Manufacturers Can Also Win in the Sharing Economy

The sharing economy has unleashed new ways for individuals and companies to share assets, including large-scale items such as apartments and cars. Sharing services have had large upsides for consumers, who now have more — and less expensive — options for borrowing products. These services have also been a plus for product owners, who get to monetize their investments in new ways.

But what about manufacturers? If consumers can rent or borrow items they use infrequently instead of buying them, it seems like manufacturing would be taking a big hit.

That’s not always the case. Research into the impact of the peer-to-peer market on companies making durable goods, such as cars, boats, and power tools has found results that may seem counterintuitive. Under certain conditions, the sharing economy can create win-win scenarios that benefit not just consumers but manufacturers, too. The research was conducted by three economists — Vibhanshu Abhishek (Carnegie Mellon University), Jose A. Guajardo (University of California, Berkeley), and Zhe Zhang (Carnegie Mellon).

MIT Sloan Management Review spoke with Abhishek, the paper’s lead author, for his insight into what strategies original equipment manufacturers (OEMs) can pursue to capitalize on the value of the sharing economy — and when they should try to preempt it. The interview was conducted by freelance journalist Frieda Klotz, and what follows is an edited and condensed version of their conversation.

MIT Sloan Management Review: How would you characterize the sharing economy at the moment? What direction is it going in?

Abhishek: Right now, consumers own their products and supply them in the sharing-economy marketplace. We may see other models emerging, with communities owning products and renting them to other people in those communities, too. One thing I can say for sure is that the role of the sharing economy will increase.

Technology has really enabled certain markets by reducing the friction with which transactions take place. With a lot of companies that come to mind when we think about the sharing economy — Airbnb for home rentals, Uber for car rides, Turo for car rentals — it’s not as though it wasn’t possible to build these sorts of systems before. We had vacation rental services before Airbnb came about, for example. But the fact that now you have smartphones with location information makes things work very smoothly.

How do durable goods fit into this picture?

Abhishek: Most durable goods are used for short periods of time and have high spare capacity. Cars are used on average 5% of the time, for example. The rest of the time they’re in a garage or a parking lot or on the street. The fact that now you can go to a mobile-enabled marketplace and say, “Hey, I have a car that I can rent out” makes the market more efficient from an economic perspective. It’s a big win for suppliers — the people who own the goods — and for consumers. It’s also a win from an economic standpoint: We’re using resources much more creatively and usefully than we have in the past.

We found that in certain conditions, this is beneficial for manufacturers, too. There needs to be sufficient amounts of heterogeneity. This means that there’s a population in the market that is what we call high-usage — a cohort of people who need to use a product very often — and there’s another group that needs to use the product much less frequently.

In these situations, the OEM forgoes selling to consumers who don’t need to use the item very often. The beauty of the sharing economy is that high-usage people buy the items, such as cars, and when they don’t need to use them, they can supply them to people who use them less often. Low-usage consumers end up renting from these markets instead of forgoing consumption. It’s a win-win-win for the borrower, the owner, and the manufacturer.

It’s surprising that this creates a win for the manufacturer, too. There must be a cannibalizing effect. How do manufacturers make up for losing customers who have been on the fence, wondering, for instance, whether to buy a car?

Abhishek: It’s true that there are people on the borderline about whether to buy or not. If you look at the low-usage consumers, buying a car is a critical decision for them. What ends up happening is that people who are on the fence, deciding whether to buy a car or forgo consumption, now simply enter the rental market.

Manufacturers are going to sell fewer cars, but they can charge a higher price for every car that they sell. People who buy cars will pay more. Earlier they were paying for their own utility only, but now cars are an investment because they can be rented out in the sharing economy and the owner can make some extra dollars.

Ultimately, being able to serve the market with fewer cars is very, very profitable from the manufacturer’s perspective. When you incorporate costs, it becomes an excellent deal for the OEMs.

Can you say more about the idea that car manufacturers are going to be able to charge more for cars because consumers will be able to share them and make money from that sharing?

