Capturing Value From Free Digital Goods

Scientists refer to portions of the universe that they know exist but can’t easily measure as “dark matter.” As direct measurement is difficult, they study the indirect gravitational effects or galaxy rotation speeds to understand the phenomenon. Similarly, in the digital economy a broad range of “dark” elements are free and essentially limitless, and traditional tools can’t measure them.

One of the best-known examples of this phenomenon is Wikipedia. People use Wikipedia at no charge, and the content is created primarily by contributions from volunteers. Because no money changes hands (except for donations to help pay for technical infrastructure and office staff), Wikipedia has almost no direct impact on gross domestic product (GDP). Moreover, because Wikipedia has replaced physical and digital encyclopedias that people paid for, it has likely had a negative impact on GDP. Nevertheless, Wikipedia provides significant value for consumers, even if its economic worth is difficult to measure.

For companies, tapping into a faceless crowd for contributions to their innovation or production process can be daunting. Managers worry about the quality and availability of product support, and about security and intellectual property issues. And there are serious questions about who’s responsible if or when something goes wrong. However, in my research I’ve found that companies have opportunities to capture substantial value by using digital goods created by external communities and even greater value by paying their employees to give back and help build such goods, even if competitors are able to use them for free.

Consider open source software (OSS), which is produced through crowdsourcing, is generally free, and is critical to the digital economy. Over the past decade, OSS, long considered the purview of geeks, has played an increasingly important role at companies. More than 60% of web servers run OSS, and many of the technologies used for big data analytics are open source. In recent studies, I have found that using OSS and contributing to its creation allows companies to capture value more efficiently.

Effects on Productivity

There has been a long-running debate about whether OSS truly saves companies money. Although the software is free, it has limited official support and can require specialized technical knowledge to implement. However, until this point, the productivity impact independent of any cost savings has gone unexplored. For my forthcoming article in Management Science titled “Open Source Software and Firm Productivity,” I measured the productivity impact of managers’ decisions to use free and open source software by examining data on technology usage from 2000 to 2009 at more than 1,500 U.S. companies in industries such as manufacturing, technology, and retail.

The results showed an important dichotomy: Companies that were heavy IT users or in IT-producing industries (such as computer manufacturing, software publishing, and data processing) saw an immediate positive impact on productivity; other companies showed no productivity increases in the year of adoption and only small increases later. For IT producers, an increase in the amount of free OSS used at the company led to a moderate, but significant, increase in value-added productivity. The results were similar for heavy IT users. The positive impact on productivity from using OSS was larger for smaller companies, for which capital availability was apt to be an issue. In the paper, I argue that these benefits arise from both the cost savings associated with OSS and the ability of the company to tap into the collective wisdom of the crowd.

Learning by Contributing

In addition to being consumers of OSS, some companies support its creation — even paying employees to contribute to it. In another forthcoming article (in Organization Science) titled “Learning by Contributing: Gaining Competitive Advantage Through Contribution to Crowdsourced Public Goods,” I look at the impact of this type of support in practice. Although it has long been argued (by Michael Porter, Jay Barney, and others) that a company’s competitive advantage is tied to its unique resources or capabilities, as the economy becomes more information-based, companies need to take greater advantage of free digital goods. Given that such goods are available to anyone, it’s incumbent upon companies to find ways to use them strategically as inputs into their innovation and production processes.

Although paying one’s employees to create a good that competitors can use for free might seem counterintuitive, evidence suggests that contributing to public goods teaches companies how to capture value by using them more effectively than those competitors that don’t contribute. This is especially likely with regard to OSS, where contributors receive feedback from the crowd, much of it from people who have expertise in that piece of OSS.

To explore how this works, I paired the technology usage data from a subset of companies in the Management Science study with data from the Linux Foundation on code contributions to Linux, the world’s largest OSS project. The results show that contributing companies were able to capture up to 100% more value from usage of OSS than their noncontributing peers, and that higher levels of employee contribution led to greater productivity. The benefits came primarily from content contributions, where contributors wrote the code, as opposed to editorial contributions, where contributors approved code written by others. This seems logical: Editorial contributions tend to come from more-senior members who already have a great deal of experience and have less to learn than newcomers.

