A perspective on IoT market dynamics and strategies.
Everybody who is interested in technology has clearly noticed an ever-increasing hype around the concept of Internet of Things (IoT), which defines a network of physical objects or “things” embedded with electronics, software, sensors and connectivity aiming at providing greater value by exchanging data with manufacturers, operators and/or other connected devices. About 5 years ago, big technology giants started embracing that concept seriously, finding it extremely appealing, especially to collect and analyze data about product usage, customer behavior and cut support costs while providing better service experiences. Since 2009, several Billion-dollar investments took place, especially in the wearable segment.
In spite of the big money involved and the several consortiums of first-class companies trying to come up with an interoperability standard, e.g. AllSeen Alliance, Google’s Physical Web, Thread Group, Open Interconnect, Industrial Internet Consortium and more, there is not a standard protocol yet to allow a wide spectrum of devices to communicate and interact. Will there ever be such a standard?
For those spectators who are waiting to enjoy a Betamax vs VHS like battle: most probably this will not happen. We are not talking about a single type of product with a limited number of clear use cases, not even a single industry or market, whether B2C or B2B. We are talking about “everything”. Is it possible to define a communication protocol to allow a universal and optimal cross-industry communication among devices and platforms? To complicate this already intricate landscape, there is also a considerable number of startups serving niches with their own communication protocols and SW interfaces. Who is going to be winner? The best candidate seems to be the “application layer”; and there are several reasons supporting this statement.
The IoT most interesting and complex use cases involve cross-industry/cross-ecosystem interactions
How appealing is for you to set your thermostat with your phone, compared to having your thermostat satisfying your needs by interacting with other devices in your home or everywhere else, without implying multiple interactions from you? The latter is the value proposition most of the IoT companies are pitching, however, that kind of interaction is still far from being real. Why? There are several reasons, among which there are n different vertical-specific protocols, and chances are the various smart appliances you will have in your home in the near future will implement different communication protocols, unless you decide to buy everything from a big diversified high tech vendor. At this point, there is a crucial Marketing question to answer: “is the interoperability enough of a compelling product attribute to determine a series of purchase decisions?”. Apple or Samsung cannot make everything we use with top industry quality.
Investors seem to perceive the risk related to startups focused on homegrown IoT communication standards
This statement apparently clashes with investment data. However, how many investments in companies offering IoT potential standard protocols we heard about? If you talk to people in the industry here in the Silicon Valley, it looks difficult to raise money, unless you are playing into a specific niche (e.g., wristbands) with a specific product with good sales traction. A possible explanation is the presence of the above-mentioned consortiums of giants, which would cut any other emerging standards out of the market; this might explain why investors are mostly waiting to see what is going to happen and concentrating investments in technologies higher in the stack, where compelling applications and/or niche devices come into play.
Slow moving IoT consortiums leave space for application-oriented startups to gain a strategic competitive positioning
The above-mentioned consortiums made by legacy companies will take time to show tangible results. Their focus on communication protocols will likely limit the complexity of cross-device use cases within the ecosystems leveraging on such protocols. There is the clear opportunity for an application startup to thrive allowing cross-ecosystem use cases by bridging different worlds which otherwise would not talk to each other. However, creating a software hub is not enough to gain the traction needed to attract investments, skyrocket and become the leading IoT software infrastructure. In fact, entry barriers are very low and IoT software hubs will have a hard time establishing a clear competitive advantage.
The IoT key success factors: being the best in understanding customers and offering killer applications
If we agree that big money is where satisfied customers really benefit from applications, then deeply understanding and/or anticipating their inarticulate needs will be key to success. If I were the strategist of an IoT software company owning a software hub able to bridge ecosystems based on different protocols, my major concern would be vertically integrating downstream to provide n first class value added services to n specific niches/communities, implementing cross-ecosystems use cases, independently on the ecosystems’ protocols. It should not be the communication protocol to define the boundaries of an IoT service, but customer needs. I do not expect big consortiums to give birth to the kind of applications that will allow users to perform the best possible use cases. Instead, I expect farseeing startups (not focused on protocols) figuring out those use cases and building award-winning applications able to involve devices connected via different protocols, leveraging on their existing software hub capabilities, as well as third-party ones.
Synergies between Artificial Intelligence and IoT
Among the most promising technologies, which may successfully complement the IoT, there is surely the Artificial Intelligence, which may be the best candidate to be leveraged in order to maximize the cross-ecosystem use cases automation. Particularly important will be the role of Virtual Assistants, whose experience represents the best way to provide users with a single point of interaction with the ecosystem(s). We are not very far from achieving such a UX on a large scale; as we have seen in many science fictions, people will articulate their needs in natural language and the interconnected machines will respond with actions and vocal feedback. Owning the best IoT Virtual Assistant technology, based on a large pool of right ontologies, might be a great source of competitive advantage in the near future, provided that such a technology will be used to offer compelling useful services to a large happy user base.
Just to recap
With a foreseen fragmented future made of different lower level protocols, the IoT fight for a standard will likely happen at a higher level of the technology stack. Reaching a dominant position at the application level will be possible by gaining market share through actual high value B2C or B2B services, while “marketing hub technologies only” will not be a very profitable strategy due to low entry barriers and high competition. IoT companies should focus on studying markets, figuring out real customer needs and designing IoT use cases to satisfy them in the best possible protocol-independent way. Gaining a happy user base fast is always one of the best options.