The Internet-of-Things (IoT) has managed to send the technology industry into a spin. With the prospect of owning a slice of revenue that comes from connecting everything and anything around us, vendors are wide-eyed, licking their lips and trying to position themselves as 'THE IoT company' of the future.
The thing is, after a week at Mobile World Congress, it's more apparent to me than ever that the Internet-of-Things isn't up for grabs in the way that perhaps 'mobile' was – rather, it's going to be a new phase of the web that will be diverse and evolving, with an infinite number of companies making money from it, across all industries.
In fact, new industries will emerge altogether, in the same way that when the internet emerged, new types of companies began to spring up that challenged traditional business models.
However, because IoT as a 'stack' blends software and hardware together, in a similar way to mobile, I think companies expect that they could be the next Apple, Google or Samsung of the Internet-of-Things.
And whilst some may dominate at the bottom of the stack – for example, Cisco, AT&T, ARM, Intel etc. are likely to sell a lot of chips, networks, and sensors (simply because they can scale and reduce cost) – the upper end of the stack, the software, will be anyone and everyone's in the future. And it is this upper level of the stack that is the most valuable, the most important.
This spread of hardware that connects everything up, simply allows for developers to connect to new things, analyse them, and build stuff on top.
The 'Things' are the new platform. And no one company can own all 'Things'.
The simplest way I can say it is, in the near future, saying you're in the Internet-of-Things game will simply become the equivalent of saying you're in the internet game.
Hey, I have a website! Good for you.
That's not to say that it won't change things, it absolutely will. But like the internet, it will change the status quo in a way that we could never anticipate at this moment in time.
The Internet-of-Things is NOT M2M
One thing that I noticed at MWC, when sitting down with some of the largest vendors vying to get into this space, is that when bringing up the topic of IoT, they largely reference customers or industries that have historically had a strong investment in Machine-to-Machine (M2M).
For example, I heard endless stories about agriculture, mining, and manufacturing, because these are industries that have already had an interest in connecting things up. They invested capital early on because they saw the benefits of using sensors and data to derive efficiency gains in their processes.
However, whilst M2M and IoT have the same fundamental building blocks – sensors, networks, management, applications – the two are very different things in my mind. M2M is about creating efficiencies within an existing process that has already become established and is making revenues regardless of the additional connectivity. Whilst IoT is about using the connections of 'things' to build new processes and services that make money and provides services in a way that was not previously possible. IoT means it is impossible to separate the service from the 'thing' from the internet – it is a package.
I spoke to Ian Ferguson VP of Segment Marketing at ARM, who believes that we are currently in a phase of IoT that is focused on efficiency (which I argue is simply M2M). But the next phase will be about changing the norm. He said:
The first wave, where people are practically deploying IoT is where they have identified a way to save money. They are, for example, instrumenting their factory and they're understanding when equipment is about to break, measurement of air flows, water flows etc. It really relates to the bottom line, but I don't think IoT has got to the end user yet.
The second phase of IoT will be around generating new services. First they've saved money, but now they've got connected stuff, what can they do with all that data to add new services?
And that's the key. Transitioning M2M to IoT, by figuring out how services can reach the end user.
One company that I spoke to, Jasper, which is an aggregation and management platform that sits above mobile operators, believes that IoT and creating new services – or the idea of servitization – are very closely linked. These new services, derived from being able to connect to anything, will create new revenue streams for companies where they previously had no idea there were any.
Macario Namie, Jasper’s VP marketing, said:
Lots of enterprises are capitalising on IoT in order to transform their business. From selling products, to delivering services.
IoT helps companies transform the way that they go about selling products and allows them to engage with customers on an ongoing basis. It allows them to monetise new services and hopefully establish some loyalty with customers, because they have an ongoing relationship with them. GE is selling power-by-the-hour jet engines, so rather than an up front capital cost, you are paying by the amount of power consumed by the engine – because you can now monitor this. So there are all these new business models popping up.
Products becomes dynamic, you can continually add new services and revenue streams.
Ben Salama, Accenture's lead on industrial IoT, agrees and said that it is these 'unconventional revenues' that will create interesting propositions for companies. He explained to me at MWC this week:
It is what we call unconventional revenues, how do you exploit and monetise the information
[caption id="attachment_724252" align="alignright" width="300"] Everyone at MWC wants a slice of the IoT pie[/caption]
that you have that is not obvious for the business you are already in. For example, if you are monitoring the reliability of factory equipment, does that have value for somebody else that has nothing to do with you manufacturing factory equipment? How do you create your products into services and create loyalty for customers?
Loyalty is another point to highlight. Almost everyone I spoke to believes that by creating additional services on top of a product that you would normally have just sold and forgotten about, to a customer you may never know, creates loyalty. For example, instead of just selling a car, you sell a car with a stack of additional services on top that keep you engaged with a customer throughout the year.
Is there a business case for IoT?
