We are in the fourth industrial revolution, where software can replicate value at zero-marginal cost and where data is the new oil. You may remember this story about Microsoft versus IBM in 1981, where IBM let Microsoft manage the operating system (DOS) thinking that the future was selling hardware? This famous negotiation deal that made Microsoft into the behemoth it is today, and was once the most valuable company of all time in 1998?
See also: Making the case for API neutrality
But value is not always where we think, and only people who understand the future will find it. For instance, with the web, the value is in the relation. Google creates value making sense between hypertext links connecting website. Facebook is creating value in understanding the relationships between people. Linkedin does the same with business relations. All of this is done with data and the interrelation of the data.
But with Internet of Things, where is the value? What if I told you the value is in the APIs?
Car manufacturers today have plans on making free cars if users accept to give away all their data to the seller. Soon, car companies will make more money by making sense of where you are and where you’re going. Just imagine, if they can monetize at 20 cents/mile, on 100,000 miles they make $20,000: A free car. For 30 cents/mile, they almost triple their profits and can give the car away.
Data has real value
They can collect and sell drivers’ data, traffic data, micro-location weather data, state of the road data and so on. They can sell ads on the radio or on the GPS with CPCD (Cost Per Change Direction), coupons to restaurants close to your destination, audiobooks to listen in the car — a lot of things to monetize your time and location in your car. Manufacturers will, of course, still try to sell it for some money upfront, but in the end, the price will probably depend on the data you allow to share and will tend toward $0 with competition and time.
By then, all connected hardware will be the same; they will be just data collectors. Google is collecting data through a search bar, Facebook or Linkedin through a web page/mobile app social profile. The next data collection frontier is hardware. Google Home, Alexa, Nest, and Fitbit will be here just to step into your everyday life to know your habits and what you need and how you need it. That is when the real “smart fridge” promise will finally happen, and it will probably be free.
So if you think the value is in the hardware, maybe you should think about controlling the APIs on top of it. After 40 years of Silicon Valley technological improvements and with China’s manufacturing as agile as ever, the hardware may be the one commodity you don’t want to invest in. Think Software. Think APIs.