I don’t think anyone doubts that we live an era of disruptive innovation or that truly disruptive innovations are unlikely to come from corporates. Large companies tend to have “innovation antibodies” that are born from the very factors that have made them successful in the first place:
- Internal processes that mean that results are repeatable and reliable across the whole organisation but can lead to inflexibility and a culture of #notinthebook
- Attention to live revenue streams and activities that keep share prices up until the next presentation of results to investors
- Legacy systems that underspin operational success. A by-product of having been around a long-time, the cost of retro-fitting legacy systems in a retail bank has been estimated at 400M€
- Regulatory compliance requirements which are born to a certain extent from mass adoption and therefore part of the price paid for success.
- So the perennial question corporates ask themselves is: Do we buy or do we build? The right answer (in so far as there is one) is that you do both. You build in areas in which you have core competencies and you buy in frontier or adjacent markets that can significantly add value to your existing portfolio.
For a CISCO or an ARM, it may or may not make sense to work with IoT start-ups to extend their product offering, although it does makes sense to work with them as potentially scalable customers.
For industry, however, the opposite may be true. Although many firms, from travel to betting, across a wide of industries are at their core technology firms (e.g. Goldman Sachshas 30,000 employees, 10,000 of which are developers), their expertise is narrow and directed at a specific application.
Partnering with start-ups can help revive old business models by providing market differentiation from competitors
Partnering with start-ups can help revive old business models by providing market differentiation from competitors e.g. Aviva is basing its marketing campaign in the UK on an app that tracks driving habits and rewards good or risk-reducing behaviour. Manufacturers can move from product-based models to recurring revenue models that exploit cyber-physical opportunities. This is the model being pursued, rather polemically, by John Deere. In any real sense, ownership of the tractor is being transferred from the farmers to the company.
But there is another pressing reason why corporates need to work with IoT start-ups.
Security. As Bruce Scheneir has said, “We no longer have things with computers embedded in them. We have computers with things attached to them.” Corporates need to understand the possible ways in which their products or processes could be hacked. The IoT_Reaper botnet is infecting over 10,000 devices a day, with millions of IoT devices being queued for infection, according to Qihoo’s 360.
One of the best ways they can begin to understand how game-changing technologies can affect their reputation and their business is by working with IoT start-ups. It’s an ecosystem approach that will not only help start-ups understand better how to build in security and resilience, but also help corporates better understand the chain of vulnerabilities.
Context: The above comments are based on our experience of working with 132 Internet of Things start-ups with founders from countries from the Ukraine to the UK. Our equity-free programme, part of Startup Europe, aimed to get them market ready and to establish solid foundations for growth. Overall, 78% were B2B or B2B2C start-ups and part of the acceleration programme involved supporting them in the process of getting them to their first pilots and/or contracts with corporates.
Author: Tanya Suarez, IoT Tribe Founder
See this post also on LinkedIn