Internet of Things in Sweden

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1 Internet of Things in Sweden telenorconnexion.com Copyright Telenor Connexion All rights reserved.

2 Sweden at the forefront of IoT We are in the midst of a social revolution with the same critical significance as the rise of the internet says Kristina Höök, Professor of Interaction Design at the Swedish Royal Institute of Technology and Director of The Research Institution Mobile Life Centre. The development of the Internet of Things (IoT), connected things and machines that communicate with each other to perform completely new tasks, is already in full swing. A dramatic growth in the coming years is predicted, especially with the traditional manufacturing companies, which are currently undergoing major changes to exploit and adapt to the opportunities created by the new technology. IoT also gives rise to entirely new businesses and industries. Telenor Connexion, the leading enabler of connected business solutions, asked research firm Norstat to survey 100 Swedish manufacturing companies on how they regard the area of IoT. A market that is at the forefront of the global development. The interviews confirm that this development is still in its infancy; Methods for developing products and services based on IoT have yet to be established; companies choose to place the IoT responsibility on completely different internal roles; reasons for introducing IoT technologies in operations vary widely; and there is still uncertainty about when the great merits of IoT will come. In this English summary of the original Swedish report, you will gain insights on the challenges and opportunities brought by IoT. The aim is to inspire and guide current and future players in this development. Enjoy your reading! Per Simonsen, CEO Telenor Connexion

3 km/h N E 19 C 105 What is Internet of Things? Internet of Things (IoT) is an ongoing technological development where increasingly more physical objects of different sorts are connected to the Internet. The connected objects might be used to collect and share information on their own, or get monitored and controlled remotely from a distance. This brings a number of opportunities in the form of savings and creation of new services. The technology is not new, but the cloud computing and smartphone development, above all, has paved the way for IoT solutions to be commercialized in a cost-effective manner. The rapid deployment of IoT solutions going on right now could affect almost all aspects of everyday life. In society it affects everything from urban planning to healthcare and emergency responses. For businesses, it not only means large opportunities for savings by reducing energy consumption or by realizing more efficient transport and logistics. But also to find new business opportunities by developing online products and services. Similar opportunities exist to all people in everyday life, right down to the individual level. From telematics to IoT Previously, this type of communication used to be called M2M (machine-to-machine). Today, M2M has increasingly begun to be replaced by the broader concept of IoT, to emphasize that the development goes beyond just a question of machines (or computers) communicating with each other. IoT includes almost everything: systems, sensors, business processes, machines, vehicles and consumer products, but also the people and animals that make use of internet connectivity. A major reason for the rapid IoT development is that the cost of hardware has plummeted, while network capacity has considerably improved. Additionally, there are new technologies today to develop products and services for a broad market at reasonable prices.

4 IoT in Sweden today How do you assess the conditions in Sweden for the success of IoT initiatives concerning... The survey by Telenor Connexion shows that a majority (77 per cent) of Swedish manufacturing companies have introduced IoT solutions, or plan to do so within the next two years. There are many different types of applications, from remotely controlled machines to connected vending machines and safety alarms. Infrastructure 0% 4% 8% 20% 35% 33% The main reasons for companies to invest in IoT, according to the survey, is to create an improved product or service to the customer (61 per cent), achieving cost savings (36 per cent), or to create a new revenue source (34 per cent). If only one answer is applicable almost every third company (29 per cent) says the main reason is to create an improved service or service to the customer. Cost scenario 0% 12% 24% 34% 21% 9% IoT a matter of IT? Knowledge and skills At 23 per cent of the responding companies, the IT manager is ultimately responsible for the IoT area. In just over one in ten companies (13 per cent), however, the responsibility lies on the CEO and in as many cases, it is the product manager. 12 per cent say they have not yet decided upon this or that it is unclear. There is therefore no clearly defined role with responsibility for driving IoT in Swedish companies. One plausible reason for this is that the area is still so new that such a role has yet to be established in many companies. Of course, other contributing factors to this are company size and business focus. As more companies realize that IoT is not solely a technology issue, but affects the entire business and the organization, the responsibility role is likely to become clearer. Additional responsibility roles for IoT mentioned by the companies in the survey include R&D manager, technical manager, product manager and purchasing manager. Who is responsible for IoT within your company? 23% IT Manager 13% CEO 13% Product Manager 12% Development Manager 6% CTO/Technical Director 12% Unclear/not determined 24% Other Innovation capacity in the area Sweden is a world-leader 0% 2% 15% 27% 39% 17% 0% 3% 14% 24% 43% 16% The global IoT market According to estimates by network company Cisco the number of connected devices will exceed the number of people on earth at the end of Several analysts have attempted estimate the future growth of the IoT market, but definitions, market boundaries and estimates vary widely. Most analysts believe, however, that between 26 billion (Gartner) and 50 billion (Ericsson) devices will be connected to the Internet by This means a doubling in just a few years, at least. According to a report by consulting firm Arthur D. Little there are already nine million online devices in Sweden and the figure is expected to increase to 23 million by The same report notes that the Nordic countries are at the forefront of the rapid development of the market for online products and services. The Nordic IoT market is expected to grow twice as fast as the global market over the next three years. The Swedish market is expected to grow to about 2 billion euros and the Nordic market to 6.1 billion euros by Connected cars and consumer products are predicted to represent the strongest growth in the Nordic region, with an annual growth of 47 and 42 per cent, respectively. If the IoT market was previously driven primarily by a demand for enterprise solutions, this seem to be changing as more and more consumer-friendly solutions are now becoming available. According to the report Sweden Telecommunications Report (Q1 2014), by research firm Business Monitor International, the Swedish telecom market is one of the most advanced in the world and is leading in the number of M2M connections and LTE (4G) growth during 2013.

