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Estimating the Total Cost of Ownership for IoT Adoption at Industrial OEMs

By February 8, 2024No Comments
Total cost of ownership for IoT adoption

When industries from various verticals are going through the technology boom, why should manufacturers stay behind? This is both a need-of-the-hour and a concern that runs at high priority among the key decision-makers at global OEMs. Incorporating the latest technology for IoT adoption and still keeping the total cost of ownership in check can sound challenging. Whether you buy or build your own IoT Platform or get it through a more effective OEDC approach, it is essential to create a proper estimation for the entire process in terms of effort, cost, and time.   

A recent McKinsey Global Institute analysis suggests that by 2030, the economic value generated annually by IoT technology could be between $5 trillion and $12 trillion. However, when considering the development costs of an IoT application, it’s commonly perceived as complex and costly.   

Let’s understand the Total Cost of Ownership (TCO) better in this blog and compare in-house app development and the OEDC IoT adoption approach to choosing the best solution for yourself. 

Total Cost of Ownership (TCO) for IoT Adoption  

Industrial OEMs need to quantify both the direct and indirect costs of building and maintaining IoT applications over the entire lifecycle to calculate the total cost of ownership. You can determine the ROI generated from your IoT initiative with TCO as it is the focal point to decide whether you will build vs. buy an enterprise IoT platform. 

The Total Cost of Ownership (TCO) for IoT adoption encompasses a broad range of expenses beyond the initial outlay for hardware and software. It includes the costs of installation, integration with existing systems, and ongoing expenses such as maintenance, updates, and security measures to protect the network and data. Training for staff to effectively manage and utilize IoT technology is also a significant part of the TCO.  

Additionally, there may be costs associated with scaling the IoT infrastructure as the business grows and evolves, as well as potential downtime or inefficiencies during the implementation phase. These factors make it essential for companies to consider the upfront costs as well as the long-term financial commitment involved in successfully adopting IoT technology.

How Can OEMs Use Industrial IoT Adoption to Create New Revenue Streams?  

OEMs can adopt key strategies to create new revenue streams and strengthen customer relationships, enhance product offerings, and position themselves at the forefront of technological innovation in their industry.   

You can leverage Industrial IoT adoption to create new revenue streams in several ways:  

  1. The transition from selling products to offering them as a Service. For example, providing an appliance/product along with a smart analytics application that provides reporting around Asset Performance Management (APM) on a subscription (SaaS) model, transforming it into a smart product.   
  2. Offer predictive maintenance services to clients, reducing downtime and saving costs, which in turn can be a new revenue source.  
  3. Provide data analytics services to help clients optimize operations, increase efficiency, or reduce energy consumption.  
  4. Offer services to remotely monitor, control, and manage equipment, including updates, security, and optimization.  
  5. Use of IIoT data to understand customer needs better and offer customized solutions or upgrades tailored to specific client requirements.  
  6. Help clients integrate IIoT solutions with their existing (legacy) systems and processes, offering a full-service package from installation to ongoing support.  

Why Do Your IoT Application Development Estimations Require a Revisit?  

The need for OEMs to revisit their IoT application development estimations stems from the rapidly evolving IoT technology and the complexities inherent in its implementation. As IoT adoption continues to advance, new tools and platforms emerge, altering the scope and capabilities of IoT solutions. This dynamic environment can lead to initial estimations becoming outdated, as they may not account for the latest technological advancements or market trends.

Additionally, OEMs often encounter unpredictable challenges that were not initially considered, such as:

  • Design & Features
  • Infrastructure  
  • Size & Complexity      
  • Scalability and Flexibility  
  • Number of Hardware devices  
  • Multiple Vendors and Microservices  
  • Security, compliance, and certification  
  • Maintenance and support  
  • Engineering and management labor costs  
  • Change management costs  
  • Opportunity costs and time-to-market 

These factors can significantly impact the time, resources, and cost involved in developing IoT applications. Furthermore, the increasing emphasis on customization and scalability in IoT solutions necessitates a more flexible and adaptive approach to estimation. By revisiting their IoT application development estimations, OEMs can ensure more accurate, efficient, and effective deployment of IoT technologies, aligning better with both current and future business needs and technological capabilities.  

