The Innovator’s Dilemma and Enterprise IoT Platforms

The original article was published on CIO.com

The innovator’s dilemma has been one of the axiomatic principles of enterprise software markets since the industry’s inception. In his famous book, Clayton M. Christensen explains how big companies are often disrupted by smaller, more innovative startups creating an almost unavoidable dynamic in competitive markets.

From databases to CRM systems, the innovator’s dilemma has been a golden standard in enterprise software markets. Recently, the enterprise Internet of Things (IoT) platform space has developed patterns that seem to be defying some of the principles of Christensen’s theory. The enterprise IoT market is witnessing how incumbents like Microsoft, Amazon, and IBM are constantly delivering innovative solutions that are disrupting the early players in the space.

The evolution of the enterprise IoT platform market

In the early day of enterprise IoT, the market was incredibly crowded with startups delivering from individual services to complete platforms that enabled backend capabilities for IoT solutions. From that perspective, it seemed like the enterprise IoT market was destined to follow the traditional innovator’s dilemma model in which startups disrupt established incumbents by rapidly innovating in a specific space. However, in just a year, the enterprise IoT platform has completely changed with companies like Salesforce, Microsoft, IBM, and Amazon releasing some of the most innovative enterprise IoT platforms in the market, making it incredibly difficult for startups to compete in the long run.

How enterprise IoT PaaS vendors are gaming the innovator’s dilemma

Superior technology

Delivering more innovative technologies is the main factor that helps startups to disrupt incumbents in the enterprise software market. The enterprise IoT platform space is defying this principle, exemplified in incumbent solutions such as Azure IoT Suite, AWS IoT, IBM IoT Foundation, and Salesforce IoT Cloud which have delivered some of the most innovative technologies in the space. From a certain perspective, the IoT platforms provided by the big incumbents are disrupting the market share gained by IoT startups in previous years. Additionally, by including IoT suites as part of PaaS solutions, incumbents are providing a very broad and sophisticated set of capabilities that is hard to emulate by IoT startups.

Pricing

Flexible pricing models are another mechanism that startups use to disrupt incumbents in enterprise software markets. In the enterprise IoT platform space, incumbents seem to have implemented simple pricing models that make it incredibly affordable for organizations to start building IoT solutions on their platforms. More importantly, lead IoT platform providers such as IBM Bluemix, Microsoft Azure, and AWS seem to have embarked in a race to constantly reduce the cost of IoT services. Like any other cloud platform services, incumbents are more interested in acquiring a large number of enterprise customers instead of signing large deals. These pricing dynamics make it incredibly difficult for IoT startups to disrupt the incumbent platforms in the space.

Geographic traction

Many enterprise software startups are able to disrupt established incumbents by gaining traction in a specific geographic market. Language barriers, regulations, and understanding of the local business development models are some of the factors that prevent enterprise software incumbents from rapidly expanding their international presence. However, geographic traction doesn’t seem to be a disruptive factor in the enterprise IoT space as platforms like AWS IoT, Azure IoT, Salesforce IoT Cloud, and IBM IoT Foundation are building in their respective cloud platforms which are available and operating in a large number of countries. Contrary to conventional market dynamics, global availability is a factor helping enterprise IoT platform incumbents to prevent the entrance of new startups in the space.

Developer community

Strong developer communities have become a disruptive factor in enterprise software markets. By nurturing large developer communities, startups can penetrate large organizations in ways that can be challenging for enterprise software incumbents. In the enterprise IoT platform space, incumbent solutions such as AWS IoT, Azure IoT, Salesforce IoT Cloud, or IBM IoT Foundation have built impressive developer communities that are, arguably, a multiple larger than the ones built by IoT platform startups.

Distribution channels

Simple distribution models are another disruptive element in enterprise software markets. In the enterprise IoT platform space, incumbents like Microsoft, Amazon, Salesforce, and IBM have developed robust distribution channels including partnerships with device manufacturers, system integrators, and IoT ISVs. The ubiquitous distribution makes it challenging for IoT startups to exploit specific distribution channels as a disruption mechanism.

Is the IoT platform race over?

CEO of IntoTheBlock, Chief Scientist at Invector Labs, I write The Sequence Newsletter, Guest lecturer at Columbia University, Angel Investor, Author, Speaker.

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