Every January Machina Research, the world’s leading advisors on the Internet of Things, publishes its predictions for IoT in the coming year. This year promises to be an eventful one.
The list below provides our predictions for what will happen in the year. It was derived from a host of suggestions from all of Machina Research’s market leading analyst team. We take the view that there is little point in doing these kinds of predictions if you’re not going to be outspoken and take a few risks. Doubtless many of the following list won’t come about as they are specifically termed, but they illustrate wider trends about which we are much more confident.
1. At least one Fortune 500 company will fundamentally change how it values, underwrites or trades assets based on the data generated by IoT. We’ve all heard about ‘servitization’ by now, i.e. the ability of companies to switch from selling products to providing service. During 2016 we’re expecting the aftershocks of servitisation to begin to impact the world of corporate finance. We will start to feel the first heartbeat of the new IoT economy. As an example, constant asset monitoring means a fundamental change in how we quantify risk, with substantial implications for the insurance industry. This concept of the new IoT economy will be a recurring theme in Machina Research’s work in 2016, leading to a full Strategy Report late in the year.
2. At least one Fortune 500 company will appoint a Chief IoT Officer. We have, over the last few years, tracked the growing understanding amongst enterprises of the importance of IoT. In fact we launched a dedicated Research Stream, Enterprise IoT, to look at it. There is a clear message that to truly drive transformational (rather than just incremental) IoT initiatives within enterprises requires a push from a C-level executive. IoT provides the competitive differentiators of the 21st century. The specifics of that will vary by company. However, in most cases to take advantage requires a fundamental transformation in how the company does business. That can’t happen without pressure from the very top of the company, and in a way that engages key stakeholders in both the costs and revenues sides of a business, effectively requiring a peer to the COO and CMO.
3. Corrective analytics will emerge as a fail-safe approach across a range of sectors. You’ve heard of predictive and prescriptive analytics. Corrective analytics will emerge as a fail-safe approach. Corrective analytics is a security option to apply automated corrective measures (based on actual real-time outcomes rather than predicted or prescriptive actions). As with many emerging IoT trends, corrective analytics has already been seen in aerospace, but as William Gibson said “the future’s already here, it’s just not very evenly distributed”. 2016 will be the year in which this particular bit of the future gets more distributed.
4. A household name in IoT will file for bankruptcy while at least one will be bought for a price that breezes through the 100x revenue multiple. Let us just preface this by saying that we don’t have any specific knowledge of anyone being in trouble. However, we think that in a healthily growing market there will always be one or two players who over-stretch. No-one’s playing it safe in IoT at the moment. One or two of the new breed of IoT-focused start-ups whose strategies proved to be overly gung-ho will go bust (or get picked up very very cheap). At the same time there is still a lot of money chasing not many assets. Up to now the highest multiple we’re aware of for an IoT company purchase is 100x revenue (see our Research Note “Sky-high multiples in company valuations will have negative repercussions for IoT growth” (May 2015) for recent coverage of the topic). In 2016 someone will blow that out of the water.
5. Vodafone will buy a Systems Integrator and an SI will buy a major platform player. The role of the SI is critical and central to delivering IoT (now that everyone’s worked out that the enterprise side of IoT is really about integrating sensor data with enterprise IT systems). Witness the eagerness of everyone to partner with SIs. For any company serious about delivering IoT services directly to enterprise customers having that capacity for SI-style customisation will become critical. Some have it already, others will seek to build professional services capability. Others will dig deep in their pockets to speed the process through acquisition. Vodafone is an obvious potential example here as it has some funds, has no fear of acquisition to bolster its enterprise offering (which is its strategic growth centre), and currently has no SI capability. We’ve seen a bit of M&A activity by Vodafone in the IoT space to date but it’s generally been modest in ambition. We expect a lot more. And our expectation as a target: Tech Mahindra or Wipro would be decent bets. We also expect one of the SIs to bolster their position in IoT by bringing a major software platform in house. While we’re on the subject of M&A, one of our analysts also predicts that GE (or someone else with a huge products portfolio) will acquire PTC. As with prediction #4, we stress that we have no inside knowledge that any of these predicted deals might come off, just that they feel ‘right’ for the industry at the stage it’s at.
6. Enterprises will stop using security as an excuse for not delivering. The IoT security issue will become bigger and uglier, but less threatening. There will be more leaks, more idiocy such as hard coding default passwords, and more data breaches, and more hacking. But there will be a realisation that not all potential security problems need to be solved ‘now’. Real world security in the IoT is going to be about incremental changes, not fundamental challenges. Security as applied to IoT in the short-to-medium term is more an issue of basic competence in risk assessment. Longer term, it is far more complex, but none of us will be deploying solutions into an everything-connects-to-everything environment for 10-20 years. We have published a series of Research Notes on the topic of IoT Security in recent months and will continue to focus significant attention on it during 2016.