These findings have important implications for managers making technology-related decisions within their enterprises. It’s likely that companies in IT-producing industries and companies that are heavy IT users already have assets, such as an IT labor force and IT infrastructure, that will allow them to realize productive value from implementing OSS. Other companies may benefit as well, but their productivity boost will depend on how quickly they can develop the ability to extract value. Given that small companies appear to derive bigger benefits from using OSS, large companies may want to evaluate the potential benefits carefully before changing existing IT infrastructure.

The advantages of contributing to the creation of OSS are clear. Odd as it may seem to pay employees to create software that competitors can use for free, doing so enables companies to add to their technological capabilities and gain an advantage. Companies that support crowdsourcing activities are likely to benefit from using crowdsourcing communities to promote innovative ideas that feed into the production process, potentially leading to further competitive advantage over their rivals. In addition, supporting crowdsourcing activities also contributes to societal welfare and helps society progress to the next stage of the digital revolution.


MIT Sloan Management Review

Three Reasons Discrete Manufacturers Must Integrate Digital And Physical Products

Discrete manufacturers in automotive, aerospace and defense, high tech, and industrial machinery and components are facing unprecedented pressures on their ability to innovate, engage with customers and consumers, and maximize return on their assets. By 2018, nearly one-third of discrete manufacturing leaders will be disrupted by competitors that are digitally enabled, reports IDC. In the age of digital disruption and transformation, discrete manufacturers must rethink traditional business models to capitalize on new, digital opportunities. One such opportunity is the sale of digital products.

Digital products offer many benefits over physical products, including frictionless buying, immediate delivery, and no shipping or supply chain management costs. But digital products can be difficult to sell on their own. To address this challenge, companies are pairing digital products with physical ones. For discrete manufacturers, this pairing offers new business models and revenue-stream opportunities.

Valuing digital products: Using physical products to drive digital sales

What is the value of a digital product? Consumers in the B2C world have historically been slow to jump at the purchase of digital products. As Fast Company reports, it takes a companion physical product to give the digital product value. For example, consider the case of Apple’s iPod and digital music downloads. In the age of Napster and free MP3s, digital music downloads were a slow seller. This changed after Apple introduced its iPod in 2001, creating a new physical product to house these digital downloads. More than 5 billion songs were sold through Apple’s iTunes store by 2008.

Learning from Apple, discrete manufacturers can adopt a similar approach by integrating their physical and digital offerings. Digital offerings, such as remote upgrade service and preventive maintenance contracts, are a natural add-on to physical products. IDC estimates that by 2018, 60% of large manufacturers will bring in new revenue from information-based products and services with embedded intelligence driving the highest profitability levels.

Three applications for digital-physical product integration

For discrete manufacturers, integrating digital and physical products offer three key benefits:

  1. Increased aftermarket value. Selling remote monitoring and digital services is perhaps the most obvious application for digital and physical product integration. Offering upgrades, continuous service, and preventive maintenance via remote monitoring is an important new revenue stream for discrete manufacturers. For example, remote monitoring can dramatically extend the shelf life of industrial machinery used in the food and beverage industries, high-tech manufacturing and automotive manufacturing. Typically, an industrial machine has a shelf life of 20+ years. But the rapid pace of technological change means machines constantly need to be retrofitted. Conditioning-monitoring sensors combined with the Internet of Things (IoT), cloud technology, and analytics would enable discrete manufacturers to offer ongoing digital service plans.
  1. Data monetization. IDC estimates that less than 10% of data is effectively used. Discrete manufacturers must treat data as a digital asset and use this data to improve user experiences, provide insight, influence decisions, and set directions. In the automotive space, discrete manufacturers can leverage usage and engagement information to effectively send content, such as software upgrades and infotainment. Like the Apple iPod/digital download model, auto manufacturers could use the physical product (the car entertainment system) to sell the digital product (the infotainment) to drivers. Automobile manufacturers can use analytic data to better understand driving patterns and preferences, location usage, and demographics. Analyzing this data will allow manufacturers to better target their digital infotainment offerings.
  1. Faster design-to-market cycles. Embedding sensors in industrial machines will generate a wealth of digital performance data that is useful not only for predictive maintenance but also for streamlining future production. Industrial machines are incredibly complex. Ideally, these machines are built following a model-based systems engineering approach that allows designs to be reused for a variety of customers. Integrating sensors into these machines will produce a stream of data that discrete manufacturers can use for future production guidelines. This includes using the data to configure new customer orders. This approach accelerates design-to-market cycles and increases customer satisfaction.

