Microsoft’s IoT Signals retail report finds that connected promise for retail will be unlocked addressing security, privacy and compliance

Software giant Microsoft revealed on Monday that the rise of IoT has forced the retail industry to take notice. Few industries have been disrupted by emerging technology quite like retail. From exploding online sales to the growth of mobile shopping, the industry has made a permanent shift to accommodate digital consumers.

With customers embracing IoT as a core strategy to drive better business outcomes, and MIcrosoft investing in this space by committing US$5 billion in IoT and intelligent edge innovation by 2022 and growing its IoT and intelligent edge partner ecosystem to over 10,000.

By simplifying IoT to enable every business on the planet to benefit, Microsoft has the most comprehensive IoT platform and are going beyond that to simplify IoT. 

Some key examples include Azure IoT Central, which enables customers and partners to provision an IoT app in seconds, customize it in hours, and go to production the same day. To help ensure that retailers have a robust talent pool of IoT developers, Microsoft has developed both an IoT school and an AI school, which provides free training for common application patterns and deployments.

Security is crucial for trust and integrity in IoT cloud- and edge-connected devices because they may not always be in trusted custody. Azure Sphere takes a holistic security approach from silicon to cloud, providing a highly secure solution for connected microcontroller units (MCUs), which go into devices ranging from connected home devices to medical and industrial equipment. Azure Security Center provides unified security management and advanced threat protection for systems running in the cloud and on the edge.

Microsoft is also helping retail customers leverage their IoT investments with AI at the intelligent edge. Azure IoT Edge enables customers to distribute cloud intelligence to run in isolation on IoT devices directly and Azure Databox Edge builds on Azure IoT Edge and adds virtual machine and mass storage support. Going forward, Azure Digital Twins (currently in preview) will enable retailers to create complete virtual models of physical environments, making it easy to unlock insights into their retail environments.

IDC expects that by 2025 there will be 41.6 billion connected IoT devices or ‘things,’ generating more than 79 zettabytes (ZB) of data. These billions of devices are creating unprecedented visibility into a business, leading to transformation of operations, from the supply chain to automated checkout, personalized discounts, smart shelves, and other advances powered by IoT. 

In fact, IoT can help brick-and-mortar stores create customer experiences that rival that of online stores; for instance, customers can be sent alerts about discounts relevant to them when they get close to a store, and those stores can use IoT to keep track of inventory and increase efficiency.

Microsoft shared this week a new IoT Signals report focused on the retail industry that provides an industry pulse on the state of IoT adoption to help inform how to better serve partners and customers, as well as help retail leaders develop their own IoT strategies. The Redmond-based company surveyed 168 decision makers in enterprise retail organizations to deliver an industry-level view of the IoT ecosystem, including adoption rates, related technology trends, challenges and benefits of IoT.

The study found that while IoT is almost universally adopted in retail and considered critical to success, companies are challenged by compliance, privacy concern, and skills shortages. 

The retail industry has wholeheartedly embraced IoT technology. Among the retailers surveyed, 92 percent say they have at least one project in either the learning, proof of concept (POC), purchase, or use phase. A vast majority of these adopters believe it is critical to success – 87 percent  perceive IoT as crucial to their company’s continued growth. 86 percent of adopters have reached the use phase and they state that over a quarter of projects they’ve developed are currently being implemented (with the remainder in different stages of ramping up). On average, it typically takes a retail project 12 months to get to the use phase.

In the retail industry, IoT use is widespread and diverse. According to adopters, frequent uses include store analytics (57 percent), supply chain optimization (48 percent), security (46 percent), loss prevention (45 percent), inventory optimization (39 percent), and connected logistics (39 percent). Other common uses of IoT include digital distribution, automated checkout, digital signage, and layout optimization.

Retail companies are seeing many advantages to using IoT. Almost three quarters report that IoT increases operational efficiency. 64 percent of adopters also cite cost savings as a significant benefit, and 62 percent say IoT helps increase their company’s competitive edge. For more than half of adopters, IoT also opens up new revenue streams. 

Additional benefits of IoT adoption include reduced chance for human error, improved traceability of goods, and increased employee productivity. 

