Is the so-called ‘Internet of Things’ the most over-hyped topic in information technology today?
It is certainly up there near the top, claims Beecham Research, an internationally recognized thought leader in IoT market development. Beecham researchers are warning companies planning to get into the Internet of Things (IoT) market “not to believe all the hype and over optimistic predictions.”
“Some industry commentators are forecasting the number of connected devices at anywhere between 10 billion and 50 billion by 2020, and trillions of dollars in new revenue by 2025,” firm researchers noted in a statement. Beecham analysts, who have been tracking the machine-to-machine (M2M) and IoT markets for 15 years, believe these numbers to be “unrealistic” and “potentially damaging” to the industry if they are believed and companies building their business plans and funding expectations on such “false promises.”
“There is no doubt that the M2M and IoT markets are moving quickly and there are great new business opportunities, but with unrealistic predictions around the growth of connected devices, there is also the risk that companies will run out of time and money before they see a return on their investment,” said Robin Duke-Woolley, CEO at Beecham Research.
“We know that today, excluding mobile phones and general purpose devices like tablets, there are significantly less than 1 billion connected devices worldwide. To suggest that growth rates exceeding 50% per annum are credible, when the long term growth in this market has been consistently in the range 20-30% per annum prompts the question – why, and what is likely to accelerate the overall growth rate so spectacularly?” Duke-Woolley posed.
There is no answer to that, in Duke-Woolley’s view.
“Equally problematic, even if those numbers could be achieved in shipments, there is not nearly enough resource available to install and implement them,” Duke-Woolley continued.
Getting ‘real’ about IoT
“This is not so much an issue for enterprise users and their CIOs, as for technology suppliers and their investors,” Duke-Woolley told Information Management. “We expect enterprise users to investigate the potential impact of IoT on their operations and to invest accordingly. This generally takes the form of initial pilots, followed by first operational use, then towards full operational use across the enterprise.”
“How quickly this happens depends on the sector, the size of the enterprise and the expected benefits,” Duke-Woolley noted. “The implementation phase usually involves business process change within the enterprise, and therefore organisational changes have to be implemented.”
It’s not just a question of connecting up a lot of devices, Duke-Woolley said. They have to be implemented to improve operations currently in use.
“In other words, there is a cycle of introduction that can take anything from about 18 months to four or five years, or more, to fully implement within an enterprise. It is completely unrealistic to expect implementations to be fast tracked everywhere, which is what would be required to happen to reach the high growth rates of 50 percent-plus per annum that some are projecting,” Duke-Woolley explained.
“If suppliers and their investors have built 50 percent-plus per annum growth into their business plans and it turns out in practice to be closer to a still very healthy 25 percent, which may cause them difficulties. We are warning that robust business plans should assume lower rates of growth and from a much lower base of devices currently connected than some current projections,” Duke-Woolley.
Lessons for the CIO
Despite these warnings about over-hyping IoT, there are clear benefits to be had by organizations in this space that CIOs should take note of.
“IoT benefits to an organization can be categorized as improving current operations (typically resulting in cost savings), introducing new services (typically resulting in new revenue generation) or conforming to a new regulation,” Duke-Woolley said.
“Which of these is the greater opportunity varies greatly between different organisations, in different sectors, in different geographies. It depends on where in the value chain they currently are, and if they are looking to change that. There are also challenges around data capture and data analysis when it comes to IoT that IT leaders need to be aware of and factor into their IoT strategies.
“Firstly, it is important to understand what data is required to be collected. Data capture is the art of capturing what data is possible, which may or may not be precisely what is needed. Allowances must be made for any differences between these,” Duke-Woolley noted.
“Also, what happens if data is lost in transit or fails to be collected when required? How critical is that? Solutions need to respond to that need,” Duke-Woolley continued.
“Secondly, how costly is it to collect? Does the benefit expected to be delivered warrant the cost and potential disruption? Does it need to be collected and delivered in real – or near real – time,” Duke-Woolley posed.
“The same issues are also important for data analysis. Is the data required the same as that collected? If not, what must be done to the data to get it into a useful state? This may mean mixing it with other data from other sources. What information is being sought, with what sort of frequency? Data analysis must be clearly defined to extract the right information as quickly and as cost effectively as possible.”
Consumer IoT growth
Beecham Research analysts also have clear thoughts on how big the IoT market is likely to grow on the consumer side, and again, it is lower than many forecasts.
“Consumer-related IoT is more likely to be related to a new service opportunity that offers new revenue growth while also building stronger customer relations,” Duke-Woolley explained.
“Proponents of ‘many billions by 2020’, often suggest that the really big numbers will come from connected devices in homes and workplaces such as heating and air-conditioning systems, security alarms, fridges, freezers, washing machines and office equipment, for example,” Duke-Wooley said. “However, Beecham Research believes the benefits and monetisation of these devices are still not clear.”
“While some households may have a dozen or more connected devices there is no evidence yet of connected devices in the home taking off in a big way,” Duke-Woolley said. Beecham Research does point to new low power, low data rate, long range network technologies such as Low Power Wide Area Networks (LPWANs) to provide a growth spurt to the IoT market.
“We expect this to deliver up to 5 million connections by the end of 2015 and increasing quickly thereafter,” said David Parker, a senior analyst at Beecham Research who recently authored a report on this subject. “This is coupled with new cellular technology becoming available within the next two years termed LTE-M or Narrowband IoT and derived from 4G technologies. Many now believe it is this that will provide the real growth momentum for low data rate applications.”
Duke-Woolley is particular critical of predictions of trillions of dollars of new revenue. “We need to get real here. The total GDP of the United States – the biggest national economy in the world – is currently 18 trillion dollars annually*. To suggest that new revenue from IoT will approach even 10% of this over a 5 to 10 year period is unrealistic and unhelpful.”
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