Sales and Distribution Smarter Electronics

White Paper

The Case for Smarter Electronics

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3 Sales and Distribution
In many ways, we have been living in the era of electronics.
In the last 100 years, the electronics industry literally has
revolutionized the way we live and work, laying the foundation
for powerful waves of innovation, from radios to robotics
to medical imaging. And the industry continues to drive
innovation today, outspending all other industries in research
and development and fostering the widespread adoption of
technology, from personal computers to mobile phones.1
The capabilities of these innovations are enabling us to
instrument our world, collect and analyze valuable data,
integrate disparate systems and improve the efficiency of
entire industries, from healthcare to finance to retail.
But the electronics industry itself has been slow to take
advantage of the remarkable potential its own products enable.
There are still billions of isolated, unconnected electronic
devices in the world. Information about the use of these devices
is not collected or analyzed. There are precious few services
being offered alongside electronic products. And there is
almost no communication between these devices in their
respective operating environments.
The result is a series of commodity products under severe
margin pressure. In 2009, the consumer electronics market
saw a nearly eight percent decline in overall revenue, even as
unit volumes increased by 10 percent.2 Even smart phones,
one of the hottest electronics markets right now, lost four
percent of their margins in the last two years.3 This is not a
sustainable trajectory.
The electronics industry has been
slow to take advantage of the
remarkable potential that its own
products enable. There are still
billions of isolated, unconnected
electronic devices in the world.
But change does not come easy to this industry. For many
decades electronics companies have made a living designing,
manufacturing and shipping products into the channel,
never to hear from them again. They did not have relationships
with the users of their products. They did not do customer
service. In fact, while nine of 10 electronic company CEOs
fully anticipate major changes in their industry in coming
years, only 60 percent of them are confident in their ability
to manage that change.4
As a result, new players from outside the traditional
electronics industry are already entering the market.
Service-oriented companies, software providers and even
big-box retailers are developing alliances with fast-moving,
forward-thinking startups. They are already building a more
connected electronics industry. And they are doing this by
combining smarter products with new services that are
becoming the building blocks of smarter planet systems,
such as smarter healthcare, smarter transportation and
smarter energy.
To meet these challenges, electronics manufacturers must
abandon old ways of doing business. They must deliver
products and services that make the most of the Internet to
collect and analyze data and create new value. They must
foster new and direct relationships with their customers.
And most importantly, they must recognize that their products
are part of a broader ecosystem, a so-called “Internet of things,”
a platform for the development and delivery of services that
will significantly advance the entire industry.
But for the companies that embrace this new landscape,
the opportunity will be enormous. They will learn more
about how their products are used and how to use that
information to tighten their operations, from design to
delivery. They will develop new, higher-margin revenue
models based on services and fueled by ongoing relationships
with their customers. And they will connect the dots between
disparate devices — and grow the entire electronics market
as a result.
In short, they will build a smarter electronics industry.
4 The Case for Smarter Electronics
The Path to Smarter Electronics
The transformation into a smarter electronics industry
demands that companies capture the opportunity resulting
from connected devices and services and develop new business
models, from design to delivery and beyond. It consists of
two main phases, which must be accomplished at both the
company and industry level:
Connect, Collect, Analyze
By connecting devices to the Internet, several things become
possible. Information about how a product is used can be
collected. Updates and upgrades can be sent directly to
devices. Service issues can be detected and remediated
automatically. And eventually, devices can communicate
and share information with other devices on the network,
igniting a host of new capabilities and possibilities.
This process starts with more sophisticated software in
the products themselves. Already about 70 percent of the
development costs of some televisions are spent on software.
And a single smart phone can include as many as 11 million
lines of code.5 This built-in intelligence gives electronic
devices extraordinary new capabilities. For example, they
can detect, diagnose and debug problems at any stage during
the product’s lifecycle, from the design and testing phase
