Creating and Capturing Value To Thrive in a Digital World
By 2020, 75% of business will become digital in some way by deploying solutions that leverage the intersection of people, process, data, and things—the very definition of the Internet of Everything (IoE). For example, IoE will drive an improvement of earnings before taxes and interest (EBIT) of 15.6% in retail, 14.5% in financial services, and 12.8% in manufacturing.
Connected Devices and Sensors Everywhere
The rapid adoption of IoE and the Internet of Things (IoT) has driven the number of connected devices into the billions worldwide. Cisco’s own estimate shows there are 25 billion connected devices today, and will be 50 billion by 2020.
While sheer the number of devices grabs the headlines, there is an even more powerful force at work that will add to the tremendous disruption CIOs and senior IT executives are experiencing across all industries. (For more about this disruption, please refer to my blog titled, The Digital Vortex: Relentless, Disruptive, Chaotic — and Empowering.)
The enduring impact of Moore’s Law and Metcalfe’s Law combined with unprecedented innovation is resulting in sensors that are changing the world to become hyper-aware, hyper-predictive, and hyper-agile. Cisco estimates that 54 billion sensors will be shipped this year.
Leading companies are using these new capabilities to do things like monitor and expedite the time it takes prepare planes for boarding, reduce customer wait times by predicting 40 minutes in advance when lines will become too long, increase factory production rates by ensuring workers always have the right tools at hand, and anticipate structural failures to save lives and reduce costs.
New Business Models and Value Creation
In this new environment, three digital business models are pointing the way forward: 1) Frictionless Life, 2) Hyper-Relevance, and 3) Community. Each model delivers a different type of value.
- Frictionless Life— creates value by removing the hassles of daily life to provide time for more important thoughts, actions, and activities.
- Hyper-Relevance—delivers value by incorporating context including location, emotional state, recent activities, etc. with other information.
- Community—generates value for needed services, ideas, or content by soliciting contributions from a large group of people.
Combinatorial Value Creation
While I’ve described the business models separately, the most innovative companies are leveraging all three models in what I call, combinatorial value creation. The best way to understand this approach is to look at an example.
Jet.com, which launched in July 2015, sells “human-sized” household and grocery items at wholesale prices. Shoppers purchase a $50 per year membership that the company says will be recouped through savings on the site. The company has raised $250 million in private funding, including from Alibaba.com, and is currently valued at $600M.
On the back end, Jet.com uses proprietary algorithms to optimize a shopper’s basket, bundling items from its network of suppliers and distributors to achieve maximum savings. If you select a jar of jelly, for example, Jet.com might recommend purchasing peanut butter for a higher discount on both items. The company also incorporates opt-out free returns and slower delivery times to keep prices low, as well as the ability to click through to other retailers to help recoup the losses it incurs from discounted pricing.
Jet.com creates value across all three categories including cost value through dynamic savings, experience value from its partner network, and platform value by clicking through to its partners. While the jury is still out on Jet.com’s long-term success, it presents an excellent example to learn from both its successes and challenges.
Learn More at the Gartner Symposium/ITxpo
It you are attending the Gartner Symposium/ITxpo in Orlando, Florida, I hope you will attend my session, which takes place Monday, October 5 at 3:30 pm. If you can’t be there, feel free to follow me on Twitter at @JosephMBradley.