A Cloud Hangs Over CE Business Model Innovation

May 10, 2012
Those shiny new gadgets that crowded the show floor of the Consumer Electronics Show in Las Vegas reveals that the true engine of innovation is not in the physical product at all but cloud content and services.

Shiny new gadgets crowded the show floor at this year’s International Consumer Electronics Show in Las Vegas. A closer look at industry trends, however, reveals that the true engine of innovation is not in the physical product at all. It’s driven by content and services that are managed and delivered from the cloud.

As consumers, we’ve all “touched” the cloud: streaming videos online, programming the digital video recorder, or using mobile devices that depend on cloud technologies for storage and processing power. But now that cloud computing is finding its way into kitchen appliances that can “talk to the grid” and cars with cloud-enabled dashboard computers and other connectivity features, it is taking on a significant new role for consumer electronics (CE) manufacturers.

Evolution Of The Business Model

Products used to be isolated. There was little contact with consumers after the sale. Entertainment content was broadcast, without direct connection between the content provider and the consumer. The ability to associate services with a device was very limited. 

Today’s network-connected devices facilitate relationships between consumers, service providers, and device manufacturers. This new capability of direct, two-way interactions, combined with the vast expansion of device functions, is leading to an explosion of services and devices. As CE companies look for ways to be more innovative than the competition and establish new revenue streams, they are increasingly tapping the cloud to shift from a pure product/device-centered approach to a business model that focuses on services.

In my conversations with CE leaders, it has become apparent that cloud computing provides a way for businesses to exploit the capabilities created by today’s digital trends (e.g., mobility, social media, smart devices, “appification,” data digitization) in ways that both meet customers’ needs and drive future growth.

This opportunity is not without risk. The continuous connection to the consumer has the potential to conflict with the long established separation of roles between retailers and OEMs. But the scope of the opportunity and competitive threats posed by new entrants make it impossible for CE companies to sit on the sidelines.

Survey Results

To explore this dynamic and gain a better understanding of the ongoing shift in how organizations use the cloud today and how they plan to employ it in the future, IBM, in conjunction with the Economist Intelligence Unit, recently surveyed 572 business and technology executives across the globe.

Our survey revealed that while only 16% of respondents currently utilize the cloud for sweeping innovation (such as entering new lines of business or industries, reshaping an existing industry, or transitioning into a new role in their industry value chain), 35% plan to rely on the cloud for business model innovation within the next three years.

The survey results also showed that the respondents’ number one objective for adopting cloud computing is to increase collaboration with external partners. The second ranked objective is to drive competitive and cost advantages through vertical integration.

This is striking because these are both external capabilities. In fact, only one of the top seven objectives cited dealt with internal efficiencies, which is what businesses have typically relied on the cloud to accomplish.

Although few companies (just 15% of respondents) are currently using the cloud to substantially impact their customer value proposition, our survey indicates this, too, will change. Of total respondents, 57% anticipate it will substantially impact their customer value proposition in three years. How will they do this?

The “Triple Threat” Of Cloud Computing

Cloud computing can impact a company’s value chain in three ways: enhancement, extension, and invention.

  • Organizations can use the cloud to improve current products and services, thereby enhancing customers’ experiences to retain current customers and attract new ones. This approach garners incremental revenue.
  • Cloud technology can help a company expand into new products and services or utilize new channels or payment methods to attract existing or adjacent customer segments in an attempt to generate significant new revenues.
  • A company can use the power of the cloud to invent a whole new “need” and own an untapped market, attracting new customer segments and generating entirely new revenue streams.

As CE companies continue to shift to service-based business models, it is clear that cloud computing is no longer just for the CIO. CE manufacturers looking to harness the cloud are poised to open a world of new opportunities and revenue streams.

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