As the IoT transitions from a niche concept to a practical option for product design, it is becoming increasingly popular in the business world. For companies planning to boost efficiency, innovation and ultimately revenue through the IoT, surely the only question is “when can we start?” Soon. I promise.
But, as a company planning to incorporate smart, connected products into your offering, there are some important strategic factors to consider. Including the type of system you will be operating under.
To help you unpick the options, here are pros and cons of using either an open or a closed system.
Benefits of using an Open System
Open systems enable a faster rate of overall innovation because an ecosystem of different providers can all contribute to the solution. This shortens development time and time to market. Consequently, it might reduce the on going cost of supporting and maintaining the system because the provider doesn’t have to take responsibility for each and every component of the system.
Open System Cons
On the other hand, an open system enables other members of the ecosystem to compete for large portions of the system and to capture more value than you might be comfortable with.
An open system also involves some pretty substantial design trade-offs; sometimes these interfaces should be thought of as adequate but not fully optimal in terms of how the components work with each other. Ultimately in an open system you’re typically sacrificing some level of performance for flexibility.
Benefits of using a Closed System
When we think about closed systems, we’re talking about systems that enable the
company to control and optimise all the elements of the system so that the system has overall greater performance. This allows for richer capabilities and data sources because all of the components can be tuned towards a common goal. If you’re fortunate you might create a system that’s so powerful it could become of a de-facto industry standard, which of course is the best of all.
Closed System Cons
However, closed systems require very significant development and investment. The is because you’re now responsible for creating and maintaining all of the components, even though there may be companies specialising in different elements of what you’re trying to do.
Closed systems are challenging to defend and often customers don’t like them because they like the idea of specialisation of different components. They also like the option to have choice to pursue different components from different vendors.
If you want to participate in an even larger system or if your system is part of a system of systems, then you, at some point, need to be open or you’ll be precluded from playing a role in that larger system.
How to make the decision?
One question to ask yourself is ‘what’s the value of the product and therefore can it be justified to keep the system closed?’ If it’s high value, then a closed system could be the best option.
On the other hand, even a home appliance might be integrated into a home automation system, or a car might be a component of a ‘smart city’. So, at some point, your system is going to need to be open so that your solution can play a role in an even bigger solution, to avoid that risk of being excluded from such bigger solutions.
Realistically, therefore, some kind of a hybrid approach is required.
Post originally published on 30/06/2015. Updated on 25/11/2022.