Rise of the internet of things and industry convergence

Industry boundaries are blurring, redefining competitive market dynamics and leading to fundamental changes in how corporations create and capture value. Specifically, advancements in technology are accelerating this process at an ever-faster pace.

Against this background, the internet of things (IoT) represents a transformative shift for the economy and a major driver for industry convergence. According to the most recent reports, the impact of the IoT on several sectors can be expected to be similar to the introduction of the personal computer itself.

The IoT is emerging as the third wave in the development of the internet. According to a research report by Goldman Sachs, the IoT has the potential to connect 30 times as many things to the internet by 2020, ranging from bracelets to vehicles. Breakthroughs in the cost of sensors, processing power and bandwidth to connect devices are enabling ubiquitous connections.

As a result, personal lives, workplace productivity and consumption will all change. Moreover, “there will be a string of new businesses, from those that will expand the internet pipes, to those that will analyse the reams of data, to those that will make new things we have not even thought of yet”.

While the IoT is increasingly on the agenda at most corporations, many innovation leaders disagree on its scope and impact. As effective IoT rollouts depend on interconnected networks of products and services, innovation partnering with a variety of players across industries will be of critical importance. Corporate venturing is playing an instrumental role for incumbents actively exploring technologies and business models in emerging IoT markets.

In fact, corporate investors are playing a prominent role in the financing of the IoT. Remarkably, according to Silicon Valley Bank, the ratio of strategic to venture capital involvement, excluding angels, is significantly higher in the IoT than other sectors. This clearly illustrates the strategic imperative for large, incumbent corporations to create a market for IoT-related products and services.

References

Goldman Sachs, Global Investment Research (2014) The Internet of Things: Making sense of the next mega-trend. New York: Goldman Sachs Group.
SVB Analytics (2013) The Internet of Things: Market overview and proprietary financial intelligence. San Francisco: SVB Analytics.

Broadband speed greater than 4 Mbps enables global IoT deployment: The number of unique IPv4 addresses connecting to the Akamai Intelligent Platform grew to nearly 803 million. The global average connection speed remained at 4.5 Mbps, while the global average peak grew to 26.9 Mbps. Globally, high broadband (>10 Mbps) adoption grew to 24%, while South Korea remains the country with the highest level of high broadband adoption at 79%. 4k-ready (>15 Mbps) connections grew to 12% on a global basis, while South Korea, with a 61% readiness rate, was once again the global leader. Average mobile connection speeds ranged from a high of 16 Mbps in the UK to a low of 1 Mbps in New Caledonia in the fourth quarter of 2014.

IoT becomes the first real evolution of the internet: According to IT company Cisco, the IoT is simply the point in time when more things or objects are connected to the internet than people. Explosive growth of smartphones and tablets brought the number of devices connected to the internet to 12.5 billion in 2010, while the world’s population increased to 6.8 billion. The number of connected devices is likely to reach 50 billion by 2020. The IoT is made up of a loose collection of disparate, purpose-built networks – today’s cars or commercial and residential buildings have various control systems. As the IoT evolves, these networks, and many others, will be connected with added security, analytics, and management capabilities. This will allow the IoT to become even more powerful in what it can help people achieve.

Estimates of connected devices by 2020 range from 18 billion to 50 billion: In 2014, nearly 2 billion connected devices were shipped, excluding mobile phones. This number will grow to 8 billion in 2020 with an estimated market size of $180bn. When computer and internet market grew, no one imagined it would be out paced by the cybersecurity market. As the IoT spreadsmore widely, cyberattacks are likely to become an increasingly physical, rather than simply virtual, threat. A US intelligence report claims an open market for aggregated sensor data could serve the interests of commerce and security no less than it helps criminals and spies identify vulnerable targets. The cybersecurity market for the IoT is estimated to be as large as the IoT market itself.

IoT results in $1 trillion value added to the global economy by 2020: Vertical expertise will become increasingly a critical differentiator. Will large IT vendors and carriers with dominant shares and scale economies in horizontal technologies add new vertical solution elements to their infrastructure offerings? How will smaller vendors focused on vertical niches perform in a world increasingly dominated by behemoths? Everyone will need to pick carefully the horizontal technologies they want to master and the verticals they want to dominate, but trying to manage them will be a balancing act. The largest revenue opportunity will stem from managed services and network services, not from physical hardware modules and devices that will be connected.

User-centric benefits move to the forefront of customer value: The IoT offers compelling business benefits and value that organisations cannot afford to ignore – opportunities to innovate, save costs and improve revenues. The IoT factors that unlock value are customer experience ($3.7 trillion), innovation ($3 trillion), supply chain and logistics ($2.7 trillion), staff productivity ($2.5 trillion) and asset utilisation ($2.5 trillion). Costs can be reduced through improved asset utilisation, process efficiencies and productivity. We then benefit from improved asset utilisation, such as smart meters, and service improvements, such as remote patient monitoring. Improved tracking of assets – machinery, equipment, tools and so on – using sensors and connectivity provide real-time insights and visibility.

Challenges beyond the missing internetin developing nations: 1 Lack of standardsand interoperable technologies: The number of vendors, technologies and protocols used by smart devices inhibits interoperability. 2 Data and information management issues: As more devices enter the market, the magnitude of the data collected will require sophisticated algorithms that can sift, analyse and deliver value from data. 3 Privacy and security concerns: Securing data from unauthorised use and attacks will be a key concern, as well as the many devices used for personal activities, which raise privacy concerns. 4 Organisationalinability to manage IoT complexities: Making sense of the flood of data generated continuously by sensors will require strong data management, storage and analytics capabilities.

Boris Battistini is an associate at Metellus, a venture capital firm based in Zürich, London and San Diego and a senior research fellow at the Swiss Federal Institute of Technology (ETH Zürich). Email: boris.battistini@metellus.ch. Martin Haemmig is an adjunct professor at CeTIM at UniBW Munich and Leiden University. Email: martinhaemmig@cetim.org

Reuse of any graph or table for any purpose only with permission of Martin Haemmig

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