EUROPE EDGES OUT THE U.S. IN THE INTERNET OF THINGS, BUT CAN IT DEFEND ITS EARLY LEAD?

New research from Bain & Company finds that European executives are more ambitious and optimistic about their plans to deploy and integrate Internet of Things solutions compared to their American peers

New York – March 30, 2017 – U.S. technology providers talk a great deal about the promise and possibilities of the Internet of Things (IoT). Meanwhile, their European counterparts have been quietly positioning themselves to take the lead in deploying IoT as a core business capability. Many European companies are already moving beyond the experimentation stage into real-world uses and deploying scale solutions with customers, especially in some of their traditional stronghold industries, such as automotive and industrial machinery. However, their actions and investments over the next few years will determine whether European firms can defend and extend their lead, or whether they risk losing hard-won gains.

As customer enthusiasm for IoT continues to grow across sectors and geographies, executives know they need to understand where and how IoT will affect them. While most are optimistic about the cost reduction and new revenue opportunities provided by IoT, it is still the early days, and many find it difficult to get a foothold and develop a strategy. Recent research on IoT from Bain & Company finds that only about 10 percent of companies have made it beyond the planning and proof-of-concept stage, and only about 20 percent expect to implement solutions at scale by 2020. Bain works with these organizations to help them understand where battlegrounds are emerging, how platform dynamics will shape competition and profitability, what barriers exist to adoption (for example, security and interoperability), where to invest, and what capabilities are required to win in this rapidly evolving market.

Bain’s latest report, Finding Europe’s Edge in the Internet of Things – the fifth in an ongoing series of articles focused on IoT – reveals that in many cases, executives in Europe are more ambitious and optimistic about their plans to deploy and integrate IoT solutions than their American peers. And there is a lot at stake. Bain estimates that enthusiasm for IoT has fueled $80 billion in M&A investments by major vendors and more than $30 billion from venture capital firms.

“Europeans and Americans appear to want different things out of the IoT. These differences suggest that because European executives are ahead in implementing IoT technologies, they may have a clearer view of what they want to pursue,” said Michael Schallehn, a partner in Bain’s Technology Practice, who co-authored the report. “Capitalizing on their history and reputation for quality, innovation and precision, European firms have distinct expectations about how the IoT will change the way systems and businesses operate. They are counting on these advantages to further raise the quality of their products and services and ultimately extend their lead.”

Bain’s survey of 500 executives across industries in Europe and the U.S., found that a greater percentage of European executives plan to continue deploying IoT solutions over the next few years than their colleagues in other regions: 18 percent of European executives said they are already implementing IoT and analytics case applications, compared with just 8 percent of U.S. executives.

Among executives who emphasized cost reductions from IoT, about two-thirds of European executives are enthusiastic about the potential to improve the quality of existing products based on IoT technologies and advanced analytics; only about one-third of the American executives rated such quality improvements as a priority. On the other hand, three out of four executives in the U.S. said they expect IoT and related analytics to help them reduce waste, while only 35 percent of Europeans highlighted this advantage.

Bain’s research also finds European executives are more focused on security as a primary concern than are their U.S. counterparts: 39 percent of IoT customers in Europe rated security concerns as a major obstacle to IoT adoption, compared with 27 percent of U.S. customers. The groups differed on their concerns over compliance, too, with 22 percent of Europeans rating regulatory barriers as a top barrier, while only 8 percent of U.S. executives did. This awareness could become a competitive advantage for European firms as they develop cost-effective solutions that comply with a wide range of regulatory regimes and appeal to a sophisticated user base with an understanding of security and privacy issues.

Finally, the survey reveals that some industries devote more of their IT budgets to IoT in Europe than their counterparts in the U.S. For example, automotive executives in Europe are allocating 24 percent of their IT budgets to IoT, compared with only 19 percent of IT budgets within the U.S. automotive industry.

“European executives have to move rapidly and decisively to capitalize on these competitive advantages,” said Christopher Schorling, co-author of the report and a leader in Bain’s European Technology Practice. “Providers of IoT technology will not only have to come up to speed with their ability to develop and deploy IoT solutions, but they also need to improve their understanding of their customers and their businesses, in order to ensure they provide solutions that boost their customers’ bottom line.”

The road ahead will be neither easy nor straightforward. Bain advises European players to double down and scale rapidly. This means different things for users and sellers of IoT solutions:

• Users of IoT. Just as the rise of digital provided opportunities for fast movers in nearly every industry to gain competitive advantage, so, too, should executives now be looking to the Internet of Things to make evolutionary and revolutionary leaps ahead of their peers. This includes: screening the entire business for opportunities to deploy IoT solutions that enhance the customer experience, remove costs, and develop new products and services; and building internal talent, especially on the technology side, to take full advantage of opportunities.
• IoT technology and solution providers. Sellers see the potential of a multibillion-euro market, but will be better positioned for success if they explore a few select vertical markets or applications first, and then apply what they learned as they grow. This includes: scaling up quickly; and developing an understanding of the critical control points and where to differentiate your offer.

Editor’s note: To receive a copy of the report or arrange an interview with Mr. Schallehn or Mr. Schorling, contact:

• U.S.: Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102
• Europe: Aliza Medina at aliza.media@bain.com or +44 20-7969-6480