Abhishek: The sharing economy has an equalizing effect, in which the difference in the value that high-usage versus low-usage people are willing to pay diminishes. The high-usage consumer has only so much downtime for his car. If I need to use it for 80% of the time, I only have 20% of time that I can rent it out on the peer-to-peer market.

But people who need to use cars only for 20% of the time can rent out their cars 80% of the time on the peer-to-peer market, and derive a lot of value from it. This leads to an equalization of how much both types of consumers are willing to pay for the car. Ultimately that’s beneficial for manufacturers because they can raise prices. Without the sharing economy, the OEM either forgoes selling to the low-usage consumers or has to charge a significantly lower price to sell to them, leaving money on the table.

In addition, the sharing economy allows the OEM to discriminate between consumers who differ on another dimension. It sells the cars to consumers who derive a low value from driving irrespective of their usage rate, and allows low valuation customers to rent from the peer-to-peer market.

Your research found that in certain cases manufacturers can’t really compensate for the sharing economy.

Abhishek: That is true. If the market is too homogeneous, with everyone needing to use the good at the same rate, then peer-to-peer market will fail to create value for the OEMs. On the other hand, excessive heterogeneity won’t work either. If there is a segment of people who need to use the good all the time, and another group whose use is close to zero, then the low-usage consumers say, “I don’t even need to use a car that often,” so the rental revenue will be very small. In that case, the OEM can’t charge more for its product because the sharing economy is not going to bring any benefits to the product owners.

As a consequence, the sharing economy is beneficial to the OEMs only under intermediate levels of usage-level heterogeneity in the market.

Your research found that there are times when manufacturers and retailers should rent their products themselves.

Abhishek: Yes. Think about power tools. People buy them because they want to do a project over the weekend and then they sit around in the basement for the next 10 years — they’re used for probably 11 or 12 minutes in their entire lifetime. If there were a sharing economy for power tools, there are enough people who have the devices lying around that it would have a very significant negative impact on consumer purchases.

Companies should not promote the peer-to-peer market in this case. But they should completely do the rentals — which places like Home Depot already do. This is a great way to preempt the market. If you’re a retailer or manufacturer and you think that there is a lot of spare capacity in a space, which someone could mobilize using the peer-to-peer economy, you can preempt its emergence by doing rentals so that consumers don’t even begin to consider borrowing from other consumers.

GM has a sales-plus-rental business model. It sells cars but also has a rental business called Maven. People who don’t need a car very often can rent it from GM’s Maven platform.

What are the implications for OEM companies that are not yet involved in the sharing economy?

Abhishek: Let’s say a business is trying to figure out how to coexist with the sharing economy. What is the best strategy for them? Should it encourage the sharing economy? Should it change prices in the market? Should it add its own rental arm in the market?

We would recommend that companies look at how their consumers segment and at the heterogeneity in usage rate.

If the heterogeneity is in that intermediate region, then they should encourage the sharing economy and think of how they can integrate their business with it. But if the consumer heterogeneity is in these extreme regions, then it should be very careful and try to restrict or preempt it.

Since we started working on this paper two years ago, there have been a lot of changes. Tesla has a car-sharing platform where owners can share their cars and receive income from their vehicles. Mini [BMW Group] has developed a similar scheme.

The bottom line is that OEMs need to recognize the value of the sharing economy. It’s not a case of, “We are going to get screwed and we should make it harder to share things!” It’s actually saying, “This seems like a very good opportunity. How can we leverage the opportunity to grow our business?”


MIT Sloan Management Review

Promoting the African Internet Economy, an opportunity that cannot be missed

Some time ago, a European who visited my country and saw all the potential it possesses asked me “why is your country poor?”. It was a compelling question that made me think for years. It is true that there are external reasons such as the acts of colonial and other powers who have done everything to block economic progress. But, I have to admit, there is at least one major internal reason: we missed many opportunities for development.