5 The potential of IoT The business opportunities offered through connected products and services are many and therefore the reasons for companies IoT initiavies today are varying. Telenor Connexion s survey, however, points to one reason that stands out more than others: 61 per cent of Swedish companies responded that they are investing in IoT to improve a product or service for the customer. In addition to cost savings, which has traditionally been associated with IoT, the survey shows that companies now also see other advantages with connected solutions, such as the ability to develop new business ideas. For many businesses, IoT forms the basis of the product itself, something we are currently seeing at the many start-up companies basing their entire business concept on connected solutions. Business opportunities created by IoT New business models: IoT will help companies create new value streams for customers, speed time to market, and respond more rapidly to customer needs. Real-time information on mission-critical systems: Enterprises can capture more data about processes and products more quickly and radically improve market agility. Diversification of revenue streams: IoT can help companies monetize additional services on top of traditional lines of business. Global visibility: IoT will make it easier for enterprises to see inside the business, including tracking from one end of the supply chain to the other, which can lower the cost of doing business in far-flung locales. The technology development will obviously still be important for IoT in the future, but I believe the more soft values, such as business benefits, will have an increasingly important role. Without a functioning business model that manages the technical possibilities companies will not make any money on IoT. Kristina Höök, Professor in Interaction Design at Royal Institute of Technology and Director of Mobile Life Centre Efficient, intelligent operations: Access to information from autonomous endpoints will allow organizations to make on-the-fly decisions on pricing, logistics, and sales and support deployment. Source: The Digital Universe of Opportunities: Rich Data and the Increasing Value of the Internet of Things (EMC and IDC) Financial opportunities For manufacturing companies IoT primarily still means an opportunity to create value and competitive advantage by developing products with new features. It is also possible to develop digital services around the products, for example, to monetize on ongoing subscriptions beyond pure product sales. Another possibility is to work with users to automatically collect user information directly from the products themselves. This sort of information can be valuable for further product development and represents a saving compared to costly user studies. What are the most important reasons for implementing IoT/ connected solutions? Cost savings 9% 29% 13% Improved service/service to the customer New source of revenue/ business model Other opportunities for savings are the automation and streamlining of manufacturing processes, supply chains and logistics. Additionally, the company s human resources can be optimized, for example by managing some support and monitoring remotely instead of having these operations carried out on location. Towards a sustainable society IoT can also contribute to a more sustainable society, by creating conditions for lower emissions and more efficient energy consumption. According to a report last year by telecom company AT&T and think tank Carbon War Room, IoT solutions are expected to contribute to the reduction of global greenhouse gas emissions by 9.1 billion tons by 2020, equivalent to about one-fifth of today s emissions. 13% Connectivity necessary for operation of the product

6 The challenges of IoT Although IoT is often described as a future area with great potential, the survey by Telenor Connexion also brings forward some challenges. The most common among Swedish manufacturing companies are of a technical nature. 29 per cent believe that security and privacy is a challenge for IoT and the same number think that the technical complexity to create a complete solution is a challenge. IoT an important technology trend IoT is regarded as one of the technology trends with the greatest impact on Nordic manufacturing companies, along with mobility, big data, cloud, and social media. This is according to the report The Future of Business Transformation by research firm Kairos Future and IT consultancy company Tieto. The report is based on a study involving 500 companies where one-third expect their industry to change completely by The same report shows that 43 per cent of business leaders at the surveyed companies are worried about losing competitiveness as they do not keep pace with the development of technology. About a third of the companies say they are already late in making use of new technology. Challenges in the IoT development Security: The increasing digitization and automation of the multitudes of devices deployed across different areas of modern urban environments are set to create new security challenges to many industries. Consumer Privacy: There will be a vast amount of data providing information on users personal use of devices that, if not secured, can give rise to breaches of privacy. This is particularly challenging as the information generated by IoT is a key to bringing better services and the management of such devices. Data: The impact of IoT on storage is two-pronged in types of data to be stored: personal data (consumer-driven) and big data (enterprise-driven). As consumers utilize apps and devices continue to learn about the user, significant data will be generated. Storage Management: IoT is contributing to the increasing demand for more storage capacity. The focus today must be on storage capacity, as well as whether or not the business can harvest and use IoT data in a cost-effective manner. Data Center Network: Existing data center WAN links are sized for the moderate-bandwidth requirements generated by human interactions with applications. IoT will be dramatically increasing inbound data center bandwidth requirements. Source: The Impact of the Internet of Things on Data Centers (Gartner) What are the greatest challenges of implementing IoT/ connected solutions in general? 17% Security and privacy 15% Technical complexity What are your greatest internal challenge regarding implementation of IoT/connected solutions? 14% Create/develop an effective business model Comment IoT is still a maturing area where the developing company often stands relatively alone. In many cases it can be complex for a single company to develop products and especially digital services within IoT. This complexity is not only about responding to technological developments, but also about managing new business and operational processes that accompany the transition from selling products to also selling services. Factors deciding which IoT expertise should be available internally or which can be accessed externally is mainly the type of business and how critical IoT is to the company s future competitiveness. Therefore, there might initially be several advantages to enlist the help of outside experts. It is a big commitment to sustain the operation of connected services over time and keep pace with technological development. Companies must also take into account the emergence of new standards, ensure compliance with laws and regulations in different markets, and managing security in a satisfactory manner. 14% 13% 12% Requires new business model/ new way to sell Requires new skills internally Shift from product to service focus - takes time

