Key Takeaways:

• Peak IoT was reached at IFA 2015
• Successful consumer IoT firms will benefit from focusing on specific IoT applications

Berlin’s annual Internationale Funkausstellung (IFA) is curiously named for a number of reasons, and not just because non-German speakers find it something of a mouthful. It is more international than it used to be, although its primary purpose is still to offer an entertaining annual day out to hundreds of thousands of German residents who exhibit little sign of waning enthusiasm for traipsing round the vast maze of exhibit halls and open air grounds of the Messe, now dubbed “Berlin ExpoCenter City”. Somewhere in their midst you may spot the occasional trade visitor or member of the analyst and press community, in all likelihood desperately consulting sparsely distributed floor plans for a vague clue as to the location of their next meeting.

Whether by luck or judgment, the past few years have seen the emergence of pre-show trade events, which now begin a full 48 hours before the event’s official opening. These comprise a full schedule of media and analyst events both at the “ExpoCenter City” as well as off-site around the actual Berlin city, and allow press and trade visitors to get most of their meetings out of the way before the crowds arrive. Strategy Analytics was invited to a number of these events as well as holding its own one-to-one meetings with clients and exhibitors.

The overriding theme at IFA 2015 was undoubtedly the “Internet of Things” (IoT), and I was also privileged to be asked to speak on this topic at a dinner for executives and investors held by the Wangdao Alliance, a Taiwan/Europe consortium seeking to foster the potential for cooperation in IoT between the two regions. This blog summarises the content of my speech and the significance of IFA 2015 in IoT’s evolution.

IoT is 20 years old

My comments began with the observation that IoT has been a long time coming. My team at SA has been tracking the emergence of internet-connected devices (apart from the PC) since the mid-1990s. Strange as it may seem now, even in the pre-broadband era there were attempts to offer early implementations of internet-connected devices and services. In a report in August 1997 we discussed the Listen Up player, a portable audio device designed to capture, store and play back internet-delivered audio files. It was a few more years, of course, and only after many other attempts to kick-start the internet audio market, before Apple put the pieces together in a way which proved attractive to millions of customers.

In fact the “internet of things” has been driven primarily by media applications and services over the past 15 years or so. After audio, the videogames industry also adopted internet connectivity quite readily during the 2000s, to be followed by internet video, a segment which is now transforming the entire TV and video ecosystem. Communications applications like voice generally fared less well in the early years, although IP-based voice is now widely adopted in OTT services like Skype, and text and social media communications have become a completely new and highly successful sector. In all these cases, while the main internet access device, the PC, played an important early role, the emergence of other connected devices like smartphones, tablets and connected TV and audio devices helped to expand and, in some cases, transform the opportunity.

Smart Home Dominates Today’s Consumer IoT Landscape

IoT is one of the hottest topics for many of our clients at the moment, but the concept can mean many different things to different people. What many are currently referring to is what we have been calling “smart home” for the past five years. This concept has evolved out of other long-established concepts around home automation, control and security. Widespread broadband availability and manufacturing economies of scale have allowed for the arrival of low-cost connected home devices focused on these non-media applications, and these were widely in evidence at IFA. (Strategy Analytics has developed this comprehensive smart home research service to analyse and quantify smart home opportunities.)

Samsung in particular made smart home a centrepiece of its IFA 2015 announcements, launching its smart home hub to the European market as well as a range of connected devices like sensors for moisture, proximity and motion. With the hub priced at $99 and sensors in the $29-49 range, retail cost should no longer be a major obstacle to consumer adoption. My message to Samsung and other smart home vendors is that this is the time to start communicating the value of the applications and services associated with these smart home devices. A major promotional effort around smart home will be required; the word of mouth effect, starting with early adopters, will also be critical.

Samsung was not shy in promoting its own suggested benefits of IoT/smart home. It claimed that IoT would “find your favourite Chardonnay” and “cook your dinner to perfection”. We assume these benefits are projected for the medium to long term, since there was little evidence of their availability on the show floor, so we look forward to returning to IFA in 2020 to find our perfectly tailored IoT-delivered dinner/wine combination.

One more immediate application worth noting was Samsung’s SLEEPsense, a gadget which fits under the mattress and monitors sleep patterns and other information. It uses this evidence, as well as its ability to connect to other home devices like TVs, lighting and air conditioning, to help improve people’s sleep. And if it didn’t work as well as you hoped it will switch on the coffee machine in the morning … as well as alerting your friends and family that they might want to avoid greeting you with a cheery “good morning”.

Wearables are one of the other hot IoT trends of the moment and again IFA didn’t disappoint. New devices (smart watches, fitness trackers) were introduced by Samsung, Huawei, Motorola, TomTom and others. The general consensus is that these devices are improving considerably from early implementations although there is still plenty of room for one or more vendors to find the magic formula which will catapult these connected devices to widespread consumer adoption status. For further coverage of wearables SA clients can visit our dedicated wearables research service.

