OUTCOME-BASED BUSINESS MODELS IN THE INTERNET OF THINGS EDY LIONGOSARI VIDEO TRANSCRIPT Tell me a little bit about yourself and your background in IoT. I m Edy Liongosari, I appreciate this opportunity to talk to you. I m a Managing Director in Accenture Technology Labs. I ve been with Accenture for 25 years and I have been actively working in IoT space, at the time obviously it wasn t called IoT but more ubiquitous computing for about 15 years. What did it look like back then? Actually at that time it was mostly to test a technology is mostly based on R F ID technology. We are one of the first few of pioneers in the technology who tried to get it to work to see how technology and computing power embedded into the environment, creating a smart environment. So no longer a computer that you can see in the back of a monitor but exactly something the environment knows about you to be able to react what you are looking for. It kind of just blends in the background, doesn t it? That s right. For example, one of the initial technologies we developed is in healthcare. For example it can understand the environment like the weather and if you have a certain allergy you can look outside the house and the weather condition lets you decide that you should take your allergy medication before you head out the door. All of those are not just about the technology per se but making your life better; making your life a lot more efficient. In fact we re able to drive that and that s sort of the key aspect of the technology. That makes a lot of sense for the person experiencing it. What about the companies themselves? What has been the value creation up to this point? I know there s been a lot o f talk about operational efficiency and I think that s been around for a long time. But I m more interested if you could talk about little bit about new products and services; what have you been seeing in that area? I m jumping to the consumer space here but look at NEST; people have been talking about NEST for a while now with the Google acquisition. What they provide is not just about product, not just about service but also providing you with insight, with connectivity to the rest o f the environment. That s sort of the very key; it s not just about operational efficiency. If you look at how people can drive new type of products and services are that the key aspect is to be able to drive the new unconventional growth. It s not just about you selling equipment and I could provide services to you but also to be able to get more information about you and the product and the way you use it, to be able to drive new kind of products, services, to be able to get new business partners so that you can create new business outcomes. So it s not just you providing that particular product and services, go beyond the four walls that you have to be able to create a group of business partners. IOT-INC. 1 AUGUST 17, 2016
A simple example is precision agriculture. It s not just about I m selling fertilizer; I m selling farming equipment and so on. All this business come together to be able to say I can actually increase 20% o f your yield. How to make that happen? You need smart environment, you need smart equipment, and you need services sectors that are tied together. There s also a financial component o f that. So it s not just the technology. The insurance company, the financial services company will actually be very interesting pulling together. But at the end of the day what we re actually selling is we re selling the outcome. That s where we see the technology is going. Are we starting to see outcome-based business models? Yeah, healthcare is one of the easier one; you can see a lot of companies come back together, Haier, some of the insurance companies, hospitals and so forth they actually provide certain outcomes. For example with Obamacare and so forth, there s some penalty if you go re-admitted after some kind of hospitalization. You want to make sure that s minimized. How can you do that? You can actually do that with technology as well. All these business sectors have come together. Agriculture sector is another one. We re still very much in the emerging cycle of this but we can see many of this will likely happen in a couple of years. Are your customers the fortune 500 or the fortune 1000? Fortune 1000. What would you say percentage wise of the fortune 1000 5:00 are: 1) Actively spending money in terms of have an IoT product and supporting it? 2) Starting the investigation phase, at least putting money into test labs and early investigation? What would you say the percentages are now? We actually just finished a survey based on the work that we did with the World Economic Forum. A large part of it is still in the investigation stage. There are companies who are very much embedded, all the big companies; they are already part of the IoT. Like GE and Siemens the big companies are part of the whole automation process. It is hard to say whether they are in or out, they are already part of that progression. So to put it all together, they are pretty much already there for a while, they just don t call it Internet of Things but this part of the whole process makes the car smarter, make the tractors, cars, or machinery smarter. They are part of that progress. You brought up RFID, that s an interesting one because as you know, you ve been in the industry for a long time, there predictions that RFIDs were going to be on everything, there were going to be billions of; it was going to transform business. It didn t quite happen. What do you think is different between RFID and the Internet of Things? I have been working in this space for a while and what excites me this is that I can see sort of the business case in the world map. All year we talked about operational e fficiency. Was that for RFID as well? Was that the main value proposition? IOT-INC. 2 AUGUST 17, 2016
