3 Sales and DistributionIn many ways, we have been living in the era of electronics. But change does not come easy to this industry. For manyIn the last 100 years, the electronics industry literally has decades electronics companies have made a living designing,revolutionized the way we live and work, laying the foundation manufacturing and shipping products into the channel,for powerful waves of innovation, from radios to robotics never to hear from them again. They did not have relationshipsto medical imaging. And the industry continues to drive with the users of their products. They did not do customerinnovation today, outspending all other industries in research service. In fact, while nine of 10 electronic company CEOsand development and fostering the widespread adoption of fully anticipate major changes in their industry in comingtechnology, from personal computers to mobile phones.1 years, only 60 percent of them are confident in their ability to manage that change.4The capabilities of these innovations are enabling us toinstrument our world, collect and analyze valuable data, As a result, new players from outside the traditionalintegrate disparate systems and improve the efficiency of electronics industry are already entering the market.entire industries, from healthcare to finance to retail. Service-oriented companies, software providers and even big-box retailers are developing alliances with fast-moving,But the electronics industry itself has been slow to take forward-thinking startups. They are already building a moreadvantage of the remarkable potential its own products enable. connected electronics industry. And they are doing this byThere are still billions of isolated, unconnected electronic combining smarter products with new services that aredevices in the world. Information about the use of these devices becoming the building blocks of smarter planet systems,is not collected or analyzed. There are precious few services such as smarter healthcare, smarter transportation andbeing offered alongside electronic products. And there is smarter energy.almost no communication between these devices in theirrespective operating environments. To meet these challenges, electronics manufacturers must abandon old ways of doing business. They must deliverThe result is a series of commodity products under severe products and services that make the most of the Internet tomargin pressure. In 2009, the consumer electronics market collect and analyze data and create new value. They mustsaw a nearly eight percent decline in overall revenue, even as foster new and direct relationships with their customers.unit volumes increased by 10 percent.2 Even smart phones, And most importantly, they must recognize that their productsone of the hottest electronics markets right now, lost four are part of a broader ecosystem, a so-called “Internet of things,”percent of their margins in the last two years.3 This is not a a platform for the development and delivery of services thatsustainable trajectory. will significantly advance the entire industry. But for the companies that embrace this new landscape, the opportunity will be enormous. They will learn more The electronics industry has been about how their products are used and how to use that information to tighten their operations, from design to slow to take advantage of the delivery. They will develop new, higher-margin revenue models based on services and fueled by ongoing relationships remarkable potential that its own with their customers. And they will connect the dots between disparate devices — and grow the entire electronics market products enable. There are still as a result. billions of isolated, unconnected In short, they will build a smarter electronics industry. electronic devices in the world.
4 The Case for Smarter ElectronicsThe Path to Smarter Electronics One example is a manufacturer of office productivityThe transformation into a smarter electronics industry products, working with IBM® to develop an advanced devicedemands that companies capture the opportunity resulting and printing management system. The system infuses officefrom connected devices and services and develop new business devices with real-time reporting and monitoring, significantlymodels, from design to delivery and beyond. It consists of reducing print-related costs, improving service and cuttingtwo main phases, which must be accomplished at both the back on carbon footprints. The system can identify servicecompany and industry level: issues with devices and automatically route alerts to local service desks for remediation before service is affected.Connect, Collect, AnalyzeBy connecting devices to the Internet, several things become Even a small amount of intelligence embedded in a devicepossible. Information about how a product is used can be positions it as a potential node in a more powerful network.collected. Updates and upgrades can be sent directly to In this scenario, the compute-intensive work is done not bydevices. Service issues can be detected and remediated the device itself, but on more powerful computers thatautomatically. And eventually, devices can communicate aggregate and analyze the data in the cloud.and share information with other devices on the network,igniting a host of new capabilities and possibilities. For example, a medical device manufacturer developed a patient care system that allows clinicians to remotely accessThis process starts with more sophisticated software in and analyze patient information from implantable cardioverterthe products themselves. Already about 70 percent of the defibrillators (ICDs) and pacemakers. Using a Web application,development costs of some televisions are spent on software. clinicians can analyze therapeutic and diagnostic data fromAnd a single smart phone can include as many as 11 million a patient’s device, and be alerted to a potential medicallines of code.5 This built-in intelligence gives electronic condition without patients having to leave their homes.devices extraordinary new capabilities. For example, they The data can be added to the patient’s electronic health record,can detect, diagnose and debug problems at any stage during providing a more comprehensive view of overall health, orthe product’s lifecycle, from the design and testing phase cross-referencing on patient record against other data sets tothrough to the end market. In addition to improving customer search for anomalies.satisfaction, these capabilities can actually speed a product’stime to market by creating new efficiencies during the When companies harness the data their products give off,development and testing cycle. And these intelligent devices they can apply powerful analytics that inform every part ofcan evolve as market demands change, upgrading and their business, from design to delivery, from supply chain toupdating features remotely and automatically. services. But intelligent devices are only the first step toward a smarter electronics industry. Soon, there will be a trillion connected devices in the world.6 By combining the data coming from these devices with information throughout the web, a new platform emerges, one with the potential to greatly enhance the usefulness, longevity and profitability of today’s electronic devices.
