Want a Piece of the $450 Billion IoT Market? Five Pitfalls for Vendors to Avoid

Want a Piece of the $450 Billion IoT Market? Five Pitfalls for Vendors to Avoid

Having a head start in the Internet of Things doesn't guarantee a victory. Here are five pitfalls that vendors would be wise to avoid.

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Want a Piece of the $450 Billion IoT Market? Five Pitfalls for Vendors to Avoid

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Companies across industries are sizing up opportunities in the Internet of Things and how they might seize them. Some see a chance to create premium products that could boost their profit margins; others hope the IoT will help them boost productivity.

Whatever the goal, there’s a huge and growing opportunity for IoT vendors. In fact, we expect that by 2020, the vendors producing and selling the hardware, software and other solutions that power IoT technology will pull in upwards of $450 billion in combined sales.

Who will be the leaders in this nearly half a trillion-dollar market? While disruptive start-ups snag a lot of headlines, the incumbents—analytics companies, cloud service providers and network equipment vendors—have an enviable head start in this race. With their long track records of innovation and their ability to integrate their products with existing systems, customers will look to these trusted providers to help them solve the many challenges of IoT adoption, from security concerns to simply getting products to work smoothly across different platforms.

But having a head start doesn’t guarantee victory. We surveyed more than 170 executives of IoT providers (the vendors) and more than 500 executives of companies looking to employ IoT solutions (the customers). We identified five possible pitfalls that vendors would be wise to avoid.

Pitfall #1: Spreading investment too thin

The majority of the vendors we spoke to said they’re investing in IoT solutions across four or more industries. It’s no wonder nearly half of them view prioritizing investments as one of their biggest challenges. While it’s tempting to cast a wide net when it’s unclear which area will pay off, these vendors risk developing solutions that are not tailored enough for early adoption—making implementation more difficult or return on investment unclear. Instead, they should hedge their short- and long-term bets by focusing on three to five use cases and developing a handful of targeted solutions within them.

Pitfall #2: Not understanding your true profit sources

There has been much buzz and excitement in the press around new consumer devices, such as wearables or smart home devices. However, we believe that the biggest long-term profits are more likely to be found in enterprise and industrial solutions. There may be revenue generated from devices themselves, but the best sources of profit are often less visible, such as the software and services required to manage, analyze and create services from the data generated by these devices.

Pitfall #3: Delivering standalone products

Vendors often sell a great product or service and then expect customers to integrate them into their own operations. But when some of the biggest challenges facing IoT adopters are related to interoperability and a lack of internal expertise, customers are wary of components that they’ll struggle to use. Leading IoT vendors work with partners to deliver end-to-end solutions that customers can easily integrate.

Pitfall #4: Underestimating the funding required to achieve scale

IoT has already drawn massive investments—more than $30 billion in venture funding and over $75 billion in M&A activity by major vendors. IBM has announced plans to spend $3 billion to bring IoT solutions to market in the next few years. And well-known telcos and device manufacturers are investing billions as well.

Companies often underestimate the cost of constant innovation, launching products and encouraging adoption. To compete with established players, vendors may need to team up with partners or pour in more money than they expected. What’s more, many IoT investments are at risk of being cut before they ever have a chance of gaining traction in the marketplace. Vendors should approach these early IoT and analytics investments as they would venture funding—protecting them from aggressive cuts, giving them time to develop and tracking their success with clear milestones.

Pitfall #5: Reassigning current employees instead of hiring specialized talent

When you’re blazing forward in a disruptive landscape as an incumbent vendor, you very likely won’t have the right team in place. Only 10% of our survey respondents said they had the right people in the right roles to capitalize on the IoT. To capture this opportunity, most companies will need to hire talent with new capabilities, industry expertise and entrepreneurial experience.

Ann Bosche is a partner in Bain & Company's San Francisco office and a leader in Bain's Telecommunications, Media and Technology practices. David Crawford, who’s based at Bain’s Silicon Valley office, leads the Technology practice in the Americas.


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