When objects are connected, value chains are transformed and new competition battles emerge. New territories are explored and new challengers compete. Who would have predicted the agriculture machine maker John Deere would partner with the satellite launching company SpaceX?
The announcement of the partnership between John Deere and SpaceX embodies both the value chain and competition changes with Internet of Things. John Deere has embarked in a digital transformation journey for 15 years now, connecting their machines to the internet and adding to their product business model solutions and services models. When machines are connected they can be better managed and John Deere had a clear interest to use digital assets to differentiate from the competition and to capture more value from their clients. This announcement illustrates an extension of the value chain of machines. Not only it includes product design, production and after sales, not only data and analytic resources capabilities are required, connectivity assets are now critical in the value chain of this product in the context of precision farming and real-time crop management.
Competition landscape evolution
The multiplication of sensors capturing data every second has changed the value chain and the competition battles in many product markets. In automotive, activities related to cloud storage, software development, machine learning capabilities are becoming strategically critical and financially significant for both manufacturing activities and service or shared self-driving car offers.
Such value chain change can be observed in other industries and manufacturing companies like Bosch, Siemens or Schneider Electric face a different kind of competition as the competitive landscape evolves. Before, in these markets, the battle was usually structured around 2 fights. A fight with direct competitors which are pretty much organised the same way, face the same tradeoffs and opportunities and implements strategies to defend a position in the market. Another fight takes place with suppliers on components cost and with distributors on their margins. These organisations are different but they need each other. The evolution of the bargaining power shaped the ability to capture value at one part of the value chain.
Now with connected devices the value chain extends beyond product manufacturing and distributiuon. It involves data, software and connectivity and the product manufacturing companies are facing several types of competitors:
- the traditional players (formerly “direct competitors”, ABB, Schlumberger, Schneider Electric, …). The competition is particularly fierce to master the IoT resources and capabilities either by internal development, acquisitions or partnerships.
- the tech companies (e.g. Amazon Web services). These companies are organised differently, they do not leverage the same type of assets and they try to position as an intermediary to capture a fraction of the value provided by IoT to the end-users. They offer cloud solutions and platform technologies.
- consulting firms and system integrators (e.g. Accenture). They offer integration services and technologies. In some cases, they compete directly, in other cases, they act as a supplier of technology or service.
4 competition battles
The battle between IoT product and software providers
The confrontation between product and software providers marks a pivotal battleground. This contest determines the accessibility and interoperability of IoT solutions. On one side, hardware manufacturers strive to differentiate their devices with proprietary technology and superior performance. On the other, software developers focus on creating versatile, user-friendly platforms that can integrate with a wide array of devices, thereby enhancing the value proposition through data analytics, machine learning, and user interface design. In this battle companies seek to establish ecosystems where hardware and software complement each other, thereby delivering seamless experiences to the end-user. Additionally, as the share of value differs along the value chain (it’s much bigger at the downstream part with applications than it is in the upstream part with sensors and products), moves along the chain to grow the share of value captured are numerous.
The battle between tech and incumbents
This confrontation underscores the shifting dynamics in the IoT landscape, where traditional manufacturing giants are pitted against agile, tech-savvy firms. Incumbent companies, with their deep industry knowledge, established customer bases, and extensive manufacturing capabilities, are now forced to navigate the digital transformation, integrating IoT technologies to remain competitive. Conversely, technology giants leverage their expertise in software, data analytics, and cloud computing to offer IoT solutions that promise to revolutionize industries with efficiency gains, predictive maintenance, and automated decision-making processes. The fight between IBM and Veolia in urban services provision and between Orange and Bougyes Construction in civil engineering illustrate this battle.
The battle between platforms and incumbents
The clash between platform-centric models and traditional incumbents highlights a fundamental shift in how value is created and captured within the IoT ecosystem. Platforms, with their ability to connect devices, users, and services, aim to become the central hubs through which data flows and interactions occur. These platforms offer immense scalability and network effects, attracting a multitude of users and developers, thereby enriching the ecosystem. Incumbents, accustomed to competing on physical product features, must now adapt to a landscape where success is increasingly determined by the ability to participate in, or control, these digital platforms. This necessitates a reevaluation of business models, with a focus on service-oriented offerings, data monetization, and ecosystem leadership.
The battle between platforms
This intra-platform competition further intensifies the dynamics within the IoT space. As various entities vie to establish their platforms as the de facto standards for IoT connectivity and services, the stakes involve not just technological superiority but also the ability to foster a vibrant ecosystem. This involves attracting a critical mass of developers, devices, and end-users, thereby creating a locked-in user base through network effects. The battle between platforms revolves around issues of interoperability, data privacy, and security, with each platform seeking to offer a unique value proposition that addresses these concerns while also providing a rich array of features and services. Microsoft Azure, PTC, Amazon Web Services, and many other specialised platforms are competing one against the others.
Strategic challenges for incumbents
As the IoT ecosystem continues to evolve, incumbent firms face several strategic challenges which span across technological innovation, market adaptation, organizational transformation, and ecosystem leadership.
Technological Upgradation and Integration
One of the foremost challenges is the need for technological upgradation and integration. Incumbents often have legacy systems that are not readily compatible with new IoT technologies. This necessitates significant investments in updating hardware, adopting new software platforms, and ensuring interoperability between old and new systems. Additionally, the pace of technological advancement in IoT means that incumbents must continuously invest in R&D to remain competitive, a daunting task given the rapid emergence of disruptive technologies.
Data Management and Analytics Capability
The core of IoT’s value proposition lies in the ability to collect, analyze, and act upon vast amounts of data. Incumbents must build or acquire robust data analytics capabilities to make sense of the information gathered through IoT devices. This involves not only technological infrastructure but also expertise in data science and analytics. The challenge extends to ensuring data privacy and security, areas of increasing concern for consumers and regulators alike.
Business Model Transformation
IoT opens up new opportunities for value creation beyond traditional product sales, including as-a-service models, dynamic pricing, and outcome-based pricing strategies. Incumbents must rethink their business models to leverage these opportunities, which may involve shifting from capital expenditure (CapEx) models to operating expenditure (OpEx) models, or developing new revenue streams through data monetization. This transition can be challenging, as it requires not only new capabilities but also changes in customer engagement, sales processes, and revenue recognition practices.
Organizational and Cultural Adaptation
Adapting to the IoT era requires more than technological and business model changes; it demands a cultural shift within the organization. Incumbents must foster a culture of innovation, agility, and collaboration, breaking down silos to facilitate cross-functional teamwork and rapid experimentation. This cultural transformation is often one of the most challenging aspects, as it involves changing long-standing organizational behaviors and mindsets.
Ecosystem Leadership and Collaboration
Finally, success in the IoT space often hinges on the ability to lead or effectively participate in broader ecosystems, which include partners, developers, suppliers, and even competitors. Incumbents must navigate these complex ecosystems, identifying strategic partnerships and alliances that can enhance their offering, extend their market reach, or complement their capabilities. This requires a shift from a competitive mindset to one that recognizes the value of collaboration and co-creation in driving innovation and capturing value in the IoT era.
With these challenges, incumbents cannot only mimic the digital companies playbook, they need to synchronize non-digital assets and capabilities (brand, distribution network, client base, technical expertise, …) with digital capabilities to build a more distinctive position.