when everything can communicate with everything else, it essentially redefines and creates new business value chains (see Figure 1.3).
Figure 1.3 First Two Stages of the Internet
First, as Turner points out, IoT disrupts traditional value chains. This forces companies to rethink and retool everything they do, including product design, production, marketing, and after-sales service, while using analytics combined with security. That's essentially what happened at Harley-Davidson. From there, smart connected products expand traditional B2B channels and effectively demolish line-of-business (LOB) boundaries.
A decade ago, visionaries talked about mass customization – the ability to customize mass-produced products to each individual buyer's specifications. A few tried, but it proved very difficult to implement efficiently. The process had too much latency (delay), which added cost and slowed the results. However, IoT makes strategies like mass customization far more practical and cost efficient. Latency isn't a problem. Information can be shared in real time between every element in the supply chain. Buyers can click on the components they want. Suppliers and logistics providers can see what components are being ordered, and with rapid systems retooling adjust their schedules appropriately – on the fly, if necessary. With the information flowing, the various players can ensure the desired components are at the production line when that customer's order is being assembled, whether it's a car or a three-piece suit. Customers order a car or a suit or anything else, specify the desired components, and have it built or assembled as ordered. Daihatsu Motor Company is already using 3D printers to offer its car buyers 10 colors and 15 base patterns to create their own “effect skins” for the car exterior. Each order rolls off the assembly line customized to that individual buyer. And it's no big deal. With IoT, mass customization is starting to happen.
Now imagine what's possible when you can connect anything with anything – production lines with parts and components, production lines with suppliers, products with service providers, logistics operations with transportation companies – and you can do it in near–real time. Designers could create products people really want and use, marketers could sell those products the way people want them, and service and support teams would know where potential problems are and address them before things break. Costs could be contained, and customer satisfaction would soar.
Or imagine if products you put out in the field could link back to you, signaling when a part starts to fail or a configuration isn't working correctly. You could effectively eliminate unplanned downtime. What could product managers do when they learned that customers were using the company's product in new ways the marketing teams didn't even imagine? The possibilities and opportunities are endless. Admittedly, not all of these concepts and value propositions are available at scale today, but there are plenty of mature, fast paybacks you can implement now.
At the same time, there is no magic here. That's right; no magic is at play, none, nada. We're talking about the same digitally connected world we know now, just more so. Essentially, we're using the cloud as we know it, plus an intelligent infrastructure within which every device is digitized and addressable over a common IP network. Yes, there are a few new innovations – such as fog computing, a form of cloud computing at the edge of the network for real-time data processing; blockchain technology, essentially a secure distributed log; and machine learning, the technology behind real-time predictive analytics – but none of these is magic either. These are concepts that industry is focusing on and implementing (if you can't wait to learn more about them, we will cover them in more detail in Chapter 10); nothing exotic, nothing magical.
IoT Background – A Brief History
For many people, the first time they heard about IoT was in the business media or at a business conference. But IoT isn't actually new. It has been around for years, in various forms. Banks run large, distributed automated teller machine (ATM) networks. Retailers operate large point-of-sale (POS) networks, as well as extensive deployments of radio-frequency identification (RFID) tags to track the movement of millions of inventory items. Manufacturers connect thousands of devices to monitor and manage production in machine-to-machine (M2M) networks. Utilities deploy connected sensors and meters to enable everything from customer billing to maintenance troubleshooting. Each network could amount to tens of thousands of connected devices.
Nobody referred to these initial networks as IoT, and there were significant differences. Typically, they dealt with only one type of connected device or one application, had a very limited and tightly defined set of functions, and often used proprietary protocols rather than IP or the cloud, which have become the dominant networking and computing options today. Still, these amounted to early large-scale attempts to connect devices with some level of built-in intelligence and communication for the purpose of managing critical business functions. They were the forerunners of what we think of as IoT today. As expected, not all initial IoT-driven efforts were successful. From the GE-Cisco Industrial Ethernet joint venture, to location-based digital advertising platforms, to active RFID implementations in retail, and to ambitious plans for smart cities, many concepts incubated in the early 2000s were for one reason or another ahead of their time. However, as IoT matured over the following decade, the more robust technologies, solutions, and business models were subsequently developed and increasingly adopted.
As I recall, an IoT term might have been coined in late 1990s to describe the emerging RFID networks. To be honest, six years ago, when Cisco was deciding how to best describe the trend of devices, machines, or things connecting to each other over the IP networks and, ultimately, to the Internet, it chose not to invent a new term. Cisco simply decided to adopt the original Internet of Things idea and apply it to the phenomenon we were seeing at the time. In effect, we morphed the IoT of yesterday to define the IoT of today – the next stage of the Internet.
The first generation of Internet adopters also didn't use the term IoT to describe the type of business transformations that are taking place now. Then, as I said, about six years ago things began to accelerate on the network connectivity front. The first stage of the Internet was in full swing, driven by the rise of cloud computing and the growing adoption of smartphones and tablets with the goal of enabling us to connect to each other, to the data, to the processes, and to the services we were using. The devices, however, were already pointing the way to the second stage of the Internet – the IoT we see emerging today.
We now have a robust standards-based global networking infrastructure and a myriad of connected devices from all sorts of sensors, meters, actuators, to cars, buses, robots, drills, MRI machines, office buildings, entire cities, even garbage cans – those assets can not only communicate but also generate and often process data and interface with a mind-boggling array of applications. And people have begun to adopt IoT terminology to recognize this phenomenon, the breadth of its scope and capabilities. IoT today is becoming pervasive.
You can clearly see a transformative power of IoT in the auto industry. Have you bought a new car lately? Well, the car is becoming a smartphone on wheels. Cars have long collected data from standalone subsystems and used processors embedded at various points to monitor and manage different functions. Car manufacturers are now installing standards-based high speed deterministic networks to connect all of these subsystems, the data they produce, and processing power into what amounts to a mobile datacenter. They're also connecting these mobile datacenters to the Internet. Pretty soon, every new car will be both smart and connected.
Remember when you bought a car based on its style or maybe key specs such as horsepower or its miles-per-gallon (MPG) rating? If you haven't bought a new car lately, your current car – I hate to tell you – is a dinosaur plodding along a path to extinction. If a car lacks even a Bluetooth interface, its trade-in value will be considerably lower. Car-buying criteria have changed completely for the majority of buyers. The electronics and device connectivity make