It’s clear that retailers are already using IoT extensively. However,many adopters (67 percent) state they want to implement IoT even more, but face barriers. Typical barriers companies face when adopting IoT more widely include a scarcity of resources, knowledge, and budget. Security, privacy, and regulatory challenges also exist. 

Despite the widespread success of IoT, many endeavors still fail in proof of concept – 88 percent of the IoT adopters surveyed have experienced the failure of a project at this stage, often due to high cost of scaling and unclear business value or impact.

Retailers in the U.S. and Europe are equally dedicated to IoT, though they experience unique benefits and challenges. 92 percent of decision makers surveyed in the U.S., U.K., and France are currently in IoT adoption. 

In addition, both regions have roughly one in four IoT projects in the use phase. Their most common uses for IoT are similar: almost two thirds of U.S. retailers name store analytics as one of the primary ways they utilize IoT, and nearly half of European companies say the same. Then they diverge, with the U.S. citing surveillance and security as another top use case, while Europe prioritizes supply chain optimization.

IoT decision makers in the U.S. and Europe recognize increased efficiency and cost savings as top benefits. U.S. retail businesses also say IoT reduces their chance for human error, while European retailers cite IoT as giving them a competitive advantage and enabling new revenue streams. When it comes to barriers, retailers in the U.S. mention budget and privacy as top concerns, while those in Europe face challenges around compliance and lack of resources/timing.

Ultimately, the majority of U.S. and European retailers plan to implement IoT even more in the future. 

Artificial Intelligence (AI) is becoming an important part of retailer IoT solutions. Among IoT adopters in retail, 44 percent say AI is a core component of their IoT solution. For the other 56 percent, though it’s not central yet, most say it’s either a secondary component (28 percent) or something they are considering (21 percent).

Retailers who do integrate AI as a core component of their IoT solutions report a higher level of success with IoT overall. Almost all of these retailers believe that IoT is critical to overall company success, compared to 82 percent among retailers who don’t incorporateAI as a core component. Since more than three-quarters of AI core integrators are planning to use IoT more in the next two years, it’s safe to conclude that AI integration is connected to successful use of IoT.

Adopters who consider AI a core component are more likely to use IoT to improve customer experience and marketing, focusing their use of the technology on layout and inventory optimization such as smart shelving, and in-store marketing tools like digital signage and beacons.

Those who prioritize AI are more likely to treat it as an essential and inseparable part of their IoT solution. Almost 90 percent of companies who use AI as a core component also use the same providers for both AI and IoT, compared to 59 percent of companies for whom AI is not essential yet. In addition, retailers who integrate AI are also more likely to pay for it using their IoT budget, rather than budgeting for it separately. 

The future is promising for IoT use in the retail industry. 

Looking ahead, retailers predict near universal adoption of IoT two years from now. 97 percent are committed to adopting the technology in the next two years. Additionally, more than three in four say that their use of IoT will grow in the next two years.

Retailers see themselves increasing future adoption of IoT because they view the technology as key to company success . 85 percent of the decision makers surveyed say IoT will be critical to their organization’s overall success in the next two years.

Among retailers who intend to use IoT in the next two years, the use cases projected to grow the most are those that can enhance customer experience. These include automated checkout, inventory optimization, and layout optimization. Automated checkout will see the most growth, from 37 percent to 50 percent in two years time, a 13 point gain.

Retailers also envision more moderate growth of IoT implementation in logistics optimization, security and targeted in- store experiences. Growing logistics use cases include digital distribution, energy optimization, and connected logistics. Businesses also expect they will increase the use of IoT for in-store experiences like digital signage, automated employees, and contextualized marketing. Surveillance and security as well as loss prevention are also expected to experience growth.

IoT helps retailers in the U.S. and Europe work more efficiently, automate processes, and optimize many facets of business, from improving the customers experience to energy conservation to store layout. However, the technology is not without its challenges, such as lack of resources or knowledge. 

Still, U.S. and European retailers anticipate adopting IoT even more widely in the years to come, expanding its use in processes including automated checkout and inventory optimization. It’s also clear that retail businesses that integrate AI see greater success of their IoT endeavors. Examining the research as a whole, Microsoft can conclude that retailers view IoT as indispensable to business success, and that their use of the technology will continue to grow in the coming years.


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