Disney's $1 Billion investment in the Internet of Things (IoT) is a practical example of where IoT can positively impact both a business and make the experience more fun for the customer. It is a great real-world example of how a company can use IoT to both grow revenue and increase efficiency.
Usually when I write these blogs I focus on how various technologies and trends might impact future mergers and acquisitions (M&A) valuations and acquisition interest for my clients. What I've personally believed, which data has backed me up, is that the value in the “Internet of Things” is not in the sensors and devices themselves (which are important, but can be produced cheaply), but rather in the data that they can collect. The value is ultimately in analyzing that data to:
- Sell people more stuff, or
- Improve efficiency of a business.
Disney is a prime example of accomplishing both very well.
After a couple of trips to Disney World in the last two years with my own family, I believe that the Disney Magic Band project is the perfect “real world” example of what IoT can do. Disney's project is something that most everyone can relate to, including those that don't have a technical background.
The company's theme parks are well known for being the industry gold standard for customer experience. Everything in the park is geared towards guests receiving great customer service. Most guests are families with children, and a result of happy guests is that they have a good time, spend money, say good things to their friends when they come home, and come back again (to spend more money and encourage their friends to do the same). Disney has 100 million visitors annually, and the data about each customer is very valuable, as well as ways to grow revenue. Each week, Disney has to pay more than 80,000 cast members and schedule 240,000 shifts, which can be a logistical nightmare getting the right people working at the right place at the right time. There are obvious enormous opportunities to grow revenue and to also reduce costs by maximizing efficiency.
In 2008, Disney started the Magic Band project, which ramped up to 1,000 people by its rollout in 2014, and spent $ 1 Billion by installing sensors throughout the park, RFID readers in the room keys of all of the hotels, all of the back-end software and infrastructure, and training its staff on how to use the system. For $12.99, each user gets a stylish waterproof wristband that inside is equipped with an RFID sensor, a Bluetooth Low-Energy chip, and a two-year battery. Everyone in your party will have their own band, matched to their name and parent's name if applicable, and of course, credit card with a PIN. The Magic Band acts as:
- Entry ticket to the park
- Secure ID, since the band will be matched to you by a finger-print scan
- Entry to all rides and linked to your online account of Fast Passes and special offers
- Room key
- Payment method for anything in the Disney resort (everything takes the Magic Band)
- Location tracker, both for internal park logistics planning, but also presumably helpful if your child is lost
- Link to Photo pass accounts
It's pretty obvious to see how Disney can make more revenue by selling you more stuff, because all you have to do is scan your band and type in a pin to buy anything. When I went to Disney, I literally did not bring any cash or credit card, nor my ID. All I needed was my phone and Magic Band. I have to admit that it was pretty cool to take a picture in the park, they scan your band, and it's automatically wirelessly linked to my account immediately. I was browsing photos while walking around. There was no pressure to buy them on the spot – you could buy them all later or a-la-carte. I eventually bought them all.
A cooler example is that is on some rides it scans your band as you speed past, while it takes your picture or even a video of you on the ride. It's a tremendous revenue up-sell for the park, but I was happy to be up-sold because I didn't have any pressure to buy it on the spot. It was pretty cool to be able to download a personalized video of me and my son riding one of the rollercoasters, without having to do a single thing. Ultimately I bought the Photo Pass, which gave me access to all of the photos and videos and I was happy to fork over the money for it.
There are lots of other indirect ways that Disney's Magic Band IoT system makes money and profit. First of all, it simply removes much of the friction in the customer experience, because everything is linked in real-time to your account. Say you complained about a bad experience, and you are likely to be compensated with Fast Passes (the express line for busy rides) that are electronically linked to your account via your Band. It's much better than getting a “sorry” or some coupon. Fast Passes are like gold at Disney, and having a Magic Band makes it so much easier to use them. Happy customers are going to spend more time in the park, which means they are going to spend more on food and souvenirs. They are more likely to come back again and tell their friends. It is a virtuous circle.
But perhaps the biggest return on investment (ROI) is yet to come, and that is from analyzing the data from customer behavior. By signing up for the Magic Band, Disney knows who its customer is, how old they are, how to contact them, and what they like. Disney presumably knows what they bought in the park, what rides they rode, where they walked, how long they spent in the park, in short everything. Disney can use that information to market products and services to those families after they've gone home, in a heavily focused fashion.
They can also dramatically improve operational efficiency of the park, by being able to more accurately schedule shifts of those 80,000 workers, how many Fast Passes to hand out for each ride at different times of the year, and learn what promotions work and which don't work. It can lower its safety liability by quickly reuniting lost children with their parents, or by ensuring that people aren't wandering off where they are not supposed to be.
Everybody knows that the worst part of any amusement park, including Disney, is waiting in a long line. By collecting real-time data about crowds, lines, and patterns, Disney can adjust on a daily or seasonal basis to improve the customer experience. And again, when that happens, people are in the park longer and spend more money. Every minute a guest spends in the park is an opportunity to sell them something, plain and simple.
As in many things with IoT, the advances in technology, cost and power reductions of Bluetooth, WiFi, RFID, low-power microprocessors, and batteries have all enabled IoT to begin to flourish. But the value in IoT is not in the “Thing” itself, it is in the ability to use them to generate data that can be useful. Like Google, the value wasn't in the search itself, but in the ability to sell people stuff that they were looking for. IoT represents the opportunity to both sell people more stuff but also allow businesses to wring out inefficiencies and save cost. Disney seems to be perfecting this model and it's a win-win for both the guest and the park. I've got about 1,000 photos and a houseful of Disney Star Wars t-shirts and light sabers to prove it.