The Future of the Internet of Things and the Digital Economy: Lessons from the Closure of Revolv

Big Data and Analytics, Digital Strategy

The Future of the Internet of Things and the Digital Economy: Lessons from the Closure of Revolv

10 Apr , 2016  

Revolv is a warning about how the digital economy will operate in the future.

Revolv, the innovative home automation hub, that was purchased by Google’s Nest, recently announced that they will stop supporting all devices in the coming weeks.[1] Revolv’s home automation used radio signals to communicate with light switches, garage door openers, home alarms, motion sensors, HVAC controllers to enable automation and mobile control of these devices. It also used WiFi to connect to the Internet, allowing a user to control devices from anywhere via a mobile app or Internet login. It provided a powerful solution to enabling automation at the device level in the home, without having to rewire your home. It promised to make homes connected and to create a hub for controlling the home. It was the Internet of Things (IoT) at the home level. The decision to cease operations changes that vision and offers lessons on how digital platforms and IoT solutions will operate (and not operate). For consumers that purchased the Reolv hub and used it automate home devices, this ending of operations is surely a large disappointment and a lost of the money invested. As digital platforms and the IoT are a critical part of the digital economy and how firms and consumers will operate going forward, there are important lessons about the future of the digital economy in the decision to end Revolv’s operations.

  1. Sensors and Hardware are Far Less Relevant than the Digital Platform: By turning-off the Revolv operations, the hardware and sensors that consumers purchased are useless. Although the sensors were the physical devices that connected to lights, doors, ACs, and a host of other household devices and appliances, the value of this and IoT system is in the digital platform on which it operates. That digital platform requires software, leverages analytics and Big Data, and performs optimizations that make the entire system work. Imagine having a driverless car without the ability to update its software and without its ability to connect to home base. IoT solutions will be dependent on the strength of the digital platforms created, not the sensors alone. Digital platform operators will therefore have disproportionate control in the development, selling, and deployment of sensors, too.
  2. Service trumps Ownership: Just as data storage and software use has moved to the cloud and a service-based model, IoT solutions should consider the same. Consumers should buy a service and not hardware. Automation is not about the hardware, but rather about a process result, anyway. When the sensors need replacing or updating, it should be part of the service to have those upgraded. Instead of buying sensors, rent them or have them included in a service price. This model allows the IoT provider to claim value where it is created – in the service, not in the hardware. Also, consumers and firms should avoid IoT solutions that require high investment in hardware. These run the risk of being shut down and of being replaced by cheaper and more advanced hardware in the future. Invest instead in the service and quality of the digital platform.
  3. Consumers Lose Control: Part of the value of IoT solutions is that they enable automation and enable higher efficiency in operations. That is especially valuable to firms looking to save on labor or just looking to remove human error from processes. Being dependent on IoT also means we lose control. Consider the Nest network. The features of the algorithm change how we operate. Nest rationally turns down the heat in your home when you are away. However, the decision to do that and the decision to recognize that nobody is home is done largely without human intervention or confirmation. It means it can err and fixing it becomes harder, owing to the reliance on the digital platform that the overall inability to alter the logic behind it. In the discussion of driverless cars, many people have posed ethical dilemmas, such as what should a driverless car do when confronted with the decision to avoid an accident and cause damages to others or itself. For instance, does the car run off the road and damage itself alone or hit the opposing car instead, damaging both? Amplified with a focus on the possible loss of life, such decisions are very troubling to make indeed. Who is at fault when an algorithm fails? Is the rider in the driverless car at fault? Is the owner of the digital platform or coder of the algorithm at fault? If your Nest thermostat did not do what you wanted and you experienced economic loss, say, higher than expected heating bills, who is at fault? The questions of warranties in the IoT, the expectations of trust and responsibility are not fully vetted. Consumers should understand fail points and also examine how IoT systems operate. Look for systematic errors and identify when human intervention is critical.
  4. Hacking is a Huge Risk: Operating a digital platform, as Google operates Nest, requires sensors, software, algorithms, and data centers. It also requires an immense focus on security. Suppose someone could hack into Nest and turn on or off all the air conditions in the network at once. It could cause havoc for electrical supplies. It would also cause economic damage in the form of wasteful spending. Suppose a driverless car could be controlled maliciously. Some security experts have even argued that currently aircraft could be controlled through entering the on-board WiFi.[2] The risks are severe and obvious. With IoT systems, the severity of damages possible in a hack are highly increased. These means hacking prevention and reaction to hacking is all the more critical.

Indeed, the Internet of Things (IoT) solutions and digital systems are game changers. The case of Revolv shows the risks and challenges of how capital investment, system control, data management, and ownership of these digital platforms should occur.

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Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics. As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy. Russell Walker can be reached at: @RussWalker1776

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