can monitor and
diagnose problems remotely;
- Innovation, through the insight generated by analysing IoT data.
While data may be abundant, companies still need tools, methods and resources to
store, process and extract insights from those data (Manyika et al, 2015). It is also
crucial for marketing departments to either develop the skills and capabilities to
succeed in a data-driven marketplace or, conversely, to attract (and retain) suitably
qualified and experienced personnel (Quinn et al, 2016).
Moreover, value and insight comes from aggregating data and getting the
‘complete picture’ (HBR, 2014, p102). This may make marketing departments ever
© Ana Isabel Canhoto, www.anacanhoto.com 13
more dependent on data aggregation companies or gatekeepers like Facebook or
Google (Quinn et al, 2016).
Collecting and holding customer data also presents reputation risks for the
companies. Instances such as personal data leaks, or unauthorised use of data, can
damage the brands image and result in financial losses, even when the breach was not
the company’s fault but, instead, was caused by a supplier or technology partner
(HBR, 2014). In addition, problems with the security of devices – e.g., a car’s
computer system, a baby monitor’s camera or sound system, or a factory’s machinery
control network - is likely to result in product liability (O’Brien, 2015).
7. Impact of IoT on the organisation
IoT, with its real-time connectivity, potential for automation, and capability to
collect and transmit data, is likely to have a tremendous impact on various business
functions.
For instance, Porter and Heppelmann (2015) identify the following:
- Product development – Products become increasingly complex, embedded
with software and, probably, connected to the cloud.
- Production – Manufacturing goes beyond producing the product, to include
the loading and configuring of software. Final assembly may move to the
customer site.
- Logistics – Products can be continuously tracked, and provide information
about its location, movements and condition.
© Ana Isabel Canhoto, www.anacanhoto.com 14
In turn, Andersson and Mattsson (2015) note that, as technology changes, new
intermediaries are likely to emerge, while the roles of existing intermediaries are
likely to change.
There are likely to be cultural challenges, too. The importance of, and
responsibility for, strategy development in organisations is changing (Quinn et al,
2016), and managers need to adopt a mindset to use IoT effectively, and the ability to
adapt to new processes and business models (Manyika et al, 2015). Decision makers
may resist replacing professional judgment with data-driven approaches to decision
making, such as predictive analytics, because they may doubt their accuracy, or
because they do not understand how the outcome was reached (Holdowsky et al,
2015).
Organisations may even need to rethink how they measure their performance, and
how they monitor the customer experience (Merrifield, 2015).
8. Structural issues
The IoT industry is still relatively new and, therefore, it is still undergoing major
development. For the moment, the lack of clarity regarding the regulatory
environment for innovations such as autonomous vehicles makes investment in these
technologies very risky (Manyika et al, 2015). There are also legal questions around
intellectual property and data ownership, because data and insights are being
produced as a result of connecting multiple devices and systems (Manyika et al,
2015). The regulatory challenge is further complicated by the fact that businesses
operating with IoT devices and data often need to comply with various international
laws and regulations (Botta et al, 2016).
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For IoT to move past the early adoption stage, however, it is necessary that the
price of IoT devices (and, hence, the cost of IoT components) continue to drop
(Manyika et al, 2015). Furthermore, standards and systems operability need to
continue to develop, as the value of IoT is critically dependent on the ability of
devices and systems to interact with each other, and work together (Internet Society,
2015). Moreover, network availability and communications reliability are crucial for
data transmission and, in some cases, for the device to operate (Botta et al 2016).
Finally, it is necessary to develop quality verification processes and assurances.
Security is ‘only as strong as the weakest link within the chain of interconnected
products’ (O’Brien, 2015, p. 11), and the proliferation of poorly tested devices can
seriously undermine customer confidence and bring chaos to the system (Lee and Lee,
2015).
9. Final comments
This paper set out to give a brief and broad overview of the IoT for marketers. It
explored what IoT is and how it is used, as well as the opportunities and challenges
that this technology presents to marketing.
The paper stayed away from technical intricacies and latest developments,
focusing instead on enduring behavioural and managerial issues around the use of
IoT. As such, this document should be useful to marketing practitioners and
researchers beyond specific product iterations and configurations, or particular
business applications.
Having said that, the technology, the environment, and the state of knowledge are
always evolving. Hence, if you come across insightful articles, reports or statistics
© Ana Isabel Canhoto, www.anacanhoto.com 16
that would enhance this report, and help marketers, please let me know (contact
details here: https://anacanhoto.com/contact-me/).
© Ana Isabel Canhoto, www.anacanhoto.com 17
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