Editor’s note: IBM’s Internet of Things story continues to evolve quickly as the company and its customers fill in the gaps, says Technology Business Research analyst Ezra Gottheil.
HAMPTON, N.H. – In applying the Internet of Things to business, patterns make perfect. IBM (NYSE: IBM) is beginning to see a return on its early commitment to IoT as the company builds out its capabilities and learns more about customer needs. IBM’s IoT journey has been iterative and has taken it from bespoke engagements to a solutions-oriented framework, structured around applying Watson’s cognitive computing capabilities on top of an application-oriented IoT platform, supported by BlueMix and IBM Global Services.
The company’s aim: Regardless of the customer entry point, quickly move from enabling data capture to business transformation, though IoT.
IBM’s March 2016 IoT progress report documented this evolution of the company’s understanding of, and approach to, the IoT market. As in the past, IBM spokespeople emphasized the potential of IoT to transform businesses and to deliver vast quantities of data from which great but unspecified value can be extracted using IBM’s cognitive computing capabilities.
To demonstrate IBM’s progress, the company presented long lists of clients and partners. At the same time, however, and different from earlier presentations, IBM also addressed less ambitious projects and a more gradual path for customer companies to follow in exploring IoT.
Providing an on-ramp for IoT
IBM reported that many of its customers begin their IoT journey with a focus on operational performance, extracting from the data generated by IoT sensors information that lowers costs, anticipates failures, or increases production to the extent that in many cases, the operational improvements pay the cost of adding the sensors, of instrumenting devices. For these customers, this overcomes one of the most common barriers to committing to IoT, the lack of assured short term ROI.
IBM is eager to point out that deploying the sensors and building systems to deliver enough value to pay for the sensors and the systems is only the first step. The next step is leveraging IBM’s cognitive computing tools to derive more value from the data, through business transformation, gaining competitive advantage, expansion into data-oriented revenue streams and participation in the API economy, or simply gaining greater business insight. Cognitive computing APIs are available throughout the Watson IoT platform, and the implication is that cognitive computing analytics can bring value even to smaller scale less ambitious projects.
Lowering the barrier
IBM is doing two other things to lower the entrance barrier to the IBM IoT portfolio, providing applications and enrolling developers. By using its expanding IoT knowledge, IBM is providing IoT Applications that address specific verticals and specific goals. For the most part, IoT has been, up until now, a potential. Applications make it easier and less expensive for potential customers to get started with IoT. Developers are often key decision-makers, especially at the early stages of projects. IBM is partnering, providing tools, recipes, tutorials and support as a way to bring developers into the IBM ecosystem.
Customers are evolving too
IBM noted that clients are increasingly self-starting when it comes to developing a business use case for IoT, selecting components for trial and using IBM’s platform for solution exploration. This has shifted the role of Global Business Services (GBS) from initiating client discussions around what IoT can do to enabling clients to achieve global scale with IoT deployments.
TBR’s research of analytics buying behavior confirms what IBM described as an evolution in the IoT services market. According to TBR’s 1Q16 Internet of Things Analytics Customer Research report, only 28% of respondents who were evaluating IoT analytics solutions (evaluators) expected to use business consulting services, compared to 55% for respondents that had already purchased a solution (purchasers).
However, demand for IT consulting and integration services was higher for evaluators than it was for purchasers, indicating that IBM’s global, analytics-driven IT transformation capabilities in GBS are in line with evolving market needs.
IBM’s early commitment and investment in IoT is paying off as the company learns more about IoT and how to work with customers to accelerate the pace of adoption. IBM reiterated its $3 billion strategic investment in IoT; TBR believes part of this investment would have been made irrespective of IBM’s IoT commitment. We currently estimate IBM’s IoT revenue run rate at $2.5 billion annually; this is primarily revenue from projects initiated before IBM committed to an IoT strategy.
IBM is evolving its platform and its go-to-market approach, making IoT increasingly accessible to smaller companies and companies with less ambitious projects. It remains to be seen if IBM can cost-effectively serve the fastest growing part of IoT, what TBR calls “little IoT.” For now, IBM is addressing this market segment to grow its business and IoT expertise. IBM will have to transform itself to serve both segments profitably; we believe it will.
(C) TBR
