How Excited Should You Be For The Internet Of Things?

June 30, 2015

Brian Kilcourse

Back in 2008, I wrote a Retail Paradox Weekly piece where I recounted a conversation with a friend from the venture capital world. He was explaining why venture capitalists tend to stay away from retail-specific tech innovations: “venture capitalists have found that retail is a poor sector to target, because retailers tend to be cheap on technology and they tend not to be early adopters. And it’s not changed. We still have that view that retail is a very hard vertical to sell into.”

All of that is true; there is a long tradition of retailer skepticism about emerging technologies, and the roadside is littered with the detritus from innovations that didn’t catch on in sufficient volume to merit big VC investments. I’ve never seen a study on the attrition rate from big tech expos like the NRF’s annual Big Show in New York, but I’d be willing to hazard a guess that at least 10% of the companies that show in any one year won’t even exist in the next.

The reason this comes up again is that there’s a LOT of exuberance in the technology world about the Internet of Things (IoT). I described IoT this way back in February: “All kinds of ‘things’ are being attached to the Internet… IoT now has enveloped other technologies and devices, such as automobiles, appliances, cameras, home automation systems, the locks on your doors, and most notably that smart mobile phones that you probably have in your possession every waking moment of the day.”

The context for IoT in Retail is in connecting with consumers while they are in the store, so that relevant offers can be delivered at “just the right moment” while consumers are making their purchase decisions. That sounds great! Marketing execs want to be able to do the same thing in the physical space as they can do in the digital space – it makes sense. But think of the multiplier factor! All those wireless access points in every store, all those network upgrades to connect the access points to, etc. etc. That won’t be a small-change investment – so the ROI analysis better be a doozy!

As is so typical of the technology industry, over-exuberance is on display everywhere when it comes to IoT. The latest example is Google’s driver-less car. In May 2015, the Associated Press reported that, “Google had notified California of three collisions involving its self-driving cars since September… The leader of Google’s self-driving car project wrote in a Web post … <that> ‘Not once was the self-driving car the cause of the accident.’”

That’s a perfect example of what IoT could really require, once people decide to try it in real life – a total re-engineering of the driving environment, not just the car. IoT adoption will be similar within Retail, but there isn’t much talk about that. For Retail, IoT isn’t really about a few confined “marketing” use-cases, but potentially about how people shop. Retailers – and consumers – sense that this is true.

Onward Through The Fog

Let’s assume that IoT will inevitably gain consumer acceptance; there certainly is a huge amount of energy in the tech world behind it! Here are a few things for business leaders to consider:

1. Disruptors will see the value before you do. Retail in particular is an industry famously driven by experience. We all have our favorite old fashioned retailer story, and we glorify operators that followed the adage “whatever it takes”. But that reliance on hard-earned experience also tends to blind retailers to disruption from outside the industry. The question for decision-makers is, how many innovators do you have on staff? And if the answer is “zero”, where and how often do you look for inspiration from the outside?
2. The CIO will re-emerge, with a vengeance. It’s been such a tough 10 years for CIOs in Retail that RSR doesn’t study IT alignment anymore – because nothing seems to change. It is said that “the CIO position is a place where fools fear to tread” – with IT’s brutally low budgets, huge maintenance headaches, never-ending pressure for more cost control, and the emergence of the CMO as the hot hand when it comes to technology spend in the company. But IoT is pure technology, and its applications are still emerging. That puts the CIO dead-center in …
3. IoT will trigger radical process re-engineering – for both businesses and consumers. In 2007 Germany’s Metro AG rolled out a “talking fridge” to a test store. The idea behind it was that the fridge would order milk based on a household’s consumption rate and current on-hand inventory in the fridge. In other words, consumers wouldn’t have to go to the store to get their milk- instead it would come to them. At the time, Gerd Wolfram, then the CIO at Metro, projected that it would take consumers 5 to 10 years to adopt such a technology. He was over-optimistic; in a 2014 study of U.S. consumers, Acquity Group found that about 35% of consumers thought that the smart refrigerator would be commonplace “more than five years from now”. Still, the question for retailers is, what would that do to the grocery store? Retailer nemesis Amazon is already all over it with its recently announced Dash Replenishment Service.
4. The technology has yet to be standardized. The good news is that the technology world is rushing to address that challenge. The bad news is that (as always) there are competing standards groups. Among them are the IEEE Standards Association (IEEE SA), European Telecommunications Standards Institute(ETSI) and ITU Global Standards Initiative on Internet of Things (IoT-GSI).

What Are You Going To Do?

During that conversation in 2008 with the venture capitalist, my friend bluntly stated that the VC world was going to focus on consumer technology, because mass consumer adoption would force retailers to respond. He was more than right when it comes to internet-connected mobile devices. The same is probably going to be the case with certain IoT capabilities, although it’s such early days yet that I don’t believe the use-cases that consumers will glom onto have really emerged yet. But they will.

This is the new world that businesses are operating in, and just as was the case with mobility, retailers are going to need to devote resources (people, money, and time) to better understand what IoT will mean to them. The consulting world is already a-buzz with activity as the usual suspects align their resources for the coming innovation wave. But will retailers be able to respond from a knowledgeable position, or will they be responding to FUD (fear, uncertainty, and doubt) instead?

As in so many things, it will be a Winners vs. laggards story.