The word IoT has entered the popular lexicon. While IT was a form of communication with people using cell phones and the internet, IoT is a form of connection to objects such as power meters and vehicles. There are three essential features that form a basis for understanding IoT.

Looking beyond population decline on a global scale

The word IoT (Internet of Things) has entered the popular lexicon

“[IoT] became a buzz word starting around 2012. While IT was a form of communication with people using cell phones and internet, IoT is a form of connection to objects such as power meters and vehicles. It has taken on a broad definition that extends to every object and everything in our environment apart from human beings.”

Kotaro Kuwazu, an NRI consultant and long-time observer of the IT sector, assesses that the word IoT became a buzz word starting around 2012, and views the reasons for its emergence as follows.

“The aging of society and population decline are currently happening on a global scale. We need to discover ways to increase productivity without relying on human efforts. AI (Artificial Intelligence), robots, and IoT are gaining attention as possible solutions. Among these technologies, IoT technology is the most advanced and is expected to be put into service the most rapidly. I think that is why IoT is gaining so much attention.”

Kuwazu says that IoT is a mechanism that will fundamentally change conventional business practices and lifestyles. There are three essential features that form a basis for understanding IoT.

More users doesn’t mean more profits

Kawazu says the first essential feature of IoT is that applying conventional business models to it will not lead to profits. Conventionally, business has operated under the assumption that new technologies and mechanisms would lead to the creation of convenient and enjoyable services, and to expanding markets. However, Kuwazu says using this framework to understand IoT is erroneous.

“Some expect that because IoT applies to everything besides us in our environment, a huge market will emerge for it. However, I am skeptical of this idea. For instance, the cell phone, an illustrative IT product, leads to roughly 5,000 yen in monthly fees per user. When power meters or vehicles are connected to IoT, however, monthly payments of 5,000 yen per sensor do not arise.”

In the case of IoT, the more objects that are connected, the more diverse services will be created. For example, IoT functions can be imparted to a spoon to measure hand shaking, or to a toilet to measure blood sugar levels and other elements in urine. However, Kuwazu says that these individual services will not necessarily lead to guaranteed profits.

“IT business models centered on cell phones and the internet are like a farm that raises cows or pigs or sheep. A sheepdog can look after all the animals at once. However, an IoT business model is more like a zoo. A whole variety of animals need to be looked after—elephants, lions, penguins, snakes—and each of them needs to be taken care of differently. IT was efficient, but IoT is disorganized and scattered. That’s why we can’t try to apply conventional business models to it. An essential feature of IoT is that conventional business models won’t make it profitable.”

Diverse and complexified value chains

Kuwazu says changes to value chains are a second essential feature of IoT. He uses the example of a vehicle to explain.

“Currently, for vehicles of a certain grade or higher, the manufacturer can tell how it’s being driven from the mileage, when it’s driven, the frequency of sudden acceleration or braking, and other data. Soon, with used cars as well, we will be able to know how they were previously used from the use state of the battery and the like. In other words, car manufacturers will forever be connected to their vehicles through IoT, even to vehicles that have been sold off. When that happens, business models built on the basis of conventional value chains will cease to apply.”

All manufacturers provide goods and services using the basic flow of procuring materials, assembling a product, and then selling it. However, when manufacturers are forever connected to their products through IoT, value chains are diversified. It will become necessary to create a new sales mechanism to match these new value chains.

“This applies not only to manufacturers. System vendors, for example, will not have finished providing their service once they prepare a network or provide a communication service. If we don’t focus on the underlying changes and change the way we think, I don’t think we can create a business model for IoT.”

It’s not exciting, but it will benefit society

Kuwazu says the third essential feature of IoT is that it primarily offers services that “benefit society as a whole, but that personally I am reluctant to use”.

“For instance, there is talk of creating a service for measuring body weight for health management, to be provided in conjunction with health insurance. Judging by the measured value of their body weight, people who are managing their health will see their insurance premiums go down, while those who are not will see them go up. Nobody likes getting on the scale. If they don’t like it, they don’t need to accept the service, but refusing it will make their insurance premium skyrocket, which could blow through their entire pension. It benefits both individuals and society as a whole when individuals manage their health, but individuals don’t enjoy always getting on the scale and having their data measured. As an individual, it’s not enjoyable, and people would prefer not to do it, but it ought to be done for the sake of society as a whole. Many IoT services are like that. Therefore, the key to popularizing IoT is to figure out how to overcome people’s discomfort.”

IoT can be bland and doesn’t excite people, but we must rely on it as society faces a declining population.

“IoT is an important mechanism that supports society from behind the scenes. Even if it seems uncomfortable, we will need to accept it as part of society. That’s why our role at NRI is to convey its essential features to society and move towards incorporating it into our lives.”