When speaking to the companies at MWC, it seems that there are mixed views on how traditional businesses and industries can take advantage of IoT for new revenue streams (not M2M – the business case for efficiency is relatively straightforward). Dinesh Sharm, SAP's VP of Marketing, Networked Economy, jokingly notes that whilst it is focusing on introducing IoT into their customer base's end-to-end processes, by allowing sensors to automate things such as look-ups and purchase order creation, he is also very aware that IoT causes problems for traditional industries across the board. He quipped:
You've got to be very careful when having those conversations not to say, oh you do know you're going to be out of business in two years? It's not like EIM or data services, you are talking about things that you kind of know are going on, but you don't want to scare the crap out of people.
Whilst Accenture's Salama notes that it is best to throw your hat in the ring and start trying things out, before others overtake you. He said:
More generally when speaking about digital, the people that do the best are the ones that experiment, throw some money at it and see what they can do. Don't go in with a lot of pre-conceived ideas and don't spend time trying to work out the business case in gory detail, because by definition you're entering into a new market area and into a whole new world and the ability to create a strong business case might not be there. It's only through experimentation you might discover an interesting business model.
However, ARM's Ferguson warns against just putting sensors on everything and wants businesses to identify the business need. He said:
People will connect stuff up but it doesn't actually always help solve a business problem. I think people have connected up stuff because they can, but we need to be very careful. Sometimes it is just simpler to walk over an flick a switch instead of having it all connected. There could be an element of overdoing it.
However, one thing I didn't hear anyone say, which I kept putting to everyone I spoke to, was that by and large, all 'traditional' companies out there will miss a trick and new innovative IoT industries will emerge around them.
Nothing was stopping Expedia creating AirBnB, but it didn't. Nothing was stopping Addison Lee creating Uber, but it didn't. And that's because they were struggling to see outside of their established business models and didn't realise the how the sharing economy and mobile could be utilised.
I believe the same will happen with IoT – and it's those companies that emerge that will be the interesting players to watch. Ferguson agrees, he said:
It's a pretty disruptive play. I don't think the people that are industrial controllers of traditional things today are necessarily going to be the ones that win next. We see all sorts of people trying and doing innovative things. You see brand new industries trying to embrace technology. The people that are building phones aren't necessarily going to be the winners, the people that are building big industrial control networks aren't either – they know their industries best today, but unless they adapt and respond, there will be other people that jump in.
No-one will dominate
However, whilst I believe that the new-age IoT companies that emerge will be the most interesting ones to watch – as these are the ones that will fundamentally change our lives in some way or another – I don't think that they will be dominated by one particular company (or platform). For example, whilst Apple or Google may try to branch into certain sectors, such as consumer health or the home, there is no way that they will own the end-to-end IoT play.
If they did that, they would essentially be owning what I would call the next version of the internet. And whilst the internet has proven to create pockets of monopolies, generally speaking, it's all to play for.
Sharma agrees and acknowledges that when it comes to SAP, which like the other enterprise software vendors, has traditionally tried to own the whole stack, will no longer be able to do so in an IoT world. SAP hopes that start-ups will develop on its HANA platform to create real-time, in-memory IoT businesses and it will be able to sell application benefits around IoT to its existing customer base, which will create value - but it won't ever be able to own it all. Sharma said:
We do believe that this whole thing is a massive eco-system, there's no one company. The way the traditional stack is, there's sensors, then there's network carriers, then there's the device connectivity platform, device management platform, application enablement platform, industry solutions – we play in the top three. And even in the third layer, the device management platform, we partner.
The complexity of doing the bottom three layers, is incredibly difficult. But all the value? That's prescribed to the thing we do (the top couple of layers) and those don't take as long. But that's the classic software model anyway.
Accenture's Salama believes that certain companies will win out in certain verticals, whilst others will have a
horizontal interest across all industries (such as the cloud companies). He said:
Will a couple of companies dominate? No, absolutely not. That's because the complexity of all those layers and fitting those to different industry use cases, nobody will be able to come in as a single player and make it end-to-end. Apple may be able to do that in the area of consumer health. Could that be the platform that's used for predictive asset mining? No.There will be multiple winners and multiple players. It will remain a complex environment.
But, more importantly, Salama noted:
I think we are going to enter into a world where we can't quite grasp the significance of what we are doing. We can't really begin to comprehend the impact of when everything physical is connected.
When I was tweeting about my experience of trying to learn about IoT at Mobile World Congress this year, in which I said that I felt like all the vendors there were in a state of flux, trying to figure out how they could own the biggest slice of the revenue pie, an industry colleague tweeted me back summing up my thoughts perfectly. Dan Robinson over at V3 said:
@Derek_duPreez I keep saying the IoT is basically the internet, so there may not be a biggest slice - will be a diverse ecosystem like web.
— Dan Robinson (@TheDanRobinson) March 6, 2015
And that's the point. IoT is just the internet. It's Web 3.0. Like social, it allows us to do things differently with the web. I think the industry gets confused about 'owning' it because that's what we have seen in recent years with mobile.
If they want a stake in IoT, they should be investing in things that will make IoT useful for people – analytics, data management, etc.
And as for companies out there today that want to take advantage of IoT? Good luck. Whilst I'm sure many will create efficiencies and perhaps build out some new services to stay ahead, history tells us, and my instinct says, that many are going to be knocked by new innovative business models that spring up around them. But that's always been the case, things change, the internet has just accelerated that rate of change – and IoT will be no different.