We missed the industrial revolution of the 19th century that propelled Japan and many European countries to development. We missed the development opportunity that many South East Asian countries grabbed since the 1960s. We missed many other opportunities, simply because we didn’t realize they were there or we just could not agree on how to make the best out of them.

The African Union has a very clear vision to transform the socio-economic condition of the continent by 2063; by this year, the Union will be celebrating its hundredth anniversary (see Agenda 2063). This is a great vision. But, is Africa ready to use the opportunities that exist today and can enable it to arrive to its aspirations enshrined in its Agenda 2063?

In particular, I believe that the Internet is an opportunity to achieve many of the aspirations of Agenda 2063. For example:

  • Many studies have shown that an increase in Internet penetration has a positive impact on the economy of any country. In particular, the 2016 World Development Report of the World Bank found that an increase of 10% in broadband penetration would increase GDP per capita growth from 0.9 to 1.5.
  • The Internet already brings people closer together, breaking down the tyranny of distance and making the vision of an integrated Africa more and more realistic
  • The Internet has also helped improve good governance by forcing transparency and accountability to governments around the world.
  • By allowing virtually anybody to communicate with the rest of the world, the Internet has empowered communities enabling them to grow their cultures.

But are we ready to use these opportunities or are we going to let them pass as we have unfortunately done with the other others? I am personally split between being optimistic and concerned on this issue. On the one hand, I believe that the Internet will reach the majority of Africans very soon empowering them as they have never been in the past. On the other hand, there are many major challenges that we need to tackle if we want to use the opportunities brought about by the Internet. In particular, there are new divides that are being created and that will marginalize parts of the society; there is also a risk of fragmentation of the Internet as well as an increase in cybercrime which might affect negatively the trust that people have on the Internet.

For Africans to benefit from the opportunities, they have to know what these opportunities are and ensure that they remove the hurdles that stop countries and citizens from benefiting from them. It is with this purpose that the Internet Society prepared a report on “Promoting the African Internet Economy”.

In this report, the Internet Society highlights how greater usage of the Internet, and digitization of the traditional economy, amplifies economic growth. Some of the recommendations with regards to improving access are:

  • Ensuring that broadband is available, affordable, and that there is sufficient bandwidth for new services. This requires several steps such as:
    • Liberalization of the sector to promote competition. The conditions of liberalization are important, with licenses that offer flexibility, and that are reasonably priced, having transparent conditions.
    • Affordable taxation of mobile Internet devices and services, where they are not treated as luxury goods, and balance the need to increase usage, while promoting the Internet economy.
    • Spectrum policiesthat allow for sufficient allocations so that companies can use the spectrum in an efficient and flexible manner, at affordable costs.
  • Supporting content infrastructure such as Data Centers, which can benefit from a number of factors such as access to affordable and reliable sources of power, lower import taxes, and favorable investment policies.

I encourage everyone to read this new report available at: https://www.internetsociety.org/resources/doc/2017/africa-internet-economy/

The post Promoting the African Internet Economy, an opportunity that cannot be missed appeared first on Internet Society.

Internet Society

Engineering Smarter Connected Products to Win in the IoT Economy

Semiconductors are powering our smart world — advancing the computing, communicating and sensing technologies that have created the Internet of Things (IoT) and Industry 4.0. Eager to meet demand for a wide range of smart products and applications, industry players are pursuing aggressive merger and acquisition strategies. In 2014, there were 30 mergers valued at $ 103 billion. Last year, we saw two dozen mergers valued at $ 98 billion. And we’ve recently learned that Broadcom is making a $ 103 billion offer to purchase Qualcomm.

“In the industrial sector, smart connected products are driving business model transformations as companies seek to improve and monetize their operations and services. Swedish bearing maker SKF, for example, is developing a subscription-based revenue model that relies on the performance of its products. To be successful, SKF will need to develop robust products and implement predictive maintenance and asset performance management systems.”