For discrete manufacturers to capitalize on new business opportunities, they need a strategic partner to support digital and physical product integration. Manufacturers need a platform that enables the seamless integration of industrial IoT with advanced analytics process to support product development.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading Accelerating Digital Transformation in Industrial Machinery and Components. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?


Internet of Things – Digitalist Magazine

Taking Flight With Aerospace: The Power Of Digital

Market experts predict the world’s fleet of commercial aircraft will double in size over the next 20 years. This is due to increasing demand from growing markets like China. Industry leaders can secure their market share if they use an integrated approach to innovation and technology.

Faced with growing market demand, aviation companies are under pressure to speed delivery of new aircraft while implementing digital technologies to improve productivity and reduce manufacturing delays. The aerospace firms that are successful in these efforts will be able to stay within schedules and budgets, focus more intently on global expansion, and attract the best industry talent. But the road ahead is full of challenges.

The complexity of aerospace

The global impact of the aerospace industry is quite impressive. Last year alone, it provided the infrastructure to transport over 3.7 billion passengers. Aviation companies also delivered more than 1,800 new commercial aircraft, and launched 85 orbital space missions. Many of today’s innovations depend on technology coming out of the aerospace world. As an example, imagine smartphones without GPS capabilities, a technology developed in aerospace.

The digitalization of aerospace will drive innovation to produce smarter, more efficient aircraft. Already, modern planes can create over 0.5 TB of data for each flight, as input for next-generation services and groundbreaking 3D printing advances – targeting both primary and replacement parts – are enabling equipment manufacturers to better meet service-level agreements and increase uptime. More than ever, success depends on strong engineering to meet the highest quality and safety standards and a strong focus on the integrated approach to innovation.

Challenging traditional paradigms

Aerospace is one of the most regulated and controlled industries in the world and traditionally has not been made up of “rule breakers.” But innovation in this industry does happen when key players challenge their own business processes, then redefine those processes using an array of new technologies.

Two strong examples of this approach come from commercial aerospace manufacturing. Emerging player SpaceX has redefined the rules of space travel and transformed how payloads are sent into space, delivering an operational model with significantly reduced costs. In contrast, the well-established Lockheed Martin is relying heavily on technology, in the form of the Internet of Things (IoT) and machine learning, to protect people and products. The company is also using a blockchain strategy to speed the discovery and solution of cybersecurity problems and has relied on 3D modeling for many years.

The economics of innovation

The aerospace industry has seen tremendous benefits from technological innovation. 3D printing, for example, has helped redefine the process and cost of manufacturing components. Recently, GE produced a 3D-printed 1,300HP advanced turboprop engine. But while 3D printing an entire engine is impressive, aircraft parts will gain the most from this technology.

With fleets always on the go, it’s difficult to anticipate what parts a plane will need and the optimal service location to store them. A grounded airplane can quickly become an expensive problem, with the estimated cost of a typical “B check” maintenance issue near $ 60,000 USD. 3D printed parts help avoid that scenario and improve fleet uptime and reduce costs.

The industry has also been an early adopter and innovator of IoT technology. Maintenance, repair, and overhaul (MRO) is the daily task of managing the upkeep of aircraft. Checking working systems and how they interconnect requires data gathering and analysis. Technicians, OEM parts manufacturers, and carriers tend to take a more reactive approach to maintenance. This leads to downtime, delayed flights, and aircraft on the ground (AOG) issues during busy airport hours.

IoT enables companies to launch predictive maintenance initiatives. Maintenance technicians gain an understanding of current known issues through available data. They can also see the time remaining until equipment failure. The maintenance techs then have enough information and time to make repairs before major issues arise.

Soaring with a digital core

Technology modernization, including cloud computing, is a top priority for aerospace. Most aviation companies operate in a hybrid environment. In this situation, cloud-based systems interact with on-premises applications, enabling companies to secure intellectual property while enjoying cloud benefits for traditional business applications, HR, and other things.

