Why We Keep Hearing About “Internet of Things”

on June 3, 2013
Reading Time: 5 minutes

I must admit I’m really excited about all the dialogue surrounding the Internet of Things. I’ve spent the last eight years focusing on the Connected Home, and now I’m finally seeing some of the use cases from my old PowerPoints becoming a reality. Analysts and startups are now using “Internet of Things,” or IoT, to describe the hyper-connected world we’re predicted to inhabit within the next few years. But it’s not only the startups… GE, for example, recently unveiled Project Wink in conjunction with innovation community platform Quirky making thousands of patents available for the creation of connected devices for fleet management, healthcare, and sustainability. Cisco is heavily marketing their “Internet of Everything” vision complete with multipart whitepapers, abundant data sets, and even a resident futurist. Even Intel released a blog post this spring celebrating International Internet of Things Day on April 9th.

So we’re seeing a broad usage of the term “Internet of Things,” but what does it mean? And what are the underlying components setting the stage for IoT to explode. In this post I’ll break it down, review the reasons for its rapid growth, and most importantly propose why it matters to us as technologists.

What is Internet of Things?

Let’s first define “Internet of Things.” The Wikipedia definition is a good start: “The Internet of Things refers to uniquely identifiable objects and their virtual representations in an Internet-like structure.”

So basically imagine a variety of our physical devices—such as lamps, refrigerators, cars, watches, etc.— having a fully digital representation complete with accessibility and an address. We are only beginning to understand the implications of such widely available data, and the impacts to commerce, privacy, and consumer behavior are all highly debatable (will save for a follow-up article), but here’s some industry data on the relative scale of the IoT sector:

  1. By 2020 a cumulative 100 billion processors will have been shipped, each capable of processing information and communicating. (Source: Ericsson)
  2. Only 0.6% of physical objects that may one day be considered part of Internet of Things are currently connected. Between 2013 and 2022, $14.4 trillion of value (net profit) will be “up for grabs” for enterprises globally. (Source: Cisco)
  3. Across the health-care applications analyzed, Internet of Things technology could have an economic impact of $1.1 trillion to $2.5 trillion per year by 2025. (Source: McKinsey)
  4. 15% of surveyed organizations across the globe already have an Internet of Things solution in place, 53% plan to implement one within the next 24 months, and another 14% in the next two to five years. (Source: Forrester)

Examples of Internet of Things

Many of the devices and services we use on a daily basis have been put into the category of IoT. Here are some examples:

  1. “Smart” devices such as refrigerators, electric meters, doorlocks, etc. that use connectivity and intelligence. Nest and Silver Spring Networks are notable in this category gaining a lot of attention and interest from the channel, potential partners, and customers.
  2. Wearable computing for health & fitness such as the FitBit, Jawbone Up, and Basis band as well as Independent Living platforms such as Lively and BeClose.
  3. Industrial-grade devices and applications that aim to improve retail experiences (Euclid, RetailNext), energy efficiency (Enlightened, Greenwave Reality), and healthcare delivery (Telecare, AliveCor).

And these really aren’t exotic use cases that need to happen to make a material impact. For example, home appliances that can identify maintenance required and trigger a proactive service call, a smart meter detecting presence in the home to optimize grid utilization, or even location services like Foursquare sending succinct information to a smart watch.

Matt Turck and the team at FirstMark Capital have done an excellent job of listing some of the major players in the graphic below. There are more companies operating in stealth mode or outside of the traditional VC ecosystem (i.e. inside a research lab at a public company or university), but this offers valuable insight into the various components.

Screen Shot 2013-06-02 at 9.07.12 PM

Reasons for the Internet of Things Momentum

As previously noted in analyst reports, the term “Internet of Things” was coined backed in 1999. But when looking at the overall activity in this sector, things started to inflect around 2011 with the visibility of Quantified Self products such as FitBit and Nike Fuel.

