For anyone who’s been living in the Internet of Things space for a while—let’s just say five years—it’s quite amazing to look around in wonderment at the amount of news, the number of developments, the influx of people and the overall chatter and hyperbole assigned to IoT. Some who may use to know it as “M2M”, “Telemetry”, “Telematics” or simply “Remote Monitoring” might still roll their eyes, but it’s safe to say there is an actual industry to point to. In fact, look no further than Nest. This coming February would have marked the 3 year anniversary of Google acquiring the company for $3.2 billion, but we don’t even have to wait that long to weigh in on that event, which arguably kicked off a lot of attention to the possibilities of all this technology. Nest has already had somewhat of a decline between the CEO leaving, teams reorganizing and a general assessment the company was trying to grow too fast to manage. They have already been through a cycle, and there are similar cycles playing out in other early-generation “IoT” efforts. In fact, at last count, there are over 360¹ companies identifying themselves as having an “IoT Platform.” It’s probably overly simplistic, but when you have cycles in a market space, and lots of them, you have an industry.
So where is our industry today? Let’s take a snapshot of where we are at today and where we’re headed tomorrow:
Corporate behemoths from every direction are committed. We can thank incredible and deep-pocketed marketing efforts by the likes of Google, Cisco, ARM, Intel and other large tech companies for waking everyone up to the concept of IoT. And GE. The wholesale commitment of GE to this space from Jeff Immelt and on down is a thing to behold. When was the last time, or any time, that people thought of industrial companies as tech companies? GE represents one of the few giants which has leveraged IoT to successfully to move from selling machines to a new revenue model of renting or servicing machines. In fact, in 2014 they sold nearly $50B in service contracts alone¹. Much of this revenue is driven by GE software innovations.
IoT is pivotal for the telecommunications industry as they literally represent the heart of the internet. IoT is a significant focus at a time when the mobile boom has leveled off, mobile data profit margins have dramatically shrunk and competition has become cut throat. The fact IoT represents the next evolution for telecom is underscored by the tipping point reached in Q1 of 2016 where for the first time, there were more new connections to mobile networks from machines than from phones².
Everyone in High Tech is trying to get in. The high tech industry has always had many micro-industries such as Business Intelligence, ERP, CRM, Retail POS, Security, etc. IoT is arguable a new one. Or is it? It’s difficult to pull up the web pages of the companies in the aforementioned categories and find someone who isn’t in the IoT business, whether or not they have a product. We have a large ecosystem of complementary hardware, network and software partners. The number of inquiries we have gotten in to our program, which allows companies to co-sell their products and services with us, in the last six months is double what it was in the six months prior.
The analysts and headhunters are showing up. Traditionally, there were only a small set of analyst firms that knew anything about M2M or IoT. Now most old line firms are hiring at least one dedicated IoT analyst, or in some cases opening up a new practice or line of research. On the recruiting front, the same dynamic is playing out. The tech side of recruiting is looking for a new breed of engineer that groks both software and hardware, while the executive recruiters are looking for folks that can understand how transformative technology can create business transformations. It’s an old adage in Silicon Valley that you know something is hot when the recruiters won’t call you back.
There are standards wars afoot. Well, perhaps there isn’t a war, but at least there is talk of a complete lack of standards. Honestly, it’s way too complicated technologically to think we’re going to get through this one any time soon. With the number of players involved at the networking and hardware levels, including the industrials who have never had to collaborate with anyone at the same level tech companies do, it’s difficult to see this resolving soon.
There is a lot of fearmongering about security. Whether dot-com, Web 2.0, or the smartphone revolution eras, there is always a band of folks from some nearby village with pitchforks and torches saying everything is unsecure. IoT indeed presents new, and potentially more severe, security challenges than have been seen before. But make no mistake that the technology to solve these problems is available, and it creates new opportunities for security vendors.
