Despite The Hype, IoT Is Already Big Money

If you’ve had enough about the Internet Of Things (IoT), give me six paragraphs to sketch out why it’s about much more than appliances that talk to the outside world, why investment is ramping up, and how the big money to be made in the next decade will be from outside our homes, not inside.

IoT was a hot term that first revolved around hardware, the things connected to the Internet. But lost in the shuffle was that the term was never about the devices; it was about the data. Kevin Ashton, credited with coining the phrase Internet Of Things, made that clear nearly a decade ago.

“Today computers – and, therefore, the Internet – are almost wholly dependent on human beings for information,” he wrote. “The problem is, people have limited time, attention and accuracy – all of which means they are not very good at capturing data about things in the real world.”

And here’s the punch line.

“If we had computers that knew everything there was to know about things – using data they gathered without any help from us – we would be able to track and count everything, and greatly reduce waste, loss, and cost. We would know when things needed replacing, repairing or recalling, and whether they were fresh or past their best.”

Just like cloud computing, mobile phones, and desktop PCs, the long-term promise of IoT is its ability to put more information at our fingertips so we can make better decisions.

Which means the money to be made isn’t in the hardware. It’s in the software.

Critical Boxes Finally Checked

When IBM ran its Big URL ad in 2000, it was an easy-to-understand idea whose ambition was perfect for the turn of the millennia: a repairman shows up at a suburban home, seemingly unbidden, to perform maintenance on a refrigerator. It turns out the fridge put in the repair call.

Translating that vision to reality, however, required a number of technical and cost-bending advances that we’ve finally checked off. In the last decade, sensors have dropped 65% in per-unit cost, processing power is 60X cheaper, and bandwidth is 40X less costly.

Less talked about, but also vitally important, has been the rollout of Internet Protocol Version 6, or IPv6 in 2012. Every device on the Internet, from the smallest sensor to the biggest server, needs an address. IPv6 not only has far more addresses than its predecessor, it can handle devices that have no screen or interface. Think of a moisture sensor in an alfalfa field, or one on a river bottom that checks for pollutants, or one in a public parking lot that signals when a space is available.

With enough addresses, and with bandwidth cost and performance curves bending the right way, investors became safe to fund companies whose software can run, monitor, and report on all these connected things. And they are: in fact, five of the top 12 IoT investors last year were corporate venture operations, including Cisco, GE, Google, Intel, and Qualcomm. These are big players chasing very specific opportunities.

Some of which may surprise you.

Big URL Not Quite So Large

McKinsey now values the IoT market at $11.1 trillion on an annual basis by 2025. When you split out those numbers, however, they reveal that 70% of the revenue will come from businesses and about 30% from consumers.

In other words, Big URL will still be a reality – just not quite as large as predicted.

Rather, the IoT world of the next decade will be defined by large-scale operations that use vast amounts of sensor data to make critical decisions in real time. Imagine a cloud data center that wants to predict spikes in demand so it can buy more electricity at the best price. Or a city that wants to adjust traffic-light timing well before its streets become clogged. Both need confidence that they’re making the right choices.

To do so we need better ways to manage sensor communications. We need to gather data without the lag times of conventional networks. We need to know if devices are faulty to replace or repair them – perhaps remotely. And we pass their information to big data routines that will increasingly be responsible for real-time decisions with financial consequences.

More important, we need to manage how data moves among sensors, or what is known as machine-to-machine communication. That cloud data center, for example, might want to use sensors and data analytics to trigger a power purchase in the middle of the night, with no human intervention. But that means it needs permission in a timely fashion.

These kinds of high-stakes, high-value situations are tailor-made for specialized software – and we’re already seeing it come to market. Consider the Santa Clara startup, Aeris. It provides a private network for sensor communications and can plug into a public network. It can also monitor sensors remotely, manage the billing for their bandwidth use, and pass their data through to analytics programs.

Aeris is not alone. Startups in this space abound and high-profile companies have already acquired several. Last year, Cisco scooped up Jasper – which provides cloud-based IoT services – while SAP nabbed Plat.One for its enterprise-level tool to develop IoT applications.

It’s All About The Software

For all the romance of and gratification in creating hardware, IoT has always been about software. Hardware simply links a device to the Internet – software creates business value and generates revenue on a sustained basis.

The good news is we can now get hardware into all sorts of places, operate it at a reasonable cost, and get information that would be impossible by relying on human beings. That means we can start creating more and more software to help people make the most of that data.

Whether it comes from a fridge or from anything else.

Lisa Lambert is a Managing Partner at The Westly Group, www.westlygroup.com, responsible for equity investments in software, IoT, and the Internet. Lisa is also Founder/CEO and Chairman of UPWARD, www.upwardwomen.org, a global network of executive women.