through to the end market. In addition to improving customer
satisfaction, these capabilities can actually speed a product’s
time to market by creating new efficiencies during the
development and testing cycle. And these intelligent devices
can evolve as market demands change, upgrading and
updating features remotely and automatically.
One example is a manufacturer of office productivity
products, working with IBM® to develop an advanced device
and printing management system. The system infuses office
devices with real-time reporting and monitoring, significantly
reducing print-related costs, improving service and cutting
back on carbon footprints. The system can identify service
issues with devices and automatically route alerts to local
service desks for remediation before service is affected.
Even a small amount of intelligence embedded in a device
positions it as a potential node in a more powerful network.
In this scenario, the compute-intensive work is done not by
the device itself, but on more powerful computers that
aggregate and analyze the data in the cloud.
For example, a medical device manufacturer developed a
patient care system that allows clinicians to remotely access
and analyze patient information from implantable cardioverter
defibrillators (ICDs) and pacemakers. Using a Web application,
clinicians can analyze therapeutic and diagnostic data from
a patient’s device, and be alerted to a potential medical
condition without patients having to leave their homes.
The data can be added to the patient’s electronic health record,
providing a more comprehensive view of overall health, or
cross-referencing on patient record against other data sets to
search for anomalies.
When companies harness the data their products give off,
they can apply powerful analytics that inform every part of
their business, from design to delivery, from supply chain to
services. But intelligent devices are only the first step toward
a smarter electronics industry. Soon, there will be a trillion
connected devices in the world.6 By combining the data coming
from these devices with information throughout the web,
a new platform emerges, one with the potential to greatly
enhance the usefulness, longevity and profitability of today’s
electronic devices.
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Combine, Create and Act
The end state of a smarter electronics industry is the
understanding that every electronic device, whether it lives
in an office, a living room, a car or a factory floor, can be a
node in a network. We call this the “Internet of things.”
This realization brings with it some powerful implications.
For one thing, it turns an industry into a system, with far
more potential. It makes the case for open standards, which
are crucial if we are to design environments of connected
devices in a home, car, hospital or factory floor. And it also
places new importance on collaboration throughout the
industry, because makers of previously unrelated electronic
devices will need to break down barriers and develop products
that can communicate with each other.
When data and services from these different devices are
combined in the cloud, the resulting network becomes a
platform, like the Internet itself, with endless potential.
We are just beginning to explore the possibilities in this
world, such as appliances or equipment that automatically
cycle on and off when they receive price signals from the
electricity grid. Or services that aggregate a user’s habits
and preferences across all their media devices (smart phone,
television, computer, etc.) and serve up relevant content
as a result.
Because these key components will live in the cloud, it allows
for the rapid development of these services at low cost, enabling
experimentation and iterative improvements. It also hides the
complexity of these systems from the user.
One example of how combining smarter electronics devices
in a single operating environment can transform that space is
in the home. Though it has been talked about for years, the
connected home is now becoming a reality, thanks to an
increase in web-enabled home devices and the potential to
mask from the user the complexity of managing a home
network of devices.
ABI Research expects the connected home global market
to grow by a compound average of 23 percent annually to
more than $10 billion in 2014.7 Already service providers are
combining content, applications, networking, gaming and
even energy management in their offerings, catering to a
market looking for a more integrated experience.
Players from outside the
traditional electronics industry
are developing alliances with
fast-moving, forward-thinking
startups. They are already
building a more connected
electronics industry.
6 The Case for Smarter Electronics
For example, smart meters (and the associated customer
portals being created in the cloud by energy providers)
allow consumers to see their usage profile and adjust their
energy consumption habits to achieve certain goals, such as
reduced cost or carbon footprint. And several electronics
manufacturers, making everything from thermostats to
security systems to televisions, are releasing products that