In the industrial sector, smart connected products are driving business model transformations as companies seek to improve and monetize their operations and services. Swedish bearing maker SKF, for example, is developing a subscription-based revenue model that relies on the performance of its products. To be successful, SKF will need to develop robust products and implement predictive maintenance and asset performance management systems.

Digital twins will become a critical component in this journey.  In a recent post, GE describes how digital twins have effectively reduced unplanned downtime.  Power toolmaker Black & Decker also reports that digital twins have helped them improve labor productivity by 12 percent and throughput by 10 percent.

ANSYS Vice President Vic Kulkarni and I will be presenting on smart connected products at the IoT Tech Expo, on Wednesday, Nov. 29. Vic will focus on best practices for designing smart connected products, and cover considerations for chips, printed circuit boards and complete systems: How can we address challenges around balancing power, performance and cost, while meeting tight budget and time requirements?   Ensure thermal and structural integrity?  Guarantee reliable communication?

In his presentation, Vic will also explore how machine learning and big data can be applied to smart product development.  With billions of transistors in ever-shrinking semiconductor devices, artificial intelligence has become a critical tool to speed innovation and increase product reliability.

Later in the day, I will join industry experts from Stratus, DataRPM, Halliburton and Harbor Research for a panel discussion on connected industry. We will be sharing best practices to improve industrial reliability and performance, and discussing how technology can best be employed to ensure field assets are performing at peak efficiency. I will also offer my insights on the importance of simulation-enabled digital twins.  For companies looking to develop smart connected products or bring intelligence into their operation, simulation is a best tool for success.

To learn more about what’s possible with engineering simulation and how you can deploy it in your work, please visit us at Booth #63 to gain a firsthand perspective.  I invite you to learn more at www.ansys.com/digitalization.

(c) istockphoto.com/ sashkinw

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IoT Tech Expo

Ways 5G Could Transform the IoT, Business and the Economy

Ways 5G Could Transform the IoT, Business and the Economy

An article by Marc, Editor at IoT Business News.

The 5G evolution is gaining momentum. On the heels of a successful real-world test of near-gigabit speeds using 4G networks in Florida, Verizon is preparing to expand its testing to other sites around the country in the next few months. The tests will employ a technology called License Assisted Access that mixes licensed and unlicensed cell spectrums to increase wireless speed and capacity, a technique that forms the cornerstone of Verizon’s 5G plan. 5G broadcasting at speeds exponentially faster than current rates will debut at the 2018 Winter Olympics, and by 2020, the technology should reach maturation. By 2022, there will be over 89 million subscriptions for 5G technology, Markets and Markets projects.

As 5G services are deployed and launched, their impact on telecommunications should have a ripple effect on the Internet of Things, daily business operations and the global economy. Here’s a look at three ways 5G could transform the IoT and its associated business and economic infrastructure.

5G and the consumer Internet of Things

The most direct impact of 5G on the Internet of Things will be its acceleration of smartphone download and processing speeds thus opening a large field of consumer IoT applications. 5G speeds will be ten or more times faster than current speeds, capable of enabling a user to download an entire series of movies in a matter of seconds. To support this, smartphone component manufacturers are designing cellular modems and processors that will allow mobile devices to handle gigabit speeds and support unprecedented bandwidths. Qualcomm’s Snapdragon X50 5G cellular modem will allow users to connect to the cloud more quickly and with greater flexibility.

5G networks will increase connection speeds between smartphones and other devices within the IoT. 5G speeds will transform smartphones into devices that are increasingly paired with virtual reality headsets, in order to experience real-time VR broadcasts, which consume too much bandwidth for 4G to manage. 5G will also make it possible for data-intensive applications such as connected cars to communicate with smart infrastructures and other vehicles on the road, paving the way for more efficient autonomous vehicles.

