Market analysis: I’d hate to burst your IoT bubble

Tech bubble. Overhyped. Confusion. All of these have been used to describe the () over the past year, and not one of them is a term to use when laying out plans for a board of directors. But amidst all the excitement, doom, and gloom (depending how you see it), it’s important to remember that the IoT is not a monolithic industry, but rather a loosely defined technology architecture that transcends vertical markets to make up an “Internet of everything.”

Waiting on smart home, services swell

Given its high volumes and warp-speed lifecycles, one of the first markets to enter IoT was consumer tech, with and a reimagined “smart home” taking center stage. While technology continues to advance in search of wearables that are more than just tethers, MarketsandMarkets and other industry analysts forecast the smart home market to grow at a compound annual growth rate (CAGR) of 17 percent through 2020[1]. Though in most cases this represents a more than respectable clip, in the context of IoT there is a sense that it is slower than expected.

In large part, disillusionment in the smart home is for want of a de facto standard that can unify and manage devices, which in truth have been shipping since the 1990s. Until then, Bill Morelli, Director, Internet of Things, , and Digital at IHS Technology (www.ihs.com) said in an interview, “smart devices in the home are going to continue to chug along, but we’re not going to see dramatic growth in that market, which of course Wall Street, investors, and the press are all going to see as an abject failure because if you don’t see 50X growth, then why the hell even bother?”

“What’s going to be critical for 2016-2017 when you start looking at application areas like smart home is whether we’ll see some consumer platforms emerge to help enable it?” Morelli continued. “What are we going to see come out of and and and that whole push behind IoT standards? And then at the other end of the spectrum you’ve got that is preparing to do a stronger push on now that they’ve got some of the pieces in place. If we’re really going to see smart home take off it’s got to be more than just a bunch of connectable devices in your house. Nobody wants 17 different applications to manage all of that. You need something cohesive to allow interoperability and management of those devices. That’s going to be the thing to watch, and that could be make or break for smart home.”

Outside the consumer sector, interest continues to swell around the , or IoT (IIoT), with Morelli seeing foundational work being laid by organizations such as the leading to large potential gains over the next 3-5 years. Akshay Sharma, Research Director of Carrier Network and Converged Infrastructure at Gartner (www.gartner.com) agreed with the revenue opportunity for IIoT, as his company’s 2014 Internet of Things, Endpoints and Associated Services, Worldwide” report projects more than $256 billion in annual spending on non-consumer IoT services by 2020.

“Of course the media is all over consumer wearables and sensors in the home for consumers, but I believe the real opportunity is Industrial IoT, as it has a recurring services revenue over and above the component revenues of the device itself,” said Sharma. “Most consumer items will not generate service spending because consumers will be content to leverage the services provided by free apps associated with the products … Industrial IoT services is much higher overall spend but has less churn.”

Gartner’s 2014 Internet of Things, Endpoints and Associated Services, Worldwide report projects a 35 percent CAGR for IoT endpoints between 2013 and 2020, culminating in an installed base of roughly 25 billion units by the end of the sample period. Operational and professional services spending is also projected to increase substantially over the same period for non-consumer IoT markets.

Gartner’s 2014 Internet of Things, Endpoints and Associated Services, Worldwide report projects a 35 percent CAGR for IoT endpoints between 2013 and 2020, culminating in an installed base of roughly 25 billion units by the end of the sample period. Operational and professional services spending is also projected to increase substantially over the same period for non-consumer IoT markets.

Network operator lessons learned and the return of the

As the low-power short-range space continues to narrow towards a and -dominated world, changes are afoot furtherer up the network food chain where operators like are taking lessons learned from the machine-to-machine (M2M) market into new pushes in IoT. According to Morelli, not only are these companies now dedicating business units to IoT and coming up with specific plans for the various vertical markets, they are also moving beyond the one-size-fits-all cellular approach to investigate new technologies for different use cases.

“Cellular is potentially a big bright spot,” Morelli said. “What’s interesting about the cellular dynamic from a technology standpoint is you’re seeing a lot of carriers, being a great example, experimenting with low-power wide-area networks (WANs), the Sigfox and LoRa approach, where they’re looking at that as a supplement to the cellular network and using that in places where it makes sense and then using cellular where that’s a better fit. So, taking a more nuanced approach rather than just saying everything’s going to be a SIM-enabled module on these devices. That’s going to help grow the market overall.”

Moreover, Sharma noted “IoT gateways as a managed service” as a growth area whereby virtual network operators (MVNOs), such as ’s platforms running on the Vodafone network, can be equipped with the services of a (MVNE), such as . Considering the portfolios of and three of the curent “big four” tech companies (Amazon, Apple, Google) that range from backend services to handsets, this is another point of interest for the smart home in particular.

Embedded industry winners in shifting silicon landscape

Looking at emerging application areas, Morelli stated that by looking “at where the pain points are globally you start to get a sense of where folks are going to start focusing their attention in terms of how to apply technology to make them more efficient,” with agriculture and energy being prime examples given ongoing water concerns and the recent bottoming out of the oil market. From a pure technology perspective, Sharma has been intrigued by position of “vendors that can connect the dots between servers and small cells, as well as mobile devices and IoT things” using 4.5G and 5G technology.

But with the embedded industry currently in flux given a rash of mergers and acquisitions, eyes have turned to silicon providers “as folks are trying to make sure they have a robust portfolio, whether it’s on the side or the connectivity side, or connectivity and processing solutions combined,” Morelli said. As these companies round out their offerings, the scale of IoT will exact enormous price pressure integrated circuits, prompting chipmakers to add value through development platform solutions to offset extremely low margins.

“What is doing in this space is really building out both a platform as well as hardware solutions to enable IoT development,” Morelli said. “When you look at that kind of activity, they’re approaching it in the right way. It’s not taking the ‘if you build it, they will come approach,’ it’s ‘what are the tools we need to provide to allow an equipment manufacturer, application developer, etc. to really leverage our hardware to create an IoT solution?’ That’s what folks are looking for, and a lot of companies aren’t used to dealing with wireless or connectivity. They’re not used to having to figure these pieces out, so the more tools you can give them and the more you can help your clients out to that extent, the better off you are.”

I’d hate to burst your IoT bubble

I often refer to the IoT as very democratizing, but with an evening of the playing field comes the need for engineers and business entities to get acquainted with new markets and technologies, either through mergers, acquisitions, partnerships, or grassroots methods. This, all in pursuit of platforms that provide a baseline for developing vertically oriented IoT solutions, and we see these now coming to fruition from the likes of , , Renesas, the aforementioned “big” tech companies, and many others.

It’s true that marketing has driven an amount of mania around IoT, on the positive side getting it on the desks of decision makers, and on the negative generating ever-loftier predictions of XX billion connected devices operating harmoniously by 20XX. On a certain level, just writing this piece could be construed as one or the other. But since I’d hate to burst your IoT bubble, I won’t. At least not until we see what’s possible with the development platforms being released today.

1. MarketsandMarkets. Smart Homes Market worth $58.68 Billion by 2020. Web. 12 Nov. 2015. www.marketsandmarkets.com/PressReleases/global-smart-homes-market.asp.