Emerging Trends: Internet of Things

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What is Internet of Things (IoT)?

We have all heard about IoT through various sources, but it is often confusing what exactly it is. Broadly, IoT extends internet connectivity to devices outside its usual scope (desktops, mobile phones, tablets, etc) to enable communication and smarter devices. These devices can be as small as dust (“smart dust”) or can extend across the entire city (“sensors across the city’s infrastructure”). At households, it could mean smart refrigerators, thermostats, light bulbs, etc.

As a concept, IoT is the idea of having more connected devices in the world than the population of the earth which happened in 2012.

Generally speaking, IoT is classified into various categories:

  1. Factories: Various equipment in the plant can provide data for drive efficiency. These equipment can be programmed with Artificial Intelligence to optimize the production process as conditions change
  2. Cities: Sensors across the city’s infrastructure can help optimize traffic flow, prevent accidents and manage emergency response or disaster relief instantaneously. Healthcare devices that would quickly alert on a potential disease outbreak in a city.
  3. Retail: Auto check-out using payment detection systems or net technologies. Check out Amazon Go.
  4. Connected Car: Make automated payments in drive through without taking out your wallet, manage insurance premiums based on the data usage from cars
  5. Home: Automating chores, enhancing securing, optimizing energy usage are some interesting avenues to cover.
  6. Wearables: Smart watches and smart clothing have already made a huge presence in this space.

What excites me more about this space is the interoperability of these systems to provide a more comprehensive technological environment and simplify living.


Growth in IoT

IoT will experience massive growth with an estimated of 40% CAGR between 2015-2020. Studies at BCG suggest that there will be more than 50B devices globally and the spending in this sector is going to exceed €250B by 2020.

The potential impact of IoT by 2020 is expected to be more than $10 trillion with interoperability playing a major role in its growth. Factors, Cities, and Retail would be the primary drivers for this growth.


Reaction to this growth

Almost every Fortune 500 company has started building their IoT practice. These companies are investing heavily in R&D to build IoT capabilities. Consumers are demanding it and investors are evaluating companies based on their ability to integrate their product. It is a “Do or Die” market in respect in IoT.

There are several start-ups that have emerged in this spaces and VCs are taking a closer look at this sector. Academics are researching on new technologies and trying to understand the what the future would look like. Consultants are building their consulting capabilities. Economics are studying the social impact, while other social scientists are evaluating lifestyle changes.


Technological Challenges

There are, however, technological challenges that companies need to address before capitalizing on this growth:

Technology Standards

This is relatively new space, even though companies have been preparing for it for some time now. A lot of major players in this space have built proprietary products/systems to establish themselves in the market. The problem I foresee is interoperability between these systems as these individual systems may not work well together. There is an opportunity for companies to set standards by partnering with companies across their value chain, regulatory institutions, and universities. For example, Visa has built a Visa Ready program to enable merchants and financial institutions to quickly certify themselves. The Industrial Internet Consortium was established with the primary goal of building interoperability standards across verticals.

Cybersecurity

Hackers have become a huge nuisance for companies and institutions. Large-scale institutions are constantly battling hackers and there are recent accusations of the election being hacked. Security is a major risk that companies need to address in the IoT landscape. With more devices online, there are multiple opportunities for hackers to breach privacy. Inadequate cyber security protocols could be fatal for the company or for an individual (medical devices, cars, etc.)

Connectivity

We all hate when there is no WiFi. I, personally, can live without when-the-wifi-isnt-working-meme-600x601water for longer than living without the Internet.Furthermore, there could be even more devices connected to the WiFi because of the advent of IoT.There would be bandwidth issues and processing problems that need to be tackled. Optimizing data processing and connectivity for IoT devices would prevent system failure issues.

Modularity

I learned about modularity in my course at Harvard Business School. To enable better connectivity across systems, it is crucial to have open-source systems in place that would allow the technology stack to be easily replaced.The interface needs to be clean with reduced inter-dependencies between various systems. Inter-dependencies is different from interoperability. Interoperability is when components work well together and the relationships between them are clearly understood and separated. This also reduces the risk of failure of the devices, systems, and companies.


Business Challenges

From my experiences, I do believe that large-scale companies have an advantage in breaking into the IoT market. They have a strong leverage across their value chain to influence change and have the capital to take the risks that are necessary for any new venture.

Changes in Organizations Processes

It’s exciting to think of where a company would fall within the IoT space. It is easy to develop a strategy (organization, product, market, talent, etc.), but the difficult aspect is the execution. Defining how the product would like is simple, building it is the harder. It’s harder if the company has an already established business model and set processes.

To build a new IoT product, a consumer electronics company may have to revamp their product and supply chain process. They may have to hire new engineers or provide training to existing ones. Marketing plans would need to be revisited and there may be a need for organizational change. For Fortune 500 companies, the best option is to build a separate business unit to accomplish the company’s IoT goal. The new business model needs to flourish outside the company’s core business to prevent conflict and allow more room for growth.

Building a single product or the entire ecosystem?

Samsung Electronics is well-poised to be a major leader in the Consumer Electronics space of IoT. They are a major player and have a strong focus on innovation. But what sets them apart is that they build various products (mobiles, tablets, computers, appliances, etc.) and each of these products will enable them to drive greater value in the market.

“Connected devices” is a major factor for IoT devices and with Samsung building many products, they can experience efficiencies that many other companies may not be able to leverage. Intel is another example, as it has the raw potential to power these IoT devices.

It is easy to see that building an ecosystem of products around a particular category mentioned above gives companies a competitive advantage in product and connectivity.

Policy Challenges

Copyright and IP are major hindrances as this space is its limits innovation and creativity. Open standards would enable multiple vendors to build on common technology protocols.

Data privacy laws are another major hurdle. There is a vast amount of data that can be leveraged to make better decisions and technology advancements, but privacy laws prohibit access to this information.


Final Thoughts

I haven’t mentioned everything that I’d probably like to, but this post hopes to share some insight into IoT and its growth. I’m happy to discuss this topic in greater detail so feel free to contact me. 🙂

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