5G and Daily Business Operations

The ability of machines to communicate with each other at 5G speeds will have a dramatic effect on business operations. One company on the forefront of this revolution is General Electric, which has brought the IoT into manufacturing by developing smart factory technology. By implanting IoT sensors throughout factories, GE enables manufacturers to monitor variables and make fine adjustments that can affect performance. For instance, at a GE battery manufacturing plant, sensors collect data on factory humidity and pressure on battery components, so that if polymer part thickness varies from one day to the next, supervisors can make adjustments for optimal productivity. GE has been combining this capability with other technologies such as 3-D printing and robotics to make factories truly smart and to take full advantage of automation.

The results can translate into tremendous increases in efficiency and decreases in costs for businesses. MGI estimates that applying the IoT to manufacturing to optimize factory floor design could be worth as much as $ 50 billion annually. Applying IoT devices to monitor workplace safety could reduce injuries by as much as 10 to 25 percent, saving $ 225 billion globally each year by 2025.

5G and the Global Economy

By lowering the cost of data transmission, increasing production efficiency through machine-to-machine communication and making it easier for companies to scale up, 5G technology will have a massive impact on the global economy. The 5G global value chain will generate $ 3.5 trillion in output by 2035, greater than today’s entire mobile value chain, supporting 22 million jobs and spurring $ 200 billion in investment annually.

By enabling lightning-fast communication between smartphones and IoT consumer devices such as VR headsets or smart vehicles, 5G could transform consumer society. In the industrial space, 5G should efficiently and cost-effectively supports machine-to-machine communications between smart devices and industrial equipments like the ones in smart factories for example. Supporting the emergence of new applications and opportunities both in the consumer and industrial markets, 5G could strongly and positively impact the global economy.

As it stands now, 5G is expected to start rolling out globally in 2020, with Ovum’s figures suggesting there will be 24 million 5G subscribers by 2021. So in a couple of years from now we will discover if 5G should pave the way for an evolution or for a revolution in the IoT world!

The post Ways 5G Could Transform the IoT, Business and the Economy appeared first on IoT Business News.

IoT Business News

IoT, AI and autonomous vehicles help spur tech M&A economy, says new report

Mergers and acquisitions (M&A) for the Internet of Things (IoT) continue to go at a steady pace, according to the latest analysis from Hampleton Partners.

In total, 239 ‘assets’ have been acquired from a total of 198 buyers between 2015 and the first half of this year in the IoT space. The total number of deals made in the first half of this year approached 50, albeit not quite at the same level of 2015, where the first six months of that year pushed 60.

According to Hampleton, the top acquirers were Verizon, ARM, and Intel. The latter recently concluded its $ 15.3 billion (£11.9bn) deal for Mobileye to help move forward in autonomous cars, while ARM made five acquisitions before itself being bought for $ 32bn by SoftBank. Verizon made a total of five acquisitions, including Sensity Systems and LQD WiFi.

This search for connected and autonomous car technology was one of the five trends in M&A for IoT, argues Hampleton. “The Mobileye transaction has drawn attention to the fact that Intel, a business better known for PC processors, is setting its [sights] on the next frontier in the auto tech industry in a big way,” the report noted. “For a company that has only been serious about autonomous vehicles for less than 12 months, Intel has made significant headway in the space.”

Mobility was a key dealmaker, with the Hampleton report even putting cars alongside smartwatches and virtual reality equipment as ‘increasingly a central theme within IoT strategies’. “This has largely been exacerbated by the onset of BYOD policies in corporate IT which brings with it a host of new devices to the workplace environment,” said the report.

Consequently, emerging technology will move the needle in future quarters, the analysts added. “Overall, our research shows that technology M&A cooled down in the first half of 2017,” said Miro Parizek, Hampleton principal partner. “However, it is critical to be more nuanced and to look deeper into specific sectors and the related data when assessing deal activity and planning strategy.

“M&A and funding is accelerating in select sectors, as more ‘non-technology’ or traditional companies and private equity firms move to acquire and invest in technology and innovation,” Parizek added. “Artificial intelligence, augmented [and] virtual reality, and cybersecurity are three of the most promising sectors for technology M&A right now.”

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