Firms Merge Digital and Physical Worlds

The great promise of networks of connected things is total awareness.  As the physical and digital worlds merge, new business models and new opportunities will emerge based on dynamic intelligence.

Last week, consulting firm Deloitte and PTC Inc. (PTC), an Internet-of-Things platform developer, came together.  The firms will use their considerable individual strengths to promote and deploy PTC’s digital platform and to presumably save and make a lot of money for clients.

What Deloitte really wants is PTC’s ThingWorx platform, which helps teams rapidly connect machines, devices, and sensors to form insights and then take action.

Consultants are good at identifying addressable problems and monetizing them. And their influence is growing.

The New Gilded Age is an era of profound opportunity.  Networks of dynamic intelligence do not just uncover stunning productivity.  They transform industries and sectors.  They create new business models.

Back in the late 1990s, the music and motion picture industries were under siege. Some kids tinkering with computers figured out how to share music and movies on the Internet. For a while, it was all the rage: buy a compact disc, rip it to a software file and share it on the Internet.

Soon there was less buying and ripping and more sharing. The owners of the copyrighted material were looking down the barrel of an existential threat, as they had been cut out of the loop.

Software allows your smartphone to communicate with other “smart devices,” but it might also allow the phone’s maker to shut down the phone remotely.

So they hired consultants and eventually made a deal with Steve Jobs.  Apple (AAPL)would sell digital copies of music and movies on iTunes a la carte. Then they got to work getting tough copyright protections, called the Digital Millennium Copyright Act, passed in 1998.

Just so you are aware, those same DMCA protections now govern your smartphone, your car and even that fancy connected coffeemaker you just bought.

Recently Apple started remotely breaking iPhones that had been repaired by shops not licensed by Apple. It did this retroactively through an over-the-air software update.  According to the software license buried deep within its terms of agreement, it was well within its rights.

Regardless how much you pay for an iPhone, Apple still owns the software that controls it. Ultimately, that control means ownership.

That’s a bigger deal than it used to be.  With the Internet of Things, software is being embedded into everything from toothbrushes to tractors. And the current DMCA is being used by companies to wrestle ownership of these things away from buyers in the most insidious way.

A good example of this is Deere & Co. (DE). Its lawyers argued that although farmers buy their expensive John Deere tractors, they don’t actually own them since modern farm equipment depends heavily on computer software. Because software is protected by copyright, what farmers are really buying is an implied license that permits them to operate the tractor through its lifespan.

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If they alter the tractor in any way that changes the software., they don’t just void the warranty, they become software pirates and could be sued  or worse, face jail time. If this only concerned Old McDonald, his farm and his tractor, it would be worrisome.

But the stakes are much higher because software is eating the world. It’s everywhere and becoming a more important part of everything.

Thankfully, there has been some pushback by consumer groups. In 2013, the Cellular Telephone Industries Association pushed Congress to pass legislation that would make it legal again for consumers to unlock their phones. In 2015, President Obama finally signed the Unlock Consumer Choice and Wireless Competition Act into law. That’s one small step in the right direction.

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In many ways, the DMCA transformed our culture from buyers to renters. iTunes, regardless of its usability, started this by making it easier to consume music and movies.

Later, streaming services like Spotify and Netflix (NFLX)added large content libraries for one low price.  They used the ubiquitous power of networks to stream content everywhere to multiple screens, multiple platforms.  They built New Gilded Age business models.

More are coming. Mobility-as-a-Service (MaaS) businesses like Uber and Lyft now straddle the globe. AirBnB is doing the same for short-term rental properties.  And many companies have staked claims atop public cloud networks, offering bespoke Software-as-a-Service (SaaS) solutions. 

If manufacturers want to use DMCA to deny buyers ownership, they should also be prepared to offer new business models based on service. Perhaps that is coming.

It’s in this context that the Deloitte-PTC merger makes so much sense. It’s one more step toward bringing the physical and virtual worlds closer together for the benefit of both consumers and companies.

Best wishes,

Jon Markman