Beyond Consumer

So far we have discussed IoT trends which are well established and have been hot consumer market topics for a while. So hot, in fact, that at IFA it felt very much as though everyone was afraid not to mention IoT in any presentation or discussion for fear that they would be seen as missing out on the next big revenue opportunity. The fact that these opportunities are now described in terms of trillions of dollars, not merely billions or hundred of billions, should serve as a big red warning flag that someone somewhere might just be indulging in a little too much hyperbole.

Beyond the debates at IFA, other less consumer-centric areas are being driven by IoT topics. One which has the greatest potential in my view is health, which of course is consumer-centric but where the drivers of demand and adoption tend to be primarily supply-side. Health is a notoriously complex and fragmented sector and while I am excited by where technology will take prevention and treatment over the coming decades (and hope I live long enough to see them in action) the regulatory and ecosystem complexities should make us cautious before predicting broad market impact.

Another somewhat more futuristic component of the IoT space is smart dust, a concept which entails multiple tiny micro-sensors which monitor and feed back information about the environment, such as light, temperature, humidity, chemicals and motion. It is difficult to imagine how this idea could be implemented accurately as “dust” which is all around us yet invisible, but perhaps easier to imagine sensors within buildings and public spaces forming part of a wider IoT framework.

I am also excited by the way in which connectivity is changing the way we work and how enterprises operate. Watching young people enter the workforce with different expectations can be both frustrating and compelling. The next generation will determine how IoT and connectivity are used to improve how organisations get things done. Vendors and service providers looking to profit from IoT technologies could do worse than listen to so-called Millennials (in reality under 25s would make more sense) about how they imagine tomorrow’s world should take shape. Strategy Analytics clients are supported with deep dive analysis on enterprise IoT through our IoT Strategies advisory service.

Internet of Us

Like millions of other TV viewers of a certain age, I was a fan of Steve Austin, the Six Million Dollar “bionic man”, a much-loved TV show in the 1970s. Mr Austin gained superhuman powers by virtue of artificial improvements to his body and brain. At IFA 2015 I was present at an event given by Kaspersky Labs, the security specialists, where a “bionic man” was created before our very eyes. The hand of a volunteer was injected with an RFID sensor (NFC type 2 in case anyone asks) before the assembled audience. There were no cries of pain, although he was assured he might feel “a little discomfort” over the next couple of weeks. This freshly chipped human apparently joins hundreds of others who have been implanted with connected modules and are described collectively as the “Internet of Us”. These lucky individuals are now able to open locked doors with a wave of the hand. Kaspersky, naturally enough, wishes to point out the security implications of this trend and would encourage connected humans to consider more advanced chips in order to counter such threats. More secure chips will require CPUs and hence power and, unless we wish to lock our arms into charging stations overnight, use of body-generated calories may eventually be a more realistic option.

Whatever the wishes of these cyber-activists to stay ahead of the game, I would be surprised if governments and evil dictators around the world were not already exploring the potential of human implants to impose unlimited control on the populus or possibly simply to improve tax collection.

Analytics Will Unlock IoT’s Potential

Behind all this connectivity lie unimaginable quantities of data. Making sense of data will open up the real value of IoT but that will be much easier said than done. I suspect that some of the most profitable opportunities will lie in analytics which uncover hidden stories and meaning, and I’m not just saying that because our company chose that now-fashionable word nearly 20 years ago to encapsulate its own mission.

IoT’s Challenge: Turning Fragmentation Into Business Opportunities

As I have heard repeatedly over the past couple of weeks at both IFA and IBC, the consumer IoT landscape remains fragmented, complex and nascent. As one observer noted, this is a “land of niches”, and there is a general perception that use cases likely to reach wide adoption are unknown. Technology providers and standards groups are trying to support common, horizontal platforms but they should recognise that verticals have very different requirements and may never need to be unified at all levels. The challenge will be to identify what exactly are the common fundamentals which might lead to a common IoT layer across multiple verticals.

Encapsulating the IoT market is like trying to summarise the world: it’s very big and very awesome, and it really doesn’t help much to wrap it all up into a single phrase. As the hype around IoT reaches its peak, we should prepare for the inevitable boredom and despondency which follows overblown euphoria. The good news is that a period of relative calm will give everyone a chance to focus on making each of the separate and very different elements of IoT successful: identifying relevant and successful applications; meeting end user needs; adopting sound business models; allowing new ecosystems to form; sizing the specific revenue and profit opportunities; and developing competitive advantage. Wise businesses will be doing most of those things already: these are most likely to emerge from today’s IoT turbulence and solve the many challenges which lie ahead.
David Mercer