It’s become increasingly conceivable and cost effective to embed sensors, wireless communication, and software into all kinds of products—from complex $100,000 industrial machines to $100 thermostats sold on the mass market. Exponential improvements in computing power, advances in sensor miniaturization, and pervasive connectivity have paved the way. It’s a transformation, described by Harvard Business School professor Michael E. Porter and James Heppelmann, CEO of software company PTC, as a move from goods that are simply composed of mechanical and electrical parts to the complex systems we now know as smart, connected products.1
When a product—whether a $35,000 automobile or a $150 electric toothbrush—is ‘smart’, it has sensors, processors, and software embedded in them that can track key aspects of their performance—fuel performance or toothbrushing execution. And when that product is ‘connected’, it can wirelessly transmit the data it collected.
When companies are able to continuously analyze the data streaming from these products, it opens up a world of potential business value and competitive advantage. It creates the unprecedented ability to monitor products at the most important stage of their lifecycle—when they are in the customer’s hands. That provides an unambiguous, new source of business intelligence in a wide variety of areas—from product performance to customer experience. Smart, connected capabilities are already enabling manufacturers of both high- and low-end products to reimagine not just their products, but also their business models.
Because manufacturers can continuously monitor products in use, they can update their products, patch problems, and rethink functionality—all of which improves customer satisfaction. The intelligence from smart, connected products can also inform future product features and new product development. We are all familiar with automatic app updates on our phones, giving us access to new features or fixing problems over the air. Smart, connected products can update themselves in the same way. Diebold, for example, can update and add new features to its smart, connected ATMs remotely via software.0 Fitbit has been able to increase its new product development thanks to the information it has on how customers use the fitness band—and those new offerings can come in the form of either hardware or software options.11