A recent Freakonomics podcast got me thinking about the creative destructive potential of the Internet of things. Thinking simply, there are three reasons business will embark on IoT projects: save money, make money, and help with regulatory requirements.
If you think about the potential of those, they sound great. The creative efforts there don’t seem obviously destructive for many use cases because we’re adding sensors and collecting data in places we just didn’t watch before. It sounds like a story with no losers because efficiency is an all upside conversion, right?
As I thought about it, I realized it’s not that simple. Here is an example.
If you’ve every been to a wine bar, you’ll know they sell wine by the glass and by the bottle. The wines at a wine bar are higher-end than a typical bar, so when they open a bottle to give a customer one glass, they are taking the risk that they may not be able to sell every glass in that bottle. There are tons of varieties and once opened the bottle only stays fresh and sell-able for so long. This can create a large and expensive waste of wine.
What if new IoT corks with sensors in them could track the quality of the wine and time since each bottle has been opened? The wine bar owner could then have a daily report of what is available and offer specials on opened wine they need to sell to get the most out of the bottles they have already opened.
It sounds all win-win, right? Customers get a daily special, the owner wastes less wine.
But this probably results in the wine bar owner buying less wine because they are wasting less. That’s where the savings comes from. So the wine sellers are likely to sell less wine over time because in the current system, the amount they sell includes the wasted wine.
Like the piano makers at the turn of the last century, it seems there are few acts of creative destruction that can be purely, or even mostly, win-win. In the past, these disruptions have always led to more and better opportunity. Depending on your view, this may still be the case with the internet revolution in general. In the IoT business specifically, at least in the near term, the huge amount of work to implement and get the full value from the new data should offset the losses from the creative destruction. The longer-term impact is much less clear.