If you have been following the Internet of Things (or IoT for short), one can’t help but notice the significant hype that continues to build around the technology. For those unfamiliar with the concept, IoT is a new paradigm shift in networked systems comprising the enablement of objects in the physical world with embedded sensors, wireless communications and software applications. Cisco has identified IoT as a $19 trillion market and analysts have termed it the next Industrial Revolution with the potential to spawn over 50 billion connected devices within the next decade supporting applications in industries such as manufacturing, security, facility management, oil and gas, agriculture, retail and transportation to name a few. With such bold predictions, let’s take a moment to examine IoT’s underlying value mechanics and the associated financial considerations that govern its enterprise adoption.
At their basic level, IoT networks interface with objects in the physical world through a sensor or group of sensors. These sensors serve as the “voice” of the object, which is communicated, typically wirelessly, to the Internet in digital form. Digital sensor information delivered through this sensing and communication process is a key enabler for IoT as it provides the capability to virtualize the object and create an online digital identity. That is to say, a virtual interface to a physical object (i.e. vehicle, building, machine, tank, etc.) can be created on the Internet whose status can be updated by sensor information from which a host of advanced software applications can be developed. This “app-enablement” has a transformative effect on the interactive dynamic between consumer and connected object thus driving new forms of value creation. Current examples in the consumer market include popular IoT products such as FitBit activity trackers and Nest thermostats whose software analytics are delivering new and improved ways for managing our health and homes.
When one considers the number of potential “app-enabled” objects, the possibilities for growth in the IoT market seem to align with the rhetoric. However, adoption of IoT products and services are still driven by the fundamental principles of value creation. This is especially true as it relates to enterprise business solutions, where defining a clear value proposition for IoT can be a significant challenge. While the high-level benefits of IoT are well understood, deploying and operating these solutions at a price point that strikes the right balance between vendor profitability and customer value remains highly elusive in many market verticals. As such, wide scale monetization of IoT and the development of profitable business models around this technology will only be realized by continuing to increase the value of its information products while reducing cost of ownership. With this in mind, below I describe three important technology trends that will positively impact the IoT value proposition and help accelerate adoption rates in the enterprise space.
TREND 1: REDUCTION IN IOT COMPONENT COSTS
A key trend improving enterprise opportunities for IoT is falling system costs at both the device and network levels. Because of architectural similarities, IoT stands to significantly benefit from ongoing advancements in the smartphone market whose large volumes and increasing competition are dramatically reducing prices throughout the value chain. This includes key component parts such as sensors, embedded processors, memory and cellular modems whose steady price declines will continue to drive cost reductions for developing new IoT endpoint applications and thus ease capital requirements for enterprise deployment. Similarly, price reductions continue to occur in cellular communications that support IoT device connectivity. As demand for IoT devices increases, prices for both 3G and 4G networks will continue to decline, which will drive reductions in recurring operational expenses for enterprise solutions. Additionally, expanded use of cloud services in IoT and the benefits of their elastic pricing models will enable cost-effective computational resources that will further reduce cost of ownership and improve the value proposition for enterprise clients.
TREND 2: END-TO-END IOT PLATFORMS
While component price reductions will play an important role in the growth of user adoption, reducing the complexity of IoT application development and deployment will also be a major driver in the market. Unlike IT, the IoT market is a highly fragmented ecosystem where requirements for enterprise solutions can vary significantly from client to client even in the same market vertical. This includes variability in requirements related to device functionality, communications and applications logic, which require integrating a host of different hardware and software elements. Moreover, added complexities are introduced when integration is required with client systems such as local area networks or core enterprise software, which inevitably will require upgrades that will further complicate the IoT offering. As such, these integration, installation and maintenance complexities establish significant barriers to entry for most enterprise IoT solutions, especially when large numbers of device deployments are required over large geographic regions. As such, the expense associated with development and deployment quickly erodes the solution’s value proposition and return on investment.
To address these issues, new forms of IoT platforms will emerge that will drive out the complexity of application and enterprise solution development and radically decrease cost-of-ownership. These will include what I would describe as configurable, end-to-end IoT platforms that will integrate functionality from the edge of the network into to the cloud. Inherent in the architectural design will be built-in features and functions for sensing, communications and business logic, which can be easily configured for new applications, making implementation very simple and cost effective. Moreover, reducing barriers for the delivery of sensor information to the cloud will enable 3rd party application developers an entirely new framework from which to build advanced solutions based on cloud-to-cloud data exchange.
As an example, we have released the initial version of our Quantus Sensor Fusion Engine product, an end-to-end IoT platform, which has demonstrated significant benefits related to ease-of-installation, network scalability and application configurability. Configurable IoT system approaches such as Quantus will continue to tightly integrate new features throughout the network stack with the aim of reducing time to market and cost of ownership for new enterprise solutions. These features will also include advancements in analytics both at the device and cloud levels, which is the basis for the 3rd trend as described below.
TREND 3: SENSOR ANALYTICS AND FUSION
The business value of IoT at its basic level takes the form of what I would describe as improved situational awareness. This includes a better understanding of the status of remote physical systems in terms of their condition, which drives improved operational decisions, actions and efficiencies. For example, working with our partner FCC Environmental, we have deployed an IoT solution built on Quantus that includes cellular based tank level monitoring devices installed at automotive retail locations. Data from differential pressure sensors mounted on used oil tanks are processed using analytics at the device level to generate volume status and alert messages, which are communicated wirelessly to the cloud for storage, additional processing and reporting to desktop and mobile devices. In this case, Quantus provides operations personnel with actionable information regarding a store’s past, current and forecasted volumes of used oil, which enables informed decisions regarding the routing of service vehicles dispatched over large geographic locations. Specifically, this includes the ability to now service automotive clients based on need as opposed to fixed routing schedules, an operational change enabled by IoT that drives significant improvements in oil collection efficiency.
This form of sensor analytics is the most common in the industry today and has its roots in the machine-to-machine (M2M) market where similar sensor solutions for wirelessly monitoring remote assets have been in service for many years. While these types of solutions deliver clear value in specific market verticals, opportunities are emerging to create completely new levels of actionable information through a process known as sensor fusion, which is the generation of new, richer forms of actionable intelligence through the application of analytical processing techniques to diverse, multi-source data sets.
For example, research efforts at IBM recently demonstrated an IoT solution for the mining industry that accurately predicted machine failures using real-time analytics supplied by a mix of equipment sensors and operational data. These multi-source data sets included information regarding truckload bearing capacity, environmental conditions, repair history and other sensors, which were processed using real-time analytics and modeling techniques. The new operational insights provided by the system stands to drive significant productivity gains, which IBM predicts could be worth billions of dollars annually.
Implementation of these sensor analytics and fusion techniques and their ability to capture higher levels of actionable information represents a new stage in the technical evolution of IoT and will significantly increase the value of information products delivered by these solutions.
In closing, market conditions are aligning to position IoT for unprecedented growth in the next decade, enabling remarkable gains in operational efficiency and cost savings across a range of verticals and industries. Realizing such growth in the enterprise sector will require IoT solutions that deliver information products with strong value while maintaining low cost of ownership. Coupled with industry trends that are driving lower prices, new technologies related to advanced sensor fusion and configurable platform development will position IoT to deliver on its enormous expectations.