The Internet of Things (IoT) is stepping up to be a next-generation driving force in IT. Coupled with the emergence of the API economy, companies are instrumenting more devices, objects, and physical assets than ever with sensors, and with Internet connections, and linking them into business-critical systems.

At the same time, the consumer space is also inundated with new sensor-driven, and data-driven, technologies. Fitness trackers like FitBit and Nike+ Fuelband, to home thermostat and smoke/CO alarms like Nest, car trackers from Automatic, to home lighting systems like Phillips Hue. Many of these applications leverage the APIs of social networks and also the sensors in smartphones, to build holistic views of your life with interactivity and control as the payoff. This data is also becoming increasingly reliable. Recent iterations of location-tracking features from Foursquare are driven by these masses of data and combine predictive data analysis with sensors to provide even more accurate results, as the recent Wired article discussed.

Why is it Happening?

The technologies that support the new Master Platform(s) that are emerging, and that enables the Boundary-free Enterprise™ are now widely available to any organization. The majority of vendors supporting IT now have offerings that directly enable, or compliment the BfE. If a business wants to become a Boundary-free Enterprise, as long its processes can support the transition, the availability of technology won’t hold them back.

With these capabilities – Cloud, Mobile, Social, Analytics and Sensors – available to all, ways of taking advantage of them are becoming increasingly apparent and necessary. Sensor data, live feeds, if-this / then-that rules-based actions, loosely-coupled exchanges of data between applications, and widely available APIs are extremely well served by the backbone of the new Master Platform, and the ethos of the BfE.

These software systems set the stage to easily consume the IoT. In fact, a range of next-generation business and IT leaders are bringing Cloud-enabled products and services to market that take advantage of these capabilities. BUT– and this is a very important consideration – we still have a lot to learn, and business and IT leaders can’t just jump on the bandwagon unthinkingly and put the pedal to the metal.

For every reward, there is a concomitant risk. Saugatuck believes many executives gloss over these potential problems and underestimate the very real risks in taking business advantage of the Internet of Things.

Market Impact

We have chosen to approach the market impact by inquiring into the various risks and rewards of the Internet of Things. Find below five key questions we feel important to highlight:

1. How will IoT change my life for the better?

The fully-connected “smart home,” whether it is voice-activated or digitally controlled (e.g., smart-phone, tablet), is for many a sign of the convenience that may flow from the IoT. Controlling access, thermostats, lighting and appliances may prove a special benefit to dual-career households when both are on the fast track. Ultimately, however, there is a tradeoff between the convenience and control benefits versus the setup and ongoing maintenance costs of using any of these technologies. And potential security vulnerabilities, as well as the complexity of ongoing maintenance of multiple systems of interaction and control may outweigh those benefits for some. Regardless, the IoT promises to bring a wide variety of granular functionality into the consumer domain where personal and consumer technologies will be linked to enterprise systems and networks, creating oceans of data to be mined.

2. What are the risks for consumer privacy?

There are two specific exposures. One is data. The recent Target hack, exposing credit cards and other personal information of thousands of customers originated with a hack of the HVAC system. Many large retail operations outsource the monitoring of energy consumption and temperatures in stores in an effort to save on costs. To manage the HVAC systems, their maintenance providers need to be able to access the system network remotely to do software maintenance or to troubleshoot software glitches. In the recent case of the Target stores breach, hackers gained access to the HVAC system through credentials stolen from the maintenance provider and planted malware that eventually enabled them to steal the personal information of customers via systems connected to the same network. A second exposure is that the more interconnected systems become, the greater the risk of leaving an door open to hackers intent on capturing data that can provide them access to customer bank accounts. Automobile systems are another potential vulnerability that comes to mind, as they are more and more dependent on software that can be accessed and modified or controlled remotely. Here the risk is to personal safety.

3. When will all this be commonplace?

Scenarios abound, but much of this technology is already in use in high-end homes and other personal environments. The global penetration of mobile devices now exceeds one billion. Smart phones and tablet computers are a growing percentage of those mobile devices. On mobile devices, users have dozens of applications, and an increasing number of these apps now address control systems for door locks, spy cams, home security systems, thermostats, home lighting, refrigerators, cable boxes and more. It is already commonplace for early adopters, but Saugatuck forecasts that by 2017 the use of smartphones to control home systems will be commonplace in North America and will generate petabytes of data that will have predictive value.

4. Will all this complexity become a house of cards?

Aside from the security issues associated with the IoT, the sheer complexity of interconnected and loosely-coupled systems creates a large potential risk of failure. Already Cloud providers are becoming aware of the potential challenges of:

“ . . . more APIs, more wrappers, more stuff that makes the loosely-coupled reality work in as many places as possible – it’s all going to be libraries and components available from Cloud-based providers. All the tools, all the APIs will be in vendor Clouds. Engineering and modeling will be done in Cloud platforms because you can tweak and test something almost immediately, and do it cheaply, with Cloud resources.”

Product Marketing Manager, Cloud ISV

It is almost impossible to anticipate all of the use case and system states with the kind of if-this / then-that logic that developers are using with varying degrees of rigor today. This can and will lead to what we call the “API hairball.” Or as the CEO of a Cloud ISV recently put it,

“You may have combined function from forty or more ISVs, up and downtime, and APIs will change and your aggregated solution will fail.”

5. How will these technologies be regulated?

Regulation will definitely be necessary for some of these highly-sensitive interconnected systems, yet the cost of regulation through government bureaucracy will be seen as prohibitive. Most likely the problem will find a solution through self-regulation, as it has for the producers of food additives. The FDA has a certification known as generally recognized as safe (GRAS), which may be awarded in one of three ways. About one in six GRAS certifications is accorded by consultants hired by the companies producing the food additive, another one in six by employees of those companies. The largest share of GRAS certifications, roughly two in three, are awarded by a panel composed of both outside consultants and company employees, and none by the FDA itself. Food additives are entirely self-regulated, and that may be the model the IT industry chooses to ensure the safety of technologies for the IoT. Whatever it is, Saugatuck expects that some form of regulation will be necessary to establish common standards and generally accepted industry practices, as technologies reach deeper and deeper into the lives and the pockets of people through the Internet of Things.

There is enormous potential for ISVs and pure-plays in building on Cloud business solutions through leveraging the new Master Platform(s), that may also bridge on-premises data to the Cloud. Any of these technologies alone would provide leverage, but the potential combinations of mobile-social, social-analytics, collaboration-mobile, and so on, are nearly limitless in potential for innovation and perhaps more interesting. Integration technologies to make connections, metadata to describe and manage them, software development and test to extend them, building on open source communities – all harness the power of these existing assets.

Nevertheless, there are significant challenges. Especially key challenges for the Internet of Things revolve around interconnectedness and complexity. The more connected we are, the more vulnerable. And the more complex, the harder to identify our weakest links.

This blog was originally published at Saugatuck's Lens360 blog on February 14, 2014. Published with permission.

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