Prior to 2011, my CES experience as an exhibitor in the South Hall between 2007 and 2010 saw incremental improvements to both floor traffic (read: reporters, prospects, and VCs) and interest levels. However, the past two years the South Hall was abuzz with a variety of stakeholders looking to stop by and see what was happening at the ANT+, BodyMedia, Dropcam, FitBit, Nexia, Polar, etc. booths and the respective Z-Wave and Zigbee alliance pavilions. This year saw a lot more coverage, tighter focus on creating end-user value, and exponential growth in interest.

Looking beyond just the hype factor, there are a variety of reasons for the acceleration of Internet of Things. Most notably, but not limited to, the following:

  1. Chip companies via Moore’s Law continue to make smaller, faster, and lower-cost silicon that can embed in new form factors and provide high-efficiency processing.
  2. Networking progress including more down/up stream bandwidth, more reliable Wi-Fi, NFC, Bluetooth LE connections, and hockey stick adoption of smartphones.
  3. IPV6 rollout increases the number of available “internet addresses” by a massive factor. IPV4 could handle roughly 4 billion addresses whereas IPV6 can handle 340 trillion addresses.
  4. Big data tools and methodologies now available to process the magnitude of information coming from connected devices ((caveat: insights and actions from the data still lacking. I suggest an excellent presentation from Greylock’s DJ Patil here:))
  5. Lower barriers to entry with open source hardware options like Arduino and Raspberry Pi, software from Amazon Web Services, and crowdfunding options including Kickstarter.

So Why Do I Keep Hearing About It? Is the Time Now?

In a word, yes. This time is now for staging the opportunity. At 4Home (and most startups that pursued Home Automation in the 2000’s) we realized that we were early to market. There was a sector of hobbyists looking to leave X-10 and a smaller support network of insiders in press, venture, and corporate partners who could push the momentum along. As we were acquired by Motorola and later became a corporate partner in the ecosystem we began to see the market conditions improve. It was no longer Jetson’s inspired serial entrepreneurs; it was a new group of technologists focused on larger and more ambitious projects. Specifically:

  1. Focus on new products that deliver direct end-user value via B2C business. Nest and Dropcam are two examples of companies that have a clear value proposition and execute through a hybrid retail/direct model.
  2. Trade press, analysts, and influencers writing about the sector and people are talking about it more. I’ll make a causal assumption the increased coverage is indicative of increased demand.
  3. Venture Capitalists, who largely stayed out of funding Home Automation, are being active in developing/managing IoT theses. Some notables I’ve met include Tim Chang (Mayfield Fund), Trae Vassallo (Kleiner Perkins), Rob Coneybeer (Shasta Ventures), Mike Dauber (Battery Ventures), and Jason Krikorian (DCM). Others are working closely with Venture Partners or EIRs to atomize the sector and develop investment options.
  4. CRITICAL – talented engineers, designers, product mangers, etc. look at this sector to start or join companies. The flow of high quality engineering talent from Apple, Facebook, Google, Intel, etc. into these companies like SmartThings, Electric Imp, or Jawbone is fundamentally the reason why I’m so excited about this space. Great products need strong benches and it’s great to see a sector I’m very passionate about finally get the attention it deserves.

So while these factors signify a discernible improvement in market conditions the ultimate (and largely unproven) test of IoT will be the wide adoption of these solutions at scale with consumers and in the enterprise. And consequently, do we see a vertical ecosystems develop without wide interoperability or will broad based standards dominate to serve a common open environment? I’m thinking very heavily about this.

Summary

The blatant overuse of terms like “smart ____” and “connected ____” have made some of us (rightly) skeptical about innovations like Internet of Things. But in the case of Internet of Things we will continue to see gradual changes in the near-term (next 12 – 24 months) leading to significant, longer-term shifts in how consumers go about their daily lives and how business is conducted around the world (36+ months). Get ready for one of the most interesting, if not most disruptive periods, in modern tech history as this plays out in your home, at your office, and in the network.