There’s been a gold rush happening in technology these last few years, focused on the Internet of Things, or IoT. It’s even frequently been referred to as “the next Industrial Revolution.” The stampede to connect anything and everything in the home to a mobile app – a stampede that I’d argue has been driven by grossly inflated numbers and speculation – has the potential to lure companies into unfamiliar territory, with no guarantee of a safe or profitable return. I know because I’ve been there.
The company I lead, Big Ass Solutions, manufactures and sells fans, lights, and controls for commercial and residential use. Our products work with apps or without apps. And while we’ve found customers for IoT connectivity, the number of our customers who value the new technology has been much lower than industry projections led us to believe.
There are some useful lessons here for other manufacturers, especially those who haven’t yet “connected” and might be concerned they’ve missed the boat. My advice: You might be better off where you are for now.
“Billions of Devices” Can Be Wrong
As mobile apps have proliferated, many analysts have attempted to quantify what the rise of connected devices could mean to the marketplace. Consider some of these numbers:
- In 2010, Ericsson set the bar for much of the subsequent IoT hype by predicting there would be 50 billion internet-connected devices by 2020.
- In 2012, an estimate of a trillion internet-connected devices (by 2015!) appeared in an IBM investor briefing.
- In 2014, Gartner Research, creator of the Hype Cycle for the Internet of Things, predicted that a “typical family home” could hold up to 500 smart objects by 2022.
That’s a heck of a lot of objects.
But in the last year, something’s changed — IoT predictions have taken a turn. Analysts at Ericsson, for example, have shaved 20 billion off their early estimates. As Gartner noted in November: “The IoT remains on the peak of inflated expectations for the third year in a row as vendors push the hype even higher, but most companies struggle to find use cases beyond proof-of-concept.”
When in Doubt, Go Modular
When the IoT trend started surfacing, we, like many other copmanies, pored over the analysts’ projections. We questioned the numbers, but we recognized that something was happening, and that we wanted to be a part of it. We polled randomly selected homeowners on the appeal of connected features and saw significant interest in automated comfort. What we overlooked in our excitement at the time was the much smaller percentage of consumers who found an app appealing. After a series of meetings with Silicon Valley stalwarts like Google, Apple, and Amazon, we decided to develop our own IoT software and hired the people who could help us do it.
In the meantime, we had successfully engineered sensor technology that allowed our residential ceiling fans to respond to the indoor environment, including changes in temperature and humidity, as well as occupants’ motion. When we combined that hardware with our new software, we knew we had something exciting: essentially the world’s first smart fan, which the user could program to suit personal preferences and could connect to our lights as well. In our minds, the whole package was a tremendous leap forward in terms of efficiency, convenience, and comfort.
We began selling this new smart fan option and had several thousand excited early adopters. But because we had neglected to manufacture it using a modular approach— a misstep, in hindsight — we had to build two of everything: fans with connected capacity and fans without. After running the numbers on how many of our customers paid for the upgrade — about 40% — and surveys that showed high overall customer satisfaction with the technology, we decided to stop making the “smart” feature optional and make it standard instead. That way, we’d reduce our SKUs (stock-keeping units), and as people discovered how wonderful the technology was, they’d be converted and spread the word. At least that’s what we thought, still believing the hype just a little too much.
What Customers Actually Did With Smart Products
Roughly two years after that decision to make connected technology standard, I can say with confidence that just because you can make something with IoT technology doesn’t mean people will want it. Judging from our customers’ response, the public simply isn’t yet clamoring for connectivity. Many of our customers just don’t use the technology available to them.
Our residential products don’t require an app to do their job; instead, they come with a variety of control options, an app among them. Customers can choose to connect them to WiFi or not, and choose to use Alexa, Nest, or another ecosystem. Despite all these options, only about half of our customers actually create an account through our iOS app. And we get feedback from our customers that quality and aesthetics still matter more than smart features.
In March, Gartner reported that only 10% of households currently have connected home solutions. I’d venture that an even lower percentage actually use those “solutions.” Looking back, we were probably guilty of some “Jobsian” thinking, convinced that people don’t know what they want until you show it to them.
We were also a little too smitten with our technology, and assumed it would immediately appeal to the “early majority” – who as described in E.M. Rogers’ classic Diffusion of Innovation Theory – buy products en masse after the “early adopters.” And, because most of the employees who were leading our IoT efforts fall in the early adopter category themselves, we also failed to fully grasp that programming our products — or anyone else’s — to enjoy the full range of functionality requires a level of patience and commitment that many people just don’t have. (If you doubt that, ask yourself how many times you’ve put off updating the software on your computer.)
Ask yourself these questions first
Developing connected products is a huge commitment; it’s important to go into it with eyes wide open to how it will affect both your business model and your manufacturing process. Here are five questions I’d urge consumer product companies to ask themselves beforehand:
Does this connected feature or product solve a real problem? The traditional business model is based on identifying a need and meeting it, or defining a problem and solving it. It’s a model that works. So far, most connected products have been solutions in search of problems to solve.
Do my customers genuinely want this? How many of them? Don’t assume everyone is clamoring for connectivity just because it’s all over the news. Talk to your customers, and listen to what they say. Just like a carpenter must measure twice before cutting, manufacturers should poll their customers at least twice before committing to the new technology.
Have I fully weighed the economics involved? Software in its current state creates opportunities, but a myriad of new expenses, too. Be sure you’re prepared to deal with them all.
Should I keep the work in-house, or outsource it? We began by outsourcing the work but found ourselves being charged to cross every ‘t’ and dot every ‘i.’ But doing it in-house is a huge commitment. Weigh the ramifications of both options carefully beforehand.
Can I ensure a good customer experience? If you’re a company that takes service seriously, then you need to be prepared to deal with your customers in an entirely new way. They’ll all have different equipment and different levels of technological expertise, and they’ll have questions that can only be answered by people who understand the technology and its user interface – and who speak an entirely different language than others at your company.
Traditional manufacturing is extremely rewarding, but it takes an incredible amount of time and money to develop new products and it’s virtually impossible to accelerate the process without sacrificing quality. Software, in contrast, is incredibly fast. Trying to efficiently combine the slow-moving timetable of hardware manufacturing with the breakneck speed of software development is like tying the tortoise and the hare together in a six-legged race. To reach the finish line together takes incredible patience and cooperation.
Earlier this year, Gartner VP Alfonso Velosa predicted that mainstream adoption of connected devices is still 5 to 10 years in the future. The finish line keeps on moving. Furthermore, mainstream adoption, when it does finally happen, may take a very different form. Parks Associates not long ago reported that “new research found strong interest in smart home voice control. According to the new market data, 55% of U.S. broadband households want to use their voice to control their smart home devices.” Fifty-five percent, you say? Only time will tell.
I don’t doubt that voice control is the wave of the future, and that it will ultimately take the place of apps. Our company is actively taking steps in that direction. But this time, we’re applying the lessons we learned, and we’re moving at a slightly slower pace. To put it in terms our home state of Kentucky is fond of, we’re not galloping, we’re trotting. And if we’re not first across the wire, that doesn’t mean we won’t come out ahead in the long run.