7. At least one of the major LPWA technologies today will effectively be rendered redundant but there will still be more technology fragmentation. During 2016 we’ll see quite a shaking out of the LPWA space. As a result of regulatory, standards, commercial and/or technology developments we’ll see one significant LPWA option fall by the wayside. We would expect no more than two mainstream nationwide deployments of non-3GPP LPWA networks per country, which will limit opportunities. But that doesn’t mean that there will be fewer options. If anything there will be more fragmentation rather than less, with more technology options. However, it will become clearer which technology options best match different application types in different territories. At least half a dozen dedicated non-3GPP LPWA network technologies will be deployed in multiple countries. For our take on the current status of the LPWA market, see our Strategy Report “LPWA: disruptive new networks for IoT” (November 2015).
8. We’ll see a discernible shift in IoT from technology- or vendor-specific solutions to agnostic ones. There will be a general realisation this year that really the only viable approach to IoT is connectivity-technology- and connectivity-vendor- agnostic. The former will particularly apply to Mobile Network Operators, many of which will see a conversion to the merits of technology agnosticism, and some notable shifts to be carrier-agnostic even to the extent of some MNOs handing their nominal rivals large contracts to support global deployments.
9. Chinese players will shake up the IoT, increasing market share significantly across semiconductors, software platforms, smart cities deployments, and integrated solutions especially. The major Chinese vendors have been slow to exert their influence in the IoT space worldwide, although they’ve been doing plenty in China. In the case of semi-conductors, the likes of Huawei and Xiaomi have already made waves also in the IoT context, and in 2016 the IoT space will become familiar with a further set of Chinese vendors that start emerging as global players. Their growth will affect the competitive landscape in two ways: by muscling international competitors out of China and by bringing fresh competition into international markets. The combination of the two will be felt particularly in the semiconductor industry, which can prepare itself for another year of mass consolidation. In the platforms space, Huawei has been working with the Chinese operators and will doubtless seek to productise the solutions that they develop and take these to other markets around the world. The same applies to smart city solutions and integrated IoT solutions, where we expect more productised solutions to be brought to the global stage in 2016.
10. Telecommunications is sexy again. Telecoms technology is back on the agenda, after a few static years. Of course we’ve seen the rise of LPWA over the last 2-3 years but there are all sorts of juicy telecommunications topics to whet the appetite in 2016. 5G will be heavily discussed (and if past record is anything to go by we’ll probably see a US carrier launch some variant of LTE under the ‘5G’ banner), we will get much more transparency on 2G and 3G switch off plans, including we expect two more major operator groups making announcement on 2G and/or 3G switch off , and there will be a dawning realisation that Network Function Virtualisation/Software Defined Networks (NFV/SDN) will have a particular application for IoT. We also expect there to be a shake out in the smart home technology space, with Thread addressing the fragmentation. We recently published our initial views on the 5G opportunity in the Research Note “5G networks promise to expand MNOs’ capabilities in delivering IoT, but challenges await” (December 2015) and our views on 2G/3G switch off in the Strategy Report “2G and 3G switch-off: a navigation guide for IoT” (November 2015). Our perspectives on the wider communications service provider landscape is covered in our annual CSP Benchmarking Report, which will be revised again in Q3 2016.
11. Everyone will start using Second Life again. Not really. However we’ll expect a similar thing to come to fore. Digital twins and digital avatars, virtualising the real world will be incredibly popular. As a result we will see Augmented Reality move out of its niches and see much wider adoption. We recently covered the Digital Twin concept in the Research Note “Digital twins bring IoT full circle within manufacturing design” (November 2015). We expect to publish a lot more on the subject in the coming year.
12. More hype about Blockchain, but no actual products. To paraphrase Max from ‘Hart to Hart’: “This is my boss, IoT, set to change the world. It’s quite a trend. This is Blockchain. It’s upsetting the established world of finance. When they met…it was…a bit of a damp squib actually”. We predict that there will be more interest in the idea of using the distributed ledger model embodied in Bitcoin’s Blockchain to manage and enable connected objects. This will inspire a number of proof-of-concept demonstrations but the absence of a clear business need or even the principles which could support a commercial deployment will ensure that there are no meaningful commercial trials of IoT implementations based on the Blockchain. The IoT needs to be a significantly more developed environment overall before Blockchains can find a role.
13. Regulatory issues will burn a lot of fingers. There are a lot of legal and regulatory issues swirling around in IoT at the moment. Recent months have raised issues about accident liability for connected cars, the legal implications for the accuracy of data (most notably in the case of Fitbit), and the safe harbour issue between Europe and the US. One of these issues promises to create a significant problem for at least one major player. And there’s lots more to come in regulatory terms including data transfer rules, copyright issues etc. this year. Companies are on the hook for compliance and those industries which shoulder the burden for legal responsibility (e.g. auto) will see faster adoption than those where everyone ducks the issue (e.g. consumer electronics).