TCO Comparison: Build vs. OEDC   

Industrial OEMs can encounter significant TCO differences between the build and OEDC approach for IoT adoption. Here is a detailed comparison to help you understand better.  

Cost of In-house IoT Adoption Approach 

Building an app from scratch requires following the proper procedure from analyzing and planning to designing and prototyping to testing and deployment to post-production and maintenance. It can cost millions of dollars to cross the infrastructure and IoT application development phases.   

ProcessDeveloping an IoT application in-house

Let’s Calculate the TCO of a cloud-native IoT application creation when built from scratch, with comprehensive infrastructure and application development costs.  

Phase 1: Traditional Infrastructure Development Costs (Approx.)  

Building cloud-native industrial applications encompasses three pivotal components: hiring/onboarding, building and configuring the infrastructure, and maintaining and scaling. The estimated costs are conservatively projected at $2.7 Million.   

Team Acquisition and Onboarding: $530 Thousand   

The process of hiring and onboarding a specialized team for cloud-native technologies incurs expenses in recruiting agency fees, external consultant fees, and HR manager support, totaling $530 Thousand.   

Building and Configuring Infrastructure: $960 Thousand   

Adopting a managed Kubernetes service incurs costs related to fully loaded salaries, software licenses, enterprise-grade support, and cloud services. This IoT adoption phase is estimated at $960 Thousand.   

Maintaining and Scaling infrastructure: $1.21 Million   

The ongoing maintenance and scaling of the infrastructure, crucial for the lifecycle of applications, involve significant costs. This phase is conservatively projected at $1.21 Million.   

So, the Total Estimated Cost (Phase 1) for Infrastructure itself can reach up to $2.7 Million.  

Phase 2: Traditional Application Development Costs   

The subsequent phase focuses on application development, encompassing training/reskilling and traditional application development. The estimated costs for this IoT adoption phase are projected at $2.3 Million.   

Training and Re-skilling: $272 Thousand   

Training costs include the cost of re-skilling internal tech employees over a 6-month period, ensuring a phased transition to cloud-native development. It is projected at $272 Thousand.  

Traditional Application Development: $2.04 Million   

During the 12-month development period, employing 17 traditional coders across three teams incurs costs for the web portal, back-end app, and mobile companion. This phase’s estimated worth is $2.04 million.  

Total Estimated Cost (phase 2) for Application Development can reach $2.3 Million.    

Hence, the Overall Estimated Cost for IoT adoption can be anywhere between $4 to 5 Million.  

This comprehensive assessment underscores the financial challenges and operational intricacies faced by Industrial OEMs engaging in cloud-native application development.  

Cost of IoT Adoption with OEDC Approach (Build and Buy)

If you are ready with all the engineering requirements for your IoT adoption, you are all set to go with OEM Enterprise Domain Cloud (OEDC). The existing solutions can cover many services, like storage, advanced analytics, device management, adaptable modules, drivers, source libraries, reducing development and testing time, and the development environments with SDKs for creating apps or services.  

You can throw a lot of things off your mind just by choosing an IoT platform vendor with a wide range of features and components in the existing platform and the power of “out-of-the-box” creation. Integrating such an IoT platform can give you access to readily available partner networks, a secure development lifecycle, the ability to scale with ease, and achieve a quicker time-to-market. 

The storyline of OEM Enterprise Domain Cloud (OEDC) aligns with the priorities and concerns of CXOs (Chief Executive Officers), CTOs (Chief Technology Officers), and Product Heads through a focus on key business drivers. We can understand it better by analyzing vital financial factors that business heads track when making steps toward digital transformation as follows:

In comparison to the previously highlighted factors, here is the cost-benefit analysis that you get with an OEDC IoT adoption approach:  

100% saving on Infrastructure development cost as it is covered by:

 70% direct saving on Development costs with:

Another 90% of efforts and costs can be saved in the technical debt and support and maintenance as you have to maintain fewer lines of code with the OEDC IoT adoption approach:

IoT Solutio Alternative

(App Architecture IAC & Development to Deployment, Security & Compliance)  

IoT Security

Therefore, an OEDC approach can be the smartest alternative to save on cost, effort, and time to market, giving you a more customizable approach for IoT application development aligned with your key business goals and objectives.  