work within these constructs. Whirlpool recently announced
it would produce 1 million smart-grid compatible clothes
dryers by 2011.8
This new paradigm provides opportunities for innovative
services that make the most of the computational power and
scalability of the cloud. Using a common services delivery
platform based on industry standards, usage data on any kind
of electronic device can be collected, aggregated, analyzed
and used to inform new services that add revenue streams to
the traditional electronics business model.
Electronics manufacturers
must abandon old ways of doing
business. Recognize that your
products are part of a broader
“Internet of things,” a system for
the development and delivery of
services that will significantly
advance the entire industry.
For example, a consumer electronics company is already
beginning to explore these possibilities by creating a
first-of-a-kind television service. In addition to traditional
television broadcasts, the viewers can access and navigate
personalized content with a standard remote: everything
from web services to social networking sites to television and
movie programs. The television actually learns user preferences
over time and recommends specific content. To do this, the
company needed an advanced, intelligent infrastructure on
which to establish and support a dynamic community of
users and service providers. Since the solution was ultimately
expected to connect large numbers in many countries of
internet-enabled televisions, scalability was a key consideration.
Openness was also essential. This organization wanted to
grant equal access to all content and service providers — over
the more restrictive and proprietary “walled-garden” approach
to web services and content.
7 Sales and Distribution
The time to transition the electronics
industry into a smart system is now.
The demand is strong. The products
are maturing. And the technology
to tie it all together is available.
The intelligence of the technical architecture provides the
company with significant business model advantages.
The new model has radically increased product registrations.
And by analyzing preferences and viewing habits, the television
service portal has the ability to create user profiles that can
be used to personalize the viewing experience by highlighting
or directing users to recommended content. This derived
intelligence has powerful implications for more intuitive
usage, and lays a solid foundation for delivering new apps
and simplified personal interaction that will generate new
revenue streams.
The company’s initiative expands and redefines the focus
of television product development with service integration.
They are able to simplify and streamline at the product level
by embracing key elements of the cloud computing model,
while at the same time laying the groundwork for more
product line flexibility and efficiency down the road.
Conclusion
The time to transition the electronics industry into a smart
system is now. The demand is strong. The products are
maturing. And the technology to tie it all together is available.
Ultimately, however, the industry will need leaders that
accept the challenge to transform their companies and the
industry at large. IBM has not only helped to support this
transformation in other companies, it has undergone the
same transformation itself. Years ago we remixed our portfolio
toward services, software and solutions. We invested in
offerings that fostered communications between our clients
and our company. We embraced open standards to allow for a
stronger, more dynamic information technology industry.
These shifts not only pulled our business from the grips
of commoditization, they also positioned us well for the
services economy of the 21st century. That same transforma-
tion is what’s required for electronics companies today.
We’ve been through it. We can help. Let’s build a smarter
electronics industry.
© Copyright IBM Corporation 2010

IBM Corporation
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Produced in the United States of America
October 2010
All Rights Reserved
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1
http://www.booz.com/global/home/what_we_think/reports_and_white_
papers/article/47086689
2
http://www.dailymarkets.com/stocks/2010/04/14/analyst-interviews-
semiconductor-outlook-and-review/ According to the Consumer
Electronics Association (CEA), the 7.8 percent revenue decline in
consumer electronic goods for 2009 was entirely on account of weaker
pricing, as unit volumes of consumer goods increased around 10 percent.
3
Credit Suisse,”Smartphone Report”. 31 August 2009,Global Equity
Research Credit Suisse: Margins for large smart phone makers have
declined from average of 42.5 to 38.5 in two years.
4
http://www.ibm.com/ibm/ideasfromibm/us/ceo/20080505/
5
http://news.cnet.com/8301-13580_3-9949793-39.html
6
http://www.ibm.com/ibm/sjp/03_09_2010.html
7
http://www.abiresearch.com/press/1499-Connected+Home+Devices+
the+Potential+%E2%80%9CNext+Big+Thing%E2%80%9D:+a+23%25+
Market+Value+CAGR+over+the+Next+Five+Years
8
http://investors.whirlpoolcorp.com/phoenix.zhtml?c=97140&p=RssL

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