It was not at the time but you can see a little bit of that. For example, we can use RFID to track materials but given the price point at that time and the technology immaturity, it is fairly expensive. At the end of the day it s about ROI to make that happen. But what we see here t his time is that especially in the Industrial space, there is so much sensor technology already embedded into day -today operational technology. The machineries are getting smarter even tooling have sensors. That is the one that brings that to the next step. For example, I m sure you pay attention to the new cars; even tires have sensors on them. You can actually detect the pressure, i f you have a flat tire there, the skit there are already a lot of sensors even at the tire level. Imagine what you can do given that the prices of sensors continue to drop. There are a lot of things happening and converging to make it happen. So you re saying the ROI for IoT is a little bit stronger because the Investment part is less because the cost have gone down and the Return part now there s some more real business models? Am I paraphrasing properly? Right, and also because of the recognition of the need of different organizations coming together. An example would be the Industrial Internet Consortium. Within six months or so they were able to bring 80 or so organizations to work together so that you d be able to share a lot o f common infrastructure; interoperability is kind of the key aspect of it. People realize that for them to be able to drive Industrial Internet they actually need to work together so that the common infrastructure can be built and the development of the application will be a lot cheaper to be able to drive everybody and go up there. It brings up my next topic. I know the Industrial Internet Consortiu m has a focus on security. I like to hear your thoughts on security and particularly best practices. What have you seen in IoT security? Industrial internet Consortium is putting together whole best practices around security. Let me share one key point that I think is very easy and somewhat trivial but a few people actually only know about it, is that the fact to recognize 10:00 IT and OT belong to two different organizations in many companies out there. IT belongs to the IT organization, managed separately with a very different set of technology. OT typically belongs to the production, owned by either the factory manager, it s managed completely differently. Now the IT-OT convergence, these two walls are being combined, what happened is that many o f the organizations didn t realize that they need to actually have that set level o f governance to put it together. This is particularly important beyond just the technology. So security is where typically when you look at security breaches you actually have to look at the seam where it s connected and be able to leverage that. So how to make that tighter so that when you are able to manage the security from the IT level, it propagates all the way down to the OT level. I think we are still in the very early stage o f making that happen. If you look at the number of the investment, the areas that we need to investigate quite a lot are that particular space. IOT-INC. 3 AUGUST 17, 2016
You re right, it s that seam. It s both a technical seam because right now you re generally IP on the IT side and then you had a gateway and then from that last ragged mile or whatever, who knows what the protocol is. But then there s also that same seam, like you re saying within the organization, one of is kind of coming out of the operational expenses, maybe on the production side, one side coming out of the fixed expenses that are more corporate side. So the Industrial Internet Consortium is working on both sides of that problem? They cover pretty much so there s the technical side, there s the framework side and there are other governance structure that are put in place. The last topic I wanted to cover with is cloud computing. There are a few different philosophies in terms of where the processing should happen but generally speaking, what are you seeing in terms of the rule of the cloud for IoT, in particular IIoT if you like to use that as an example? Does everything need the cloud? Does everything need to go up and down through the cloud? What are your thoughts there? I got this question a lot and it s actually quite interesting to remember back in the early days of the client server or the web technology where competition exactly happens. For those of you who have been around a while, there s a discussion about thick client versus thin client where will that be? The same thing with the website, with the web server how much you have to handle versus the application container, versus what s happening in the front-end in your browser. That kind of discussion but in the Industrial Internet there s a certain aspect that we need to pay attention to especially that it is Industrial; there are sort of things that have to have constraint, things that have to happen within certain perimeter of time. What does that mean in terms of driving the cloud? As much as you can do in the cloud, you should try to do that because in cloud you ll be able to manage things a little more centrally, you can actually reduce operational costs. When you have thousands of millions of sensors out there and you have to go through every single one of them, that s not scalable. To the extent that you can, you should actually bias your architecture to a cloud. The keyword is bias and this is exactly the word that I use, bias to cloud but what actually you need to realize is that there needs to be some level of computation to some degree. Things like that have to be reactive. For example when you have a fire in the building, you don t want to go all the way to the cloud and come back and say now, you can open the door. Things like that have to happen very quickly. How to make that happen? Or you re in your house and you re locked in and you can t get out. Right, not everything is connected at all times, you have to SLAD resiliency of the architecture overall. But you have to recognize and figure out what actually makes sense to put at the edge, at the sensor level and how you re going to put it somewhere in between like Cisco calls it fog computing, the middle tier there, and then go to the cloud. And then there s sort of a balancing act to try to put it all together. IOT-INC. 4 AUGUST 17, 2016
15:00 It is a balancing act but bias to a cloud is your recommendation and obviously it depends on the use case and the scenarios. IOT-INC. 5 AUGUST 17, 2016