How do Engineers at OEMs look at the OEDC Approach?   

OEDC approach is built to meet all the needs of OEMs, making it highly beneficial to consider in 2024 with the evolving technologies. Here are some of the key results and benefits you can achieve with OEDC IoT adoption. 

  1. Customization: Enable tailored solutions to meet specific organizational needs, ensuring a perfect fit for every unique operational requirement.  
  2. Scalability: Easily scale to accommodate growing business demands, supporting expansion and adaptation without compromising performance.  
  3. Zero Vendor Dependency: Get independence from external vendors, providing control over IoT solutions and reducing reliance on third-party providers.  
  4. Enterprise-Grade Scale: Leverage a robust infrastructure capable of supporting large-scale, enterprise-level deployments, ensuring reliability and stability.  
  5. Lowest Cost of Ownership: Get benefit from a reduced total cost of ownership, owing to efficient resource utilization and cost-effective IoT adoption strategies.  
  6. Lowest Time to Market: Accelerate the development and deployment process, enabling quicker time to market for IoT solutions and giving a competitive edge.  
  7. Complete IP Ownership: Maintain full ownership of your intellectual property, enhancing security and fostering innovation within your IoT solutions.  
  8. Full Deployment Flexibility: Get flexibility in deployment options, allowing organizations to select the most suitable approach for their specific needs.  
  9. Avoid Technology Lock-In: With OEDC, organizations are not restricted to specific technologies or platforms, offering freedom to adapt and evolve with technological advancements.  
  10. Higher Competitive Advantage: Gain a significant competitive advantage through enhanced efficiency, agility, and innovation capabilities of the OEDC IoT adoption approach.  
  11. Enhanced Efficiency and Productivity: Improve manufacturing processes by enabling real-time monitoring and control of equipment. It leads to higher efficiency, lowered downtime, and better resource management.  
  12. Predictive Maintenance: Predict when equipment might fail and perform maintenance proactively. It reduces unexpected downtimes and extends the life of machinery.  
  13. Quality Control: Get detailed data about production quality, allowing engineers to identify and rectify issues faster.  
  14. Supply Chain Optimization: Track materials and products throughout the supply chain process to enhance inventory management and reduce delays.  
  15. Security: Ensure data security, integrate with existing systems, manage large volumes of data generated, and ensure the reliability of IoT devices.  
  16. Cost-Benefit Analysis: Engineers and decision-makers at OEMs would also consider the investment required for IoT adoption against the potential returns, including cost savings and productivity gains.

Overall, the OEDC approach is viewed by engineers as a comprehensive strategy that effectively addresses the multifaceted challenges of IoT application development, paving the way for innovative, scalable, and efficient IoT adoption.

Conclusion  

It can be concluded that OEMs and Enterprises can leverage IoT Adoption in the most efficient manner with the OEDC approach, as building an in-house IoT platform can cost a lot more than the budget. Not only the price, an OEDC approach comes with a bundle of other benefits like faster time to market, high scalability & flexibility, and, most importantly, a pre-built infrastructure that allows OEMs to focus on developing just the core business logic.

Connect with an expert to gain more information on the further steps to initiation.

Nishant Puri, CISO at IoT83

Nishant carries professional expertise in team collaboration and network security solutions. He excels at aligning the needs of key business stakeholders, including Sales, Marketing, and Product Engineering, with pragmatic and efficient approaches that meet both short-term and long-term strategic goals.

Before joining IoT83, Nishant held a leadership position at Cisco America Partners, where he led sales and technology solutions. He was also a frequent speaker for Cisco APO, showcasing his knowledge and experience in the field. Being a Cisco-certified Inter-Networking Expert in Security and Collaboration, Nishant brings a wealth of technical expertise to his role. He is also inclined to identify digital discontinuities and is adept at mapping out effective digital transformations.

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