By 2020, an estimated 50 billion devices around the globe will be connected to the Internet. Perhaps a third of them will be computers, smartphones, tablets, and TVs. The remaining two-thirds will be other kinds of “things”: sensors, actuators, and newly invented intelligent devices that monitor, control, analyze, and optimize our world.

This seemingly sudden trend has been decades in the making, but is just now hitting a tipping point. The arrival of the “Internet of Things” (IoT) represents a transformative shift for the economy, similar to the introduction of the PC itself. The IoT also opens a range of new business opportunities for a variety of players. These opportunities tend to fall into three broad strategic categories, each reflecting a different type of enterprise:

  • “Enablers,” technology-oriented companies, such as Cisco, Google GOOGL -0.87%, HP, IBM IBM -0.15%, and Intel INTC +0.55%, that develop and implement the underlying technology
  • “Engagers” that design, create, integrate, and deliver IoT services (like the Nest Learning Thermostat, Apple AAPL +0.81% HomeKit, Hue, Tagg,, and Sensity) to customers
  • “Enhancers” that devise their own value-added services, on top of the services provided by Engagers, that are unique to the Internet of Things (such as OnFarm and Progressive PGR -0.37%’s Snapshot)

A wealth of opportunities exist for each of the three types of IoT strategy models: Enablers, Engagers, and Enhancers. Entering the fray, however, is an action that should not be undertaken lightly. The IoT market’s newness and heterogeneity will make it difficult to negotiate, even for those companies with the strongest capabilities and the clearest, most compelling value propositions.

If your company wants to stake a claim with the Internet of Things, you first need to develop a distinctive “way to play”—a clear value proposition that you can offer customers. This should be consistent with your enterprise’s overall capabilities system: the things you do best when you go to market, aligned with most or all of the products and services you sell.With those elements in place, if you tread carefully and methodically, the time is right. To develop a strategy for the IoT, you could proceed by addressing, in order:

  1. Your own role in the IoT. Given your existing value proposition and capabilities, are you best suited to be an Enabler, Engager, or Enhancer?
  2. Industries and markets. Assess how your business environment is being (or could be) transformed by the IoT. If you are an Engager or Enhancer, what endpoints, hubs, and services are already being sold in your market? How are they expected to combine? What sense do you have of the demand for them? The more IoT activity that already exists in your industry, as it does in healthcare, automotive, manufacturing, and home-related sectors, the more rapidly you will have to move.
  3. Customer or business engagement. Because value in the IoT will be created through the transformation of customer experience, you need strong capabilities in experience design. Even if you are an Enabler, without direct customer contact, or even if opportunities for engagement appear limited in your industry, the IoT could eventually transform your business. What capabilities do you already have in this area, and which ones will you need to develop?
  4. Connected products and services. Assess your current lineup of offerings to determine which can be enhanced through IoT connectivity, and what new ones could be developed expressly for the IoT. For new launches and innovations, take into account how connectivity will be established, how your company will analyze and use the resulting data, and which other companies you might collaborate with—all set against the proposed revenue model and income stream.