5 Sales and DistributionCombine, Create and Act Because these key components will live in the cloud, it allowsThe end state of a smarter electronics industry is the for the rapid development of these services at low cost, enablingunderstanding that every electronic device, whether it lives experimentation and iterative improvements. It also hides thein an office, a living room, a car or a factory floor, can be a complexity of these systems from the user.node in a network. We call this the “Internet of things.” One example of how combining smarter electronics devicesThis realization brings with it some powerful implications. in a single operating environment can transform that space isFor one thing, it turns an industry into a system, with far in the home. Though it has been talked about for years, themore potential. It makes the case for open standards, which connected home is now becoming a reality, thanks to anare crucial if we are to design environments of connected increase in web-enabled home devices and the potential todevices in a home, car, hospital or factory floor. And it also mask from the user the complexity of managing a homeplaces new importance on collaboration throughout the network of devices.industry, because makers of previously unrelated electronicdevices will need to break down barriers and develop products ABI Research expects the connected home global marketthat can communicate with each other. to grow by a compound average of 23 percent annually to more than $10 billion in 2014.7 Already service providers areWhen data and services from these different devices are combining content, applications, networking, gaming andcombined in the cloud, the resulting network becomes a even energy management in their offerings, catering to aplatform, like the Internet itself, with endless potential. market looking for a more integrated experience.We are just beginning to explore the possibilities in thisworld, such as appliances or equipment that automaticallycycle on and off when they receive price signals from theelectricity grid. Or services that aggregate a user’s habitsand preferences across all their media devices (smart phone,television, computer, etc.) and serve up relevant contentas a result. Players from outside the traditional electronics industry are developing alliances with fast-moving, forward-thinking startups. They are already building a more connected electronics industry.
6 The Case for Smarter ElectronicsFor example, smart meters (and the associated customer For example, a consumer electronics company is alreadyportals being created in the cloud by energy providers) beginning to explore these possibilities by creating aallow consumers to see their usage profile and adjust their first-of-a-kind television service. In addition to traditionalenergy consumption habits to achieve certain goals, such as television broadcasts, the viewers can access and navigatereduced cost or carbon footprint. And several electronics personalized content with a standard remote: everythingmanufacturers, making everything from thermostats to from web services to social networking sites to television andsecurity systems to televisions, are releasing products that movie programs. The television actually learns user preferenceswork within these constructs. Whirlpool recently announced over time and recommends specific content. To do this, theit would produce 1 million smart-grid compatible clothes company needed an advanced, intelligent infrastructure ondryers by 2011.8 which to establish and support a dynamic community of users and service providers. Since the solution was ultimatelyThis new paradigm provides opportunities for innovative expected to connect large numbers in many countries ofservices that make the most of the computational power and internet-enabled televisions, scalability was a key consideration.scalability of the cloud. Using a common services deliveryplatform based on industry standards, usage data on any kind Openness was also essential. This organization wanted toof electronic device can be collected, aggregated, analyzed grant equal access to all content and service providers — overand used to inform new services that add revenue streams to the more restrictive and proprietary “walled-garden” approachthe traditional electronics business model. to web services and content. Electronics manufacturers must abandon old ways of doing business. Recognize that your products are part of a broader “Internet of things,” a system for the development and delivery of services that will significantly advance the entire industry.
7 Sales and Distribution Conclusion The time to transition the electronics industry into a smartThe time to transition the electronics system is now. The demand is strong. The products areindustry into a smart system is now. maturing. And the technology to tie it all together is available.The demand is strong. The products Ultimately, however, the industry will need leaders that accept the challenge to transform their companies and theare maturing. And the technology industry at large. IBM has not only helped to support this transformation in other companies, it has undergone theto tie it all together is available. same transformation itself. Years ago we remixed our portfolio toward services, software and solutions. We invested in offerings that fostered communications between our clients and our company. We embraced open standards to allow for a stronger, more dynamic information technology industry.The intelligence of the technical architecture provides thecompany with significant business model advantages. These shifts not only pulled our business from the gripsThe new model has radically increased product registrations. of commoditization, they also positioned us well for theAnd by analyzing preferences and viewing habits, the television services economy of the 21st century. That same transforma-service portal has the ability to create user profiles that can tion is what’s required for electronics companies today.be used to personalize the viewing experience by highlighting We’ve been through it. We can help. Let’s build a smarteror directing users to recommended content. This derived electronics industry.intelligence has powerful implications for more intuitiveusage, and lays a solid foundation for delivering new appsand simplified personal interaction that will generate newrevenue streams.The company’s initiative expands and redefines the focusof television product development with service integration.They are able to simplify and streamline at the product levelby embracing key elements of the cloud computing model,while at the same time laying the groundwork for moreproduct line flexibility and efficiency down the road.