The academics are involved. Our good friend, Professor Timothy Chou, from Stanford has written a great introductory book about IoT titled “Precision”, available on Amazon. Other world-class academics are putting together IoT programs at Berkeley, MIT and other leading engineering and business schools. Importantly, these programs temper the business with the technological, arming a new type of knowledge worker with a differentiated skillset.
Early Stage Venture Capital and Corporate Investors are on the prowl. The VCs have been looking at the M2M and IoT spaces for years. Given the dynamics of hardware investment, M2M and IoT have been viewed as much too high risk. There is a lot of required for successive funding rounds and the inability to “pivot” as fast as a software company when things are down is much lower. The upswing in VC interest in IoT is ironic since the VC business was founded predominantly on investing in semiconductors back in the 70s. Thanks to bold investments by a few in Fitbit, Nest, Smarthings and others, VCs have re-learned the art of hardware investing. There are now a handful of IoT-focused funds emerging that invest in early-stage software and hardware. Further, strategic investors like Autodesk, ARM, Cisco, Intel have IoT-focused investment programs.
The millennials are becoming enterprise buyers. The millennials have grown up with web browsers, and simply expect that anything is accessible instantly, anywhere in the world. Further, most of us use smartphones, now, which are basically IoT devices with screens. The average smartphone has between 10-14 sensors on it ranging from GPS to accelerometers. Millennials know this and implicitly understand IoT and the smartphone overall has made it easier to communicate IoT to the general public.
Projects are out of the lab and business models are shifting. Here at Autodesk, we are focused on helping OEM industrial manufacturers create smart, connected products. These “smart” programs are helping them rethink service models, including transforming product sales into services, just like Uber has abstracted away the idea of car ownership. Many have cited this as some distant future, but it is happening today in higher numbers than most people realize. Our own recent Autodesk study of IoT of 300 mid-market and small manufacturers shows that almost 60% are working on their first IoT product now or in the next 24 months. Of those, most cited “competitive differentiation” as the driving force. Low-cost IoT technologies creates a level playing field to allow smaller companies to compete with big companies with disruptive ideas, just like e-commerce allowed smaller companies to disrupt brick and mortar businesses.
Where does IoT go now? While consumer technologies for people and homes have dominated the headlines, along with the M&A activities within the industry, the markets are bearing out that industrial and business-to-business is where the growth really is. Commercial fleet management—the lone mature IoT sector—is now a highly contested space with scores of vendors and major market consolidation, including Verizon’s $612 million acquisition of Hughes Telematics. The fleet sector has been interesting to watch as the market transformed from small-scale systems-integration projects in the early 2000s to a projected $28 billion market in 2021, with several public companies and plentiful turnkey systems offerings. What is fascinating is that no one refers to Fleet Management as IoT or M2M, it’s just a sector named for the business function of the technology. Similarly, no one really talks about e-commerce or the Internet anymore.
At Autodesk, our software tools are used to design and simulate most of the physical world from consumer and industrial products, to bridges, factories and buildings. And our software is increasingly used to design and make products whether through CAM (computer aided manufacturing) or 3D printing. Across our customers, we are seeing sensors and microcomputers being designed into everything. The data gathered from these sensors is in turn compressing the “thing” development cycle with real world feedback from products streaming back heretofore unimaginable insights. Put simply, we are seeing a world emerge where before you know it—you are surrounded by sensors and their data. What’s been interesting to observe about IoT is more than ever, we’ve been waiting for some A-ha type of moment, like the Nest acquisition, on the adoption side. The reality is, that number isn’t coming soon. Sensors and their data are going to show up in small, but compelling numbers everywhere around us. The folks who are implanting IoT consider the sensors and their data strategic, and they aren’t going to want to talk about it until long after it’s been deployed. So before we know it, the world will have changed and we won’t remember what it was like before, or when these smart things showed up. They’ll just be there. And it’s unlikely we’ll be talking about IoT, it will just blend in to other parts of the IT economy.
² Chetan Sharma Consulting