THE BLOG

After Mobile: 3 Opportunities for the Internet of Things in 2015

02/18/2015 03:18 pm ET | Updated Apr 19, 2015

Goldman Sachs predicts that the Internet of Things (IoT) will connect 28 billion devices by 2020. This is no small number compared to the 1 billion PCs and 6 billion mobile phones out there today. But there are many barriers to adoption, including the lack of differentiated platforms, stringent regulatory requirements, and unclear business models. Beside, the killer use cases have yet to be identified. Below I'm sharing my perspective on what's in store for 2015 based on what I've learned building an IoT service at Nokia and advising start-ups in that ecosystem.

#1. The platform war has begun: time for differentiation.

The recent learnings of wearables devices showed us that a key differentiator of IoT platforms is the consumer experience. Recent investments from venture capitalists in IoT platforms, such as Electric Imp who raised $15M in a B-round and Ayla who raised $15M from Chinese investors, shows that the IoT platform war is just starting. It's too early for the big players such as Honeywell and GE to place their bets, but what will likely make or break the winner(s) is:

Form: including product design, integration in the existing ecosystem, and quality end-to-end solutions. An important technical limitation to overcome s the availability of more precise geo-spatial standard as recommended by the Open Geospatial Consortium. The early market leader here is Apple's iBeacon standard which has notably already been adopted by Macy's and all major league baseball and football stadiums.

Analytics: including security of data in the cloud. Tools such as Hadoop will be important drivers here considering the massive amounts of data available. Google and Samsung have positioned themselves as possible winners.

Scalability: including cross-compiler tools such as those provided by Xamarin, and smart cloud computing utilities such as those provided by Terminal. Scaling an IoT platform will require broad adoption of IPv6 internet standard because the current standard (IPv4, which carries 98% of internet traffic today) limits the number of IP addresses, ie the number of connected objects to 4 billion (instead of the 28 billion Goldman Sachs predicts for 2020).

#2. Connecting watches, cars, homes, cities and more: the red tape game.

Beyond a winning platform, what the IoT needs in order to gain mainstream adoption is a killer use case. In a recent research piece, Goldman Sachs mapped out the IoT landscape and highlighted a few verticals that could be most impacted by it. Many of them are riddled with heavy regulations, which may impair disruption:

Wearables: While wearing a smart watch or a fitness band might seem cool at first, consumers quickly loose interest in insight that doesn't seem to change meaningfully often enough; beside, monetization past a one-off hardware sale has not taken off.

Connected cars: This is a very promising vertical with the potential to completely alter a century-old industry; money can be made by car manufacturers like GM, producing self-driving cars, by IoT platforms like Apple CarPlay and Android Auto, enabling an ecosystem of developers, as well as by developers.

Connected homes: Nest was a pioneer in this vertical and its recent acquisition of DropCam indicates that the next use case could be security. However, most of the applications require behind-wall installation so they are limited to new and/or luxury constructions on the residential side. The commercial side has some upside especially because insurance companies could start to require features such as remote security management.

Connected cities: Experiments in Santander (Spain), New York and Singapore are currently underway to try and identify possible applications that would be easy to implement in an intricate ecosystem of city planning, public transportation, emergency services, etc.

Industries, including logistics, healthcare, etc. Logistics has some of the biggest use cases for IoT such as real-time inventory monitoring (delivery, freshness, etc.) Health care is heavily regulated and fragmented, which makes it harder to disrupt, however remote monitoring and diagnosis represent huge opportunities for disruption provided there is enough investment in IT.

#3. Winning business model: Saas and partnerships.

Event with differentiated platforms and killer use cases, the IoT wouldn't deliver on its promises without a solid business model:

On the B2C side: learning from the mobile industry shows that devices quickly become commodities and that the value is in services that run on these devices, such as voice and data plans provided by operators, who subsidized devices produced by manufacturers. Key to this business model are value-add subscriptions and long-term partnerships. The question here is what distribution channel(s) will win: retail chains like Home Depot, expanded online stores such as Apple or Google, something else?

On the B2B side: much of the opportunity may be in connecting IoT devices to existing platforms and services such as SAP and Oracle. Middleware services that securely bridge these legacy platforms to modern IoT and big data platforms through the firewall will enable many disruptive applications but will require much IT spending and jumping through multiple regulatory hoops.

2015 is the year that IoT platforms need to create meaningful differentiation in order for killer use cases to emerge, likely in wearables, connected cars, or commercial real estate. As the platform wars unfold, business models will need to be figured out to ensure that IoT actually delivers on its promises.