Aerospace companies that capitalize on the following strategic priorities will succeed in the changing market:

  1. Customer-centricity. Putting the customer’s point of view at the center of every decision is vital for success in the digital age. Providing tailored benefits, improving product performance, and outcome-oriented service models are key.
  1. Digital business networks. Enabling collaboration and leveraging knowledge benefits all business partners. Scalable and secure, many-to-many networks distribute critical, real-time business information across the network.
  1. Innovation. With even more technology embedded, OEMs aim to make products smarter, more reliable, and affordable for customers.
  1. Agile manufacturing. Advanced automation and integration provide data for process improvement and proof of compliance.
  1. New business models. New digital technologies disrupt traditional business models. The results include process evolution, new market opportunities, and new revenue streams.

Learn how to bring new technologies and services together to power digital transformation by downloading The IoT Imperative for Discrete Manufacturers: Automotive, Aerospace and Defense, High Tech, and Industrial Machinery. Explore how to bring Industry 4.0 insights into your business today by reading Industry 4.0: What’s Next?


Internet of Things – Digitalist Magazine

KSKJ Life and Intellect SEEC to enhance collaboration and Digital Transformation

The Illinois-based fraternal organization is looking at exponentially boosting the productivity of its field force. Intellect SEEC, the insurance software division of Intellect Design Arena, has announced its partnership with KSKJ Life, a Slovene fraternal organization. As part of the partnership, Intellect SEEC will be deploying its AI- powered, cloud- native Fraternal Suite for KSKJ Life.

KSKJ Life was looking to give their independent agents powerful tools to increase their productivity and help their home-office staff communicate seamlessly with their members. This partnership with Intellect SEEC offers a complete digital transformation of their new business and post-issue servicing.

This platform supports seven powerful business apps, which are multi-device, multi-channel (supporting agent, back-office staff and members) and come out-of-the-box, all on a single codebase. This suite of integrated apps includes— CRM, Needs Analysis, Quote and Illustration, e-App, Profile Management, Customer Service and Product Launcher.

The Fraternal Suite integrates with the KSKJ’s existing core and external systems through APIs for real – time pre and post policy transactions. The Intellect SEEC platform provides the company the ability to meet their immediate need of productivity gains and digital empowerment, and their long term need for sustainable business growth.

“We cannot expect the field force of today, to work effectively with our members while dealing with a ton of paperwork. We need to unburden and empower them with the latest tools. Intellect SEEC was an easy choice for us because their suite allows KSKJ Life to bring forth the technology advancements we need to keep us competitive and enable business growth. We are giving our agents tools that not only help them sell, but also provide key insights for deeper engagement with our members,” said Tony Mravle Jr., CEO, KSKJ Life
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“We have been providing state-of-the-art technology at affordable prices for years. We are excited to bring our first fraternal client on the native-cloud platform and we hope to add more in the very near future. Our platform enables fraternal organizations to streamline end-to-end front-office capabilities by helping the agent, home-office personnel and members to collaborate in real time,” said Pranav Pasricha, CEO of Intellect SEEC.

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Internet Of Things | IoT India

Vodafone and Mango make digital fitting rooms a reality

Vodafone and Mango make digital fitting rooms a reality

Vodafone and Mango make digital fitting rooms a reality

Vodafone announced today that it is working with Mango, the global high street fashion retailer, on a new programme to rollout digital fitting rooms to the company’s top stores worldwide.

The digital fitting room has been designed around a new Internet of Things (IoT) digital mirror designed by Mango, developed by Vodafone in collaboration with Jogotech, which will allow the shopper to scan the clothes tags in the fitting room and then contact shop floor staff directly from the mirror, through a digital watch, to request different sizes or colours. The mirror will also suggest additional clothes to complement the original choice.

Mango’s aim is to extend the digital fitting room to its top stores, from Barcelona to New York and will help to blend the online and real world shopping experiences for the Mango customers. This is the first phase of a digital transformation project for Mango to create new ways for customers to engage and relate to the brand.

Vodafone Director of Internet of Things Stefano Gastaut commented:
“This project helps put more power at the shopper’s fingertips and will bring Mango closer to its fashion conscious shoppers and offer them more options and experiences than a conventional fitting room.”

Mango’s Chief Client Officer Guillermo Corominas added:

“This is a really exciting project for Mango. We see the future of retailing as a blend of the online and the offline. These new fitting rooms are another step in the digital transformation of our stores to create a whole new experience for our customers.”

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IoT Business News