The Machine Economy Is Coming – Why Businesses Need to Be Prepared

The machine economy — also known as the M2M (machine-to-machine) economy — will usher in a new era of radical automation with billions of smart, connected machines interacting and transacting with each other on behalf of human beings and businesses, unlocking trillions of dollars in business value. That’s according to the Trends Shaping the Machine Economy Report from Next Big Thing AG, which defines the machine economy as follows:

In other words, the M2M economy is one in which economic transactions and other activities can take place autonomously between devices, sensors and machines — ultimately delivering products and services to consumers and businesses, independent of human action.

While still in its infancy, this evolving ecosystem is being powered through the convergence of three developing technologies:

• Internet of Things (IoT)
• Artificial Intelligence and Machine Learning
• Blockchain

The internet has completely changed the way in which people and businesses communicate — not just with each other, but also with machines. Moreover, over the past ten or so years in particular, the World Wide Web has also facilitated the emergence of a whole new ecosystem, one in which physical objects — including home appliances, vehicles, industrial machinery, and infrastructure provisioned with smart sensors, actuators and processors — can exchange real-time data across vast systems and localised or global networks. This is the Internet of Things.

IoT encompasses all devices that connect to the internet. While this of course includes things like computers, smartphones and tablets, the Internet of Things is in fact made up of every type of connected device — from smart speakers, smart light bulbs and smart thermostats in the home, to connected cars on the road, planes in the sky, sensors in equipment and machines, concrete and buildings in our cities, and even pills in our bodies that we can swallow to monitor our health.

IoT is the foundation of the machine economy — enabling M2M communications through both wired and wireless systems. And it’s growing rapidly. By the end of 2018, there were an estimated 22 billion IoT connected devices in use around the world. By 2025, forecasts suggest this figure will grow to 38.6 billion — and to 50 billion by the end of the decade.

However, while IoT enables devices to communicate between themselves, additional technology is required to enable these machines to conduct transactions (financial and otherwise) with each other. This is where distributed ledger technology (DLT) and blockchain come in.

By providing a shared and decentralised distributed ledger, blockchain creates the trust, transparency, security and privacy required for machines to transact with one another. A blockchain can store all kinds of data — including data related to monetary transactions and identities. Indeed, while there are a number of use cases for blockchain, the primary and most successful applications of the technology thus far have been in the creation of cryptocurrencies and the powering of secure, traceable monetary transactions. By combining blockchain with IoT, machines can be empowered to complete similar transactions with each other autonomously on a distributed and digitally connected marketplace.

So, now we have autonomous devices conducting M2M transactions on behalf of businesses or consumers. How do we make sure those machines are making the right decisions? The answer is with machine learning. While an IoT device can be programmed to, for example, make purchases on behalf of a person or business — with DLT providing the necessary security, traceability and authentication — thanks to machine learning technology, the device can also be trained to recognise that individual’s or business’s needs. Thereby, it can anticipate the appropriate purchases that need to be made — from the right supplier, at the right price, and at the right moment.

Put it all together and scale it up, and completely automated business models become possible — a true machine economy, in which machines, manufacturing plants, ordering, fulfilment, logistics and payment systems can communicate autonomously with each other and carry out smart, independent transactions.

The Next Big Thing provides a couple of examples of the potential opportunities the machine economy opens up and how they might look in action.

No talk of the IoT would be complete without mention of the smart fridge. So, consider a smart refrigerator that records its contents and automatically orders replacements when certain items run low. Its owner never needs to fire up a computer, tablet or smartphone to place an order, or type in payment details — that’s all set up in advance. What’s more, enhanced with machine learning technology, this smart fridge gets smarter and smarter the more it’s used. If it was late ordering milk during its first week in operation, it would learn from its mistake — and place a more punctual order the following week, and continue to learn the most appropriate times to place orders, not just for milk, but all its contents. Such a device would be the ultimate in grocery ordering consumer convenience — and opens up opportunities for retailers to provide it.

In the B2B world, similar opportunities arise, Next Big Thing explains. Using sensors and smart contracts, companies can automate the processes of tracking inventory levels and the shipping status of products. The system not only knows when more inventory needs to be ordered, it actually places those orders itself. And again, as with the smart refrigerator, with machine learning applied, the system gets smarter and more precise over time — able to identify the precise moment to invest in new inventory to maintain stock levels while reducing storage costs.

While full realisation of the M2M economy may be a few years away yet, four major stages of development are emerging, which will soon make such opportunities viable — and will form the foundations of a new battleground upon which organisations will have to compete.

With a trifecta of disruptive technologies converging, machines will soon have the power to make their own decisions, buy and sell products and services, and actively take part in the economy as fully autonomous market participants.

The machine economy is indeed on the horizon — and organisations must now prepare. Data will form the backbone of the machine economy — as it will the businesses that are able to compete within it. As such, as with all digital transformations, having a robust and powerful business management system like metasfresh ERP is crucial for success.

A key aspect of metasfresh is that it serves as a centralised business information platform and single source of truth for all business data. This includes inventory information, pricing information, product data, shipping data, customer and supplier data — as well as IoT data, sensor data, and information from warehouses, fulfilment centres, manufacturing lines or brick-and-mortar stores. This is the data that your systems will need to empower machines to transact autonomously — and precisely why comprehensive business management solutions like metasfresh ERP form the foundations upon which business can integrate more and more leading-edge technologies to advance their digital transformations.

Talk to us here at metasfresh about your strategy to compete in the machine economy. metasfresh is a member of the Ecommerce and Cross-Channel Club Cologne (ECC Club Köln), which is managed by the Institute for Retail Research Cologne (Institut für Handelsforschung, IFH Köln). The Institute offers individual research projects with strategic consulting. It specialises in the areas of inter-company comparisons as a controlling instrument, enabling retail companies to recognise market developments, measure changes in customer behaviour, optimise sales and set the course for a successful future. The insights and knowledge provided by the Institute through market research and studies relating to cross-channel and online retail are incorporated in the development of metasfresh, meaning all of our users are always up to date on the latest ecommerce developments.

At metasfresh, our mission is to enable each and every company to access a powerful ERP system that supports digital transformation and fuels corporate growth. Get in touch today for more information and insights.