The evolving vendor ecosystem that is emerging to enable the Internet of Things continues to be extremely fragmented and includes a wide variety of small emergent players. For the most part, we believe this fragmented group of players will align with larger partners, focus on vertical application solutions or “specialist” value or disappear.
Meanwhile, The IT and telecom sectors have failed to re-evaluate their relationship to advancing technology and to their constituents. One would think that their own recent pronouncements about smart connected devices would mean they finally “get it” ….but alas the business paradigms to which these industries cling today are far too limiting, too saturated, and too expensive to foster and sustain new growth. Meanwhile, as they gasp for air, an unprecedented opportunity stares everyone in the face—the opportunity to provide the modern, automated information and communications tools that 21st century business needs so desperately.
The traditional chipmakers offer a good example of the business model challenges posed by the era of ubiquitous computing. Today, these companies drive tens of billions of dollars in annual sales with IC products costing US$20.00-US$200.00 and intended for a one person/few computers marketplace (here we have to acknowledge the ARM processor community for being directionally correct). But we already live in a world that contains more sensors than people and we’re about to be catapulted into an era of networked embedded intelligence that will mean hundreds, even thousands, of connected computing devices per person. Often these are invisible “devices” in your car, your home, your office building, and nearly every electronic product you buy. The key IC products for this era will be much less expensive than the current cash-cow chips, though they will be produced in staggering volumes.
Companies like Intel are now attempting to prepare themselves for this new reality. To state the obvious, they will need to change the way they do business. And they won’t be alone. All the players in this new landscape—from small, privately held technology innovators to large IT merchants, OEMs and system integrators will need to develop an understanding of the new ubiquitous-computing value chain, and make some crucial decisions about where they want to live on it, and with whom.
Cheap, self-organizing wireless sensors and smart devices have nearly infinite potential installations and applications. Their widespread adoption is inevitable. But that doesn’t mean that every participant will automatically be shaking a money tree (just look at the number of wireless sensing start-ups that are littered along the highway). Even with Cisco’s recently announced acquisition of ArchRock, one wonders when the established technology world will figure out its role and alignment with the emerging “specialists.”
Value and profitability are playing a new game of hide-and-seek. They’re still there, but not where they used to be. If you keep looking in the old places…well, you know what’s going to happen.
We think that profitable vendor activity in smart connected devices will recapitulate the tendency we’ve seen for decades in digital technology generally, and more recently in other kinds of product businesses—less and less physical value (products), more and more metaphysical value (services).
Buckminster Fuller saw this general phenomenon decades ago and called it “ephemeralization”—the tendency of evolving technology to become less and less material. More brains, less brawn. At one point in human history, you have the Egyptian pyramids — perpetuity via lots of mass. Many years later, you have the Eiffel tower. Less brawn (mass), more brains (laws of physics). In electronic technology, the exponential miniaturization of integrated circuits and data storage are obvious examples of “emphemeralization.”
In our modeling of the Internet of Things and People opportunity for clients, we have found that with only a few “mission critical” exceptions, enablement and developer tools tend to be declining profit activities—even though literal growth can be enormous. Sustainable profits, on the other hand, can be achieved in data management and the analytic activities that flow from the data themselves.
In the short term, networking products and gateways will continue to be profitable if suppliers play their cards right. They may also be able to differentiate themselves and make money with toolsets for deployment and development, analogous to the offerings of companies in the open source space.
But after that, physical enablement and network-management tools will become mature and decreasingly profitable. So where’s the long-term money? Well, the galaxies of “dust”-borne data generated by networked devices will be worthless unless they can be translated into actionable business intelligence. The higher margins we see today in connectivity will diminish and, in the future, will not be in products at all, but in data management and related services. The products will continue to exist, of course, but only as “portals” into the valuable services offerings, not as ends in themselves.
Our conclusion? If you’re a vendor of connectivity products with no long-term data services strategy, you’re in the Pervasive Internet of Things booster rocket. You may well have a great short-term lift-off. But when the booster runs out of fuel (product-centric profits), you’ll fall back to Earth.
And that’s going to hurt.
Given the scale of the data and managed services opportunity one cannot help but wonder if a real-time unified application and integration platform can exist for the “Internet of Things and People”… a platform that would integrate devices, people and provide both with communications and collaboration capabilities – a Pervasive Internet of Interactions? If so, what would such a thing look like?
- First of all, a unified platform must be communications agnostic. The number and diversity of devices that are being connected to the Internet are growing, and will continue to grow for the rest of time. Platforms need to be able to integrate virtually any device into their system.
- Second, a unified platform would need to be open and interoperable. We see time and time again that interoperability is the single most important step in creating rapid adoption of technologies .
- Third, it will need to be scalable.
- Fourth, infrastructure will become remote and eventually free. We’ve now entered a world where renting out infrastructure will become the norm and companies will need to innovate around a comprehensive infrastructure.
- Fifth, the world of data services and informatics value creation will need to be driven by an organizing schema driven by peer-to-peer information relationships not by device and protocol interactions.
We realize this is a lot to ask for, but we believe we are beginning to see that the real Pervasive Internet “action” will be in data and information services, not in technology per se. Its really all going to be about who owns the data. Ownership of the data will allow players to forge data-driven partnerships and shape entire ecosystems to meet the emerging needs of new types of customer relationships.