7 The future The vast majority in Telenor Connexion s survey see IoT as an important area. More than half (52 per cent) believe that the area is critical to the company in five years. Even more (60 per cent) believe that IoT will change their entire industry within the same period. The opportunities of IoT are many. In Sweden, which has several world-leading manufacturing companies within IT and telecom, as well as a favorable business culture for startups, is well placed to maintain the lead in this development. If the convergence of IT and telecom is successful in the development of new digital services, this would mean that Sweden can secure a very strong global position within IoT. How important will IoT be for your company in five years? IoT is not all about efficiency and profitability. These are reasonable goals for the industry, but cannot be applied to how we will use IoT in our homes. In this area I see a clearer focus on social IoT solutions, games and entertainment, which can contribute to other areas of a sustainable social development than the pure economic and ecological. Kristina Höök, Professor in Interaction Design at Royal Institute of Technology and Director of Mobile Life Centre Unimportant 3% 6% 17% 22% 20% 32% Critically The prophecies about the future development are varying, but in this study many respondents are pointing out how IoT will change the company in a positive way. IoT solutions make it possible to process information, communicate, and control processes in a more effective way. Many also responded that IoT implies that the company will sell more services than products, which means that new business models are needed. A large percentage of companies in the survey believe that IoT is a distinct competitive advantage, for example in terms of service offering and cost efficiency. Companies that choose not to adapt to the new conditions are in danger of falling behind or getting knocked out. Therefore, companies need to create a strategy for the connected society that takes account of the new opportunities and challenges that IoT will bring to the business. 1% Do not know Do you believe that IoT will change your line of business within five years? 39% 60% No Yes

8 APPENDIX: Survey questions Most important reason...? 29% Improved service/service to the customer Telenor Connexion asked research firm Norstat to survey 100 Swedish manufacturing companies on how they regard the area of Internet of Things. The survey was conducted in May-June Cost savings 9% 13% New source of revenue/ business model 13% Connectivity necessary for operation of the product 1 Have you implemented Internet of Things (IoT) in your business today or do you plan to do so within the next two years? Yes 77% 4 Who is responsible for IoT within your company? 23% IT Manager 13% CEO 13% Product Manager 12% Development Manager 2 What is the main reason why you do not plan to implement IoT? 6% CTO/Technical Director 12% Unclear/not determined 24% Other 48% 17% 4% 30% See no business value/ negative ROI Think that the market is not mature Have no expertise in-house to pursue the issue What are the reasons for implementing IoT/ 3 connected solutions? Other 5 Have you engaged external support on IoT and if so, from what type of partner? No IT Consulting System Integrators Operator 42% 4% 21% 20% 19% 14% Management Consultant Company Other 61% 36% 34% 27% 19% 18% 10% Most important...? 28% 22% 22% Improved service/ service to the customer Cost savings New source of revenue / business model Connectivity necessary for operation of the product Environmental aspects Research and development input Other IT Consulting Operator System Integrators

9 6 What are the challenges of implementing IoT/ connected solutions in general? 8 How do you assess the conditions in Sweden for the success of IoT initiatives concerning... Infrastructure 29% 29% 23% Technical complexity - to put together a complete solution Get the services out in the market (knowledge among users) Security and privacy Create/develop an effective business model 20% 18% 13% 33% Greatest challenge is...? 17% Security and privacy Cost Lack of standards Other 7 15% Technical complexity Cost scenario Knowledge and skills 0% 4% 8% 20% 35% 33% 0% 12% 24% 34% 21% 9% 0% 2% 15% 27% 39% 17% 14% Create/develop an effective business model What are your internal challenges regarding implementation of IoT/ connected solutions? 14% Unclear who owns the question internally 21% 18% 22% 29% Requires new skills internally Shift from product to service focus - takes time Requires a new process for product/service development Requires new business model/new way to sell Innovation capacity in the area 9 10 How important will IoT be for your company in five years? Unimportant 0% 3% 14% 24% 43% 16% 3% 6% 17% 22% 20% 32% How important will IoT be for your company in five years? 1% Do not know Critically Greatest challenge is...? 14% 13% 12% Requires new business model/ new way to sell Requires new skills internally Shift from product to service focus - takes time 39% No 60% Yes

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