Why Don’t IoT PoCs Scale Up?

Depending on who you talk to the IoT market potential can be measured in billion, if not, trillions of dollars. However, the story from many enterprise buyers is different –  whilst many enterprises we talk to are interested in IoT, many of the specific projects fail to move beyond Proof of Concept (PoC). Additionally, the major service providers which engage with us about IoT, have solution offerings and few marquee logos for IoT Proof of Concepts (PoCs) – they lack many organization-wide implementations.

It is tempting to say that this is not alarming for a new service offering – with many having to start small and gradually scale-up, whilst the market accepts them. But the latest wave of IoT hype has been going for a couple of years. And we are starting to see one fundamental challenge in the adoption of IoT from the PoCs we have seen. Let’s start with a couple of examples.

Example 1: Bottom-up

Service Provider Perspective: A service provider developed an IoT PoC for its client. The client knows and trusts the service provider enough to give it the PoC without competitive bidding. The service provider delivered it successfully and ran it for a couple of months. The results were encouraging, but service provider is not able to scale beyond that.

Buyer Perspective: The enterprise received an IoT proposal from the service provider. The enterprise found it interesting and agreed to try a PoC. The results were good, but for the large-scale implementation, the enterprise needs buy-in and budget from different stakeholders which it is finding difficult.

Example 2: Top-down

Service Provider Perspective: The client came to the service provider with IoT requirements. The client had an idea of potential IoT benefits but didn’t know how to achieve it. The service provider brainstormed and developed solutions to achieve these benefits. After client’s approval, the service provider implemented a PoC and delivered results for the one site. After that, the client gave go ahead to implement it in multiple sites in one geography. Currently, engagement in that phase. After that, the service provider will implement in additional geographies.

Buyer Perspective: The enterprise heard about IoT potential in its industry. Its senior management engaged a management consulting firm for advice on IOT. The consulting firm identified areas where IoT can help and developed a high-level business case. Management accepted their recommendations and gave directions to different business and geographical units to explore IoT solutions. One business unit started on the IoT journey with high-level targets. It engaged a service provider to suggest IoT solutions. It found challenges in implementing in some of the recommendations of the consulting firm, but interestingly, it found other areas with the help of service providers where it could achieve more. The business unit started with PoC and results were encouraging. It showed the results to its management, and it got approval to move ahead for scaling up and multi-site implementation.

HfS Research Perspective – There are differences between the bottom- up and the top-down approach. In IoT, a top-down approach is working better than a bottom-up approach for long term results/adoption. In the bottom-up approach, service providers reach out to their large $100 M+ clients and propose PoCs for $200K- $300K which buyers have no problem in approving from their operating budget. Service providers get marquee customer logo and their sales and delivery people get good appraisals. But after the PoC, service providers often hit the IoT chasm as large scale implementation requires a bigger budget and approval from different stakeholders. This is shown in the Exhibit below. Crossing this chasm will require serious consulting and senior stakeholder engagement which sometimes is above few service providers pay grade. In the top-down approach, service providers start with consulting and after senior management and stakeholder’s buy in, start PoCs. Once PoCs start delivering the results, scaling up is not difficult.

Bottom Line: Buyers should not go down the route of low cost or free IoT POCs by service providers without proper IoT planning and buy-in from senior stakeholders. Remember that without a well-understood endgame with management buy in most IoT projects struggle to get beyond the PoC.

What ever way to look at it, business consulting or planning is essential for IoT PoCs to scale up. Service providers will do themselves a favor if they start investing aggressively in business consulting capabilities upfront unless they want their client to be stuck in the self-induced IoT chasm.