The internet of things (IoT) is a powerful, unstoppable, world-changing force. Analysts predict that 20 billion to 30 billion “things” will be connected to the internet by 2020. As such, launching an IoT business is quickly becoming an imperative across industries and around the world.

Most companies have websites. If they didn’t, we’d question their viability. Fast forward 15 years from now, and we’ll be even more shocked when we hear of companies operating outside of the IoT. However, the concept of an IoT revolution is not just an extension of the internet revolution; this convergence of the physical and digital worlds has the potential to transform industries, and our lives, on a greater scale than the internet has.

The early concept of the IoT was a system that connected objects in the physical world to the internet via sensors that gathered and reported data to a central location. That was in 1999, when Kevin Ashton, co-founder of the Auto-ID Center at MIT, proposed the term “internet of things”. Since then we have seen the machine-to-machine era, where devices began to communicate with other devices. Today, the IoT is connecting businesses, people and technology in real time, all the time. It is reshaping businesses across every sector of the economy and every industry.

From connected jet engines that reduce unplanned downtime, to connected vending machines that ensure the most in-demand beverages are always perfectly chilled and stocked, IoT is changing business models, customer relationships and organizational structures. Interestingly enough, the value being created does not come from the jet engine or the vending machine, but from the experiences and benefits that those connected devices enable. In other words, setting aside the hype around the latest IoT gadgets, the internet of things isn’t about the “things”. It’s about service. And that idea is revolutionary.

The IoT service opportunity

Connected services are not just forward-looking business opportunities: they are imperative now. Companies can’t afford to sit back and wait. In fact, 95% of chief experience officers told The Economist Intelligence Unit that they expect to launch IoT businesses in the next three years. Becoming an IoT business benefits a company in three fundamental ways: it brings the company much closer to its customers, providing a deeper, richer understanding of their wants and needs; it automates manual processes, directing focus on the most valuable parts of the operation; it brings new revenue streams and pricing strategies and makes the company’s business model more efficient. The model evolves from individual, one-time product sales to connected services that generate recurring revenue.

The automotive industry is a prime example of how extending the digital world into the physical world can unlock added value for customers and lucrative new sources of revenue for enterprises. For instance, General Motors no longer just sells cars. The company is at the cutting edge of user experience and new business models that allow it to connect to its customers in real time. It offers services through its vehicles that immediately detect when you’ve been in an accident and connect to emergency services to dispatch help. The vehicle becomes a WiFi hotspot for internet access and streaming content. By 2015, all GM vehicles in the United States and Canada will have 4G LTE technology built in, allowing passengers to use in-car apps, stream music and more. GM’s connected car strategy includes – but is not limited to – a Chevy app store that will let car owners download applications to the centre screen of a vehicle dashboard, a music app called Slacker Radio that provides more than 13 million songs, and an app called Glympse that lets drivers share real-time movement with friends. That doesn’t include other exclusive apps in the works, like Vehicle Health, which offers detailed information about vehicle performance.

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GM and other car companies have evolved into service providers. Innovators like these industry leaders realize that drivers and passengers not only want a reliable, comfortable vehicle, but also services to enhance their driving experience. By capitalizing on IoT, these original equipment manufacturers are able to provide remote diagnostics, maintenance, software updates, weather and traffic services, and much more. Not only do customers enjoy a connected experience, but the carmaker also improves its business.

This shift in business value from products to services is inspiring a wide variety of industries to redefine how they do business. For instance, Allstate, a US-based insurance company, is using connected devices to provide a usage-based insurance service called Drivewise®. In-vehicle connectivity enables Allstate to collect information on safe driving behaviour and reward drivers with preferred rates. These predictive insights replace guesswork and translate into higher customer acquisition and loyalty. Heineken, Europe’s largest brewer, has connected commercial kegs to deliver information that enables distributors and retailers to check the volume in kegs in real time. This provides the visibility necessary to make informed decisions regarding inventory planning and management. The system can also be used to report on product age and verify that kegs are being stored at the correct temperature, immediately alerting retailers and their suppliers to any issues that could compromise product quality. This capability gives establishments peace of mind, minimizes product waste and ensures that patrons receive the best possible experience.

Thousands of enterprises across dozens of industries are transforming their businesses into service businesses. Connecting a business to the IoT touches every part of the company and reshapes it for the better. The economic benefits of this transformation are profound. But how do enterprises get there?

Taking the first steps

Becoming an IoT service business unlocks incredible benefits, but it also comes with unique challenges. The IoT is a direct, always-on connection between your business and the rest of the world. When products are connected in real time, all the time, businesses are able to deliver an amazing array of new experiences to their customers. However, doing so will also fundamentally change how they operate, interact with those customers and make money. Companies must shift their focus from product-centric to service-centric business models.

For most businesses, the IoT is completely new territory, and the pace of innovation is incredible. Enterprises looking to capitalize on the IoT can’t afford to waste any time. They can learn from and emulate the handful of IoT success stories that have emerged recently, but if they want to lead in their own industries, they’ll need to move quickly to deploy their own IoT initiatives.

Navigating this kind of transition requires new business models and operating structures. Enterprises will also need to develop resources, expertise and alliances that enable them to manage and monetize these new services and relationships. They will also need capabilities that are critical to all successful IoT businesses like remote service management, customer engagement, support diagnostics, billing, etc. And finally, they will need a way to automate these actions in real time and at scale, in order thrive and grow in the IoT space.

Meet the new best friend of IoT businesses: automation

Arguably one of the most valuable differentiators for a connected enterprise is automation. It gives businesses the ability to not only gather information but to convert that information into insights and then use those insights to take action in real time. Imagine you’re running a connected ice cream vending machine company. Think of what you would want to monitor and control: inventory, temperature, coin jams, maintenance, etc. If the temperature rises too high, the ice cream melts, the quality of your service is compromised and you risk losing not only sales but your reputation as well. However, with automation, you can anticipate these types of risks and programme responses to immediately address the issues before they become problems. Temperature outside of acceptable standards? That information is immediately conveyed and the system automatically triggers necessary responses (e.g. in-machine temperature adjustment or a service call).

Whether you can get your favourite ice cream flavour is not a life or death situation. But with medical care it often is. In the world of healthcare, every second matters. Getting information in real time and responding equally as fast is crucial. Take the Boston Scientific, producer of a connected pacemaker, for example. The remote patient management system used with these devices showed a 33% relative reduction in the risk of death in patients who were remotely monitored compared to patients who were not. Additionally, these patients experienced a 19% relative reduction in hospitalizations for any cause.

Automation removes the delays experienced in previously manual processes, making businesses more agile and responsive to customer needs, while also letting them focus on the most valuable parts of their operation. This leads to increased service reliability, lower costs and scalability.

The world’s most innovative companies are doing it

Many of the world’s most innovative companies are successfully deploying IoT service businesses that bridge the gap between the digital and physical worlds. They are taking advantage of IoT capabilities like real-time automation to improve quality and enhance their relationships with the end user. They are building new products and augmenting existing ones. They are becoming more agile and profitable through new revenue streams and business models.

IoT promises to drive tremendous innovation and economic growth, but it won’t be a function of delivering billions of connected things. It will be about how IoT transforms businesses into service businesses, and the amazing array of new innovations, experiences and benefits that will result. This transformation is the next step in revolutionizing the global economy.

Author: Jahangir Mohammed is the founder and CEO of Jasper Technologies Inc., a World Economic Forum Technology Pioneer

Image: The sun casts a shadow and spectral halo effect on an aircraft. REUTERS/Jason Reed