Will Little Guys Win IoT Race?

What we call the Internet of Things is actually a series of unrelated vertical markets, loosely tied together using various communications protocols to the Internet. Each has its own challenges, rate of growth and risk/reward formulas, which will be defined, redefined, and ultimately refined in ways we cannot see at this point.

For the foreseeable future, though, it’s unlikely that we will see the kind of seamless interconnections that marketers envision, where a smart watch relays medical data to a doctor and an insurance company, and a medical team is on your doorstep before you even know there’s a problem. Or an appliance connects with a repair center, and the repair person arrives at your door with the right part even before it breaks.

Those are interesting ideas, but they require markets and technologies to progress at the same speeds. That was hard enough even in computer days, where lawyers and doctors were still using handwritten files and notes more than 20 years after the introduction of the PC. It’s even tougher in increasingly narrow market slices, where ROI is radically different and, in many cases, more difficult to measure.

In many respects, this is like building roads inside towns and cities all over a country, some paved, some dirt, some two-lane local roads, others eight-lane superhighways. Many roads don’t even connect, and it’s a challenge to go from one town to the next. This is a great opportunity, but exactly when it will pay off isn’t clear.

That doesn’t mean individual markets aren’t lucrative, though. Automotive is probably farthest along in understanding the issues—reliability, security, connectivity, power—as well as the future direction, which is autonomous vehicles. It also has one of the most mature supplier ecosystems of any industry.

Other sectors will lag for years, perhaps even decades. Cities may take advantage of smart lighting because there is an almost instant and provable ROI, but they will be less likely to implement massive traffic control systems right away because of the up-front cost. And connected home appliances will likely be rolled out over time as prices drop and existing appliances stop working.

For chipmakers, this isn’t all bad news. There is more value in new market opportunities than mature ones, and better average selling prices where the customers are smaller companies rather than giant systems vendors. There also is less competition for smaller batches of customized chips than 1 billion of the same chip. The economies of scale are reversed. They come from being able to build these chips quickly and to adapt to highly specific market needs rather than being able to play off one supplier against another for the lowest possible price.

The value is based on understanding individual market needs, not how to build the fastest or lowest-power processor on the planet. That’s a piece of the puzzle, and in the data center it may be the most important piece. But the IoT extends well beyond the data center, with lots of customized value that many markets will pay for if they can see a good ROI.

All of the consolidation in the tech industry has been a precursor to this shift, not the end of the road. Perhaps now we can begin to see where it’s all heading.

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