IBM’s Institute for Business Value has produced an insightful and thought-provoking white paper. It argues that, just as the Internet disrupted information-based industries by making information indexable, searchable and easily tradeable, so too will IoT make many types of physical assets indexable, searchable and easily tradeable, with profoundly disruptive consequences.
The white paper, The Economy of Things: Extracting new value from the Internet of Things, begins with a historical example from the real world: how making airlines seats easily indexable, searchable and tradeable completely transformed the airline industry.
IBM claims to have pioneered the digitisation of the global airline industry starting with the Semi-Automated Booking & Reservations Engine (SABRE), the world’s first digital online reservation system that it created for American Airlines. “By the 1970s, online reservation systems were standard and nearly every seat on every flight in the world was part of a real-time global marketplace,” the white paper says.
The power of market information
Subsequent deregulation created “one of the first markets where every physical asset [airline seats] was digitised and placed into a single global online marketplace.” The result was “a radical transformation of the entire airline industry, first in the US and then globally” that profoundly disrupted the airline industry.
“Consumers and airline-related industries have benefitted enormously from this transformation,” the white paper argues. The airlines did not fare so well. “Legacy costs including restrictive labour agreements and poorly utilised infrastructure have driven nearly every major US airline through at least one bankruptcy restructuring. Between 2000 and 2012, investors in the airline industry lost a cumulative $US44 billion.”
However, “Even as the airlines were plunging into bankruptcy, the companies that manage these complex online marketplaces for them were sustainably profitable. When it was spun out of American Airlines in 1999, the online reservation engine SABRE was worth more than its parent company.”
The good news, the white paper argues, is that the industry has recovered and is now vastly more efficient. “Today, the US airline industry is once again solidly and consistently profitable for the first time since deregulation.”
From this example it then goes on to imagine how IoT could transform two other industries, creating for each an “economy of things”. These are the US commercial real estate industry and the small business credit market in South Africa.
Real Estate ripe for IoT disruption?
The US commercial real estate market, it says, is extremely complex, resulting in inefficiency and under-utilisation. “There is a vast amount of space: 12 billion square feet in the US alone; but only 67 percent is utilised. Supply is not monolithic; 90 metropolitan areas account for 5.7 billion square feet of space. Large tenants dominate the market: those occupying more than 50,000 square feet account for 36 percent of all rented space. Demand for commercial office space is a function of geographic, cultural, strategic and industry considerations.”
It argues that the IoT could create a more efficient market by making information about commercial real estate — size, location and availability — easily accessible. “Sensors, coupled with understanding of utilisation, can create liquid marketplaces of real estate by enabling real-time discoverability, usability and payment.”
And this, it says, is already starting to happen: “As real-estate assets become digitally tagged, managed and shared, new services and marketplaces are being built to rent space during off-hours and offer conference rooms as classrooms. Vendors are already enabling these technologies and the number of digital marketplace services associated with them is growing rapidly.”
What next for the economy of things?
So the question then becomes: what other assets could become the basis of a new economy by being given the IoT treatment, by having information on their characteristics, location, utilisation, etc made easily available and by having a system put in place to enable those assets to be traded?
There must be ample scope here, but in fact the question should be wider. There are some tradeable assets that really only come into existence thanks to IoT. A perfect example would be car sharing services like Car Next Door. It enables any car owner to make their vehicle available for rental. The IoT technologies that make this possible are: GPS to track the location of the vehicle; a lockbox to hold the car key that hangs on the window of the car and that is opened via a numeric keypad; a cellular network for communication. Before IoT that market simply did not exist. There must, surely, be many possibilities.