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How to evaluate when IoT does not fit

Here at our firm, we are at the leading edge of developing many, many IoT products and potential products. With IoT, it is important to recognize the enduring principals that lead to long-term, successful products. Just as importantly, you need to know when IoT doesn’t make sense, and here are our insights regarding how to evaluate that:

The value proposition is not there

Consider the example of an IoT product around a coffee mug that senses how much coffee is left in the mug and the temperature. The mug can also be location-aware via GPS. This data can then be wirelessly communicated to a cloud system connected to other web- and server-based data sources. For this exercise, let’s think of the mug as connected through a low data rate cellular link. At the server, the location and mug status (volume, temperature) can be combined with other GPS data to now link the mug to the nearest available service provider to deliver coffee. This would trigger a concierge to get a message on his smartphone app telling him to come to the mug and refill with fresh hot coffee. It is the “Uber Coffee Mug.”

Ridiculous premise, right? Of course. One can create the Uber Coffee Mug; it is technically achievable. However, it is unlikely this creates sufficient value to warrant development of an IoT coffee mug. There are many cases where investments are being made and product is being developed for very dubious user value.

The cost/benefit trade-off Is unattractive

There is no way around it. An IoT-enabled device (and service) will cost more than a “dumb” device. While costs for the hardware elements are dropping, they still represent an increase in bill-of-materials cost. In addition, the cost and time required to create an IoT system is significant and is often underestimated. To be successful, an IoT offering requires hardware technology and integration as well as significant software development and data analytic expertise.

If a company is going to make this investment and incorporate the increased product expense, is there enough value to the user to warrant the price increase? Is there sufficient margin in the product for the company to balance against the significant cost and time required to create it? Is the risk/reward high enough to justify the exposure? These are tough questions requiring a thorough understanding of the opportunity and the value proposition to all constituents. In the mug example, the benefit is increased sales of coffee. The question is: Can you move enough incremental coffee to warrant the development and support of such an IoT delivery model? It takes a lot of coffee.

The company is not ready to capitalize on a new business model

Using the Uber Coffee Mug example, one can imagine the local deli delivering coffee as being a company which theoretically could find a value proposition in delivering coffee by the mug. The way to capitalize on the value might be to have users subscribe to the service. For a simple, monthly fee of $20, the deli will deliver you coffee any time during business hours, five days per week. But is the deli ready to accept a new business model? Are they ready to hire concierge delivery people? Will the company adopt a model where coffee is not sold by the cup but by monthly subscription? The same sorts of questions apply to any sort of IoT solution — the company has to be willing to adopt an alternative revenue recognition model.

Not sufficient funding to go the distance

Many companies are not cognizant of the full cost related to realizing lofty IoT goals. Certainly, a small startup of a few people may be able to put in sweat equity for some amount of time, but may not be able to do it for a year, 18 months or two years. The team may also not have all the skills necessary to realize the complete technology and may not have the resources to bring in development partners to help fill the gaps.

Unrealistic vision of the development cost and time

Boards like the Arduino are ubiquitous. They are great for hacking together a quick prototype that “sort of” functions like a real product. Getting a mockup together can be done quickly using such development kits. But a mockup or rough prototype based on such technology is far from a real product. The demo feels like a major milestone, but getting a demo running is 20% of the project. The other 80% is designing it to be small, reliable and cheap enough to be a real product. Too many startups have moved down the path thinking that when the demo was finished in a couple of months, the product would be ready to launch in just a couple more months.

There is much to consider in heading down an IoT-enablement path. Certainly, there are many new product categories and value-added products which can be created using this capability. Careful consideration of the factors involved in successful IoT product development is warranted. The cost of a mistake can be very high, but so too are the rewards.

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