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The Internet of Things: Challenges and Opportunities

By November 17, 2014Article

Is your company involved in the IoT today or are you extending your business strategy to exploit it as part of your overall business? Worried about how nimble IoT startups may disrupt your business? Or are you in a startup trying to figure out how to navigate the ecosystem with partnerships and avoid being stomped on by the elephants in the space? This article will discuss key drivers of change, challenges that may slow adoption and the implications for entrepreneurs/startups, large technology providers and industrial/enterprise IT and networking groups. 

As IoT expands from millions of devices to tens of billions in the next few years, it will have major impacts on infrastructure, industry standards, security, and business models throughout the entire IT ecosystem. Although it’s impossible to predict exactly how IoT will evolve, it will have a profound impact on our computing and networking systems as well as all the participants in the IT ecosystem. These will shape many opportunities for technology companies, enterprises, developers, investors, and startup entrepreneurs in what some people have referred to as the “Global Nervous System” of the future. As more devices proliferate and are connected, their value will grow exponentially with the “network effect.” 

Drivers of change as IoT evolves

  1. Smaller, lower power, less expensive devices allow for more distributed networks. We can now embrace not just computational devices but all types of devices and sensors, closer to “the edge” where we choose to deploy them.
  2. This enables us to gather more granular data, much faster. Machine sensors that years ago gathered data and stored it in a database for daily or weekly review can now report on conditions or even take immediate action in near real time.
  3. All this granular data is like Big Data on steroids. It will further accelerate the need for better analytics. It will also put a premium on asking insightful questions to provide actionable answers for decision making.
  4. IoT devices in both consumer and business sectors are now spawning new use cases, new applications, new architectures, new protocols and ultimately will drive new standards. Companies like Octoblu are emerging to address the need for cross-device integration.
  5. These new use cases will in turn drive different customer journeys and unique value propositions that will spur the creation of innovative, new business models.
  6. These business models will open up new markets and reinvigorate existing industries through creative destruction, providing new opportunities for the entire ecosystem.
  7. Many of these breakthroughs will force some companies to morph from being pure hardware, software or systems companies into service companies that provide “whole solutions.” Companies not adapting to the new realities fast enough will be acquired or wilt away.

Key challenges and opportunities 

Like many evolving IT and networking technologies, the Internet of Things will encounter multiple barriers to adoption. Traditional inertia, budget priorities, risk aversion and other factors will prevent some companies from adopting IoT in the near future. Expect to see early adopters led by innovative CIOs or by business leaders identify and pursue specific opportunities to better serve their customers, open new businesses, reduce costs and provide new value that results in increased revenues. 

In addition to the technical challenges around power, latency, integration and storage, there are a number of other issues critical to IoT adoption. These challenges will also provide new business opportunities for technology companies, middleware and tools developers, system integrators, device builders and cross-platform integration companies. 

Five key challenge areas 

  1. Security. As the IoT connects more devices together, it provides more decentralized entry points for malware. Less expensive devices that are in physically compromised locales are more subject to tampering. More layers of software, integration middleware, APIs, machine-to-machine communication, etc. create more complexity and new security risks. Expect to see many different techniques and vendors addressing these issues with policy-driven approaches to security and provisioning. 
  2. Trust and Privacy. With remote sensors and monitoring a core use case for the IoT, there will be heightened sensitivity to controlling access and ownership of data. (Note that two recent high-profile security breaches at Target and Home Depot were both achieved by going through third-party vendors’ stolen credentials to gain access to payment systems. Partner vetting will become ever more critical.) Compliance will continue to be a major issue in medical and assisted-living applications, which could have life and death ramifications. New compliance frameworks to address the IoT’s unique issues will evolve. Social and political concerns in this area may also hinder IoT adoption.  
  3. Complexity, confusion and integration issues. With multiple platforms, numerous protocols and large numbers of APIs, IoT systems integration and testing will be a challenge to say the least. The confusion around evolving standards is almost sure to slow adoption. The rapid evolution of APIs will likely consume unanticipated development resources that will diminish project teams’ abilities to add core new functionality. Slower adoption and unanticipated development resource requirements will likely slip schedules and slow time to revenues, which will require additional funding for IoT projects and longer “runways” for startups.  
  4. Evolving architectures, protocol wars and competing standards. With so many players involved with the IoT, there are bound to be ongoing turf wars as legacy companies seek to protect their proprietary systems advantages and open systems proponents try to set new standards. There may be multiple standards that evolve based on different requirements determined by device class, power requirements, capabilities and uses. This presents opportunities for platform vendors and open source advocates to contribute and influence future standards.  
  5. Concrete use cases and compelling value propositions. Lack of clear use cases or strong ROI examples will slow down adoption of the IoT. Although technical specifications, theoretical uses and future concepts may suffice for some early adopters, mainstream adoption of IoT will require well-grounded, customer-oriented communications and messaging around “what’s in it for me.” Detailed explanations of a specific device or technical details of a component won’t cut it when buyers are looking for a “whole solution” or complete value-added service. IoT providers will have to explain the key benefits of their services or face the proverbial “so what.”  

Implications, considerations and opportunities 

Although the implications for each participant in the IoT ecosystem will be different based on consumer versus enterprise orientation, specific markets, technologies and business models, there are some high-level implications for each group. 

Entrepreneurs and startups:

  1. Avoid the “technology driven” trap. Develop and test robust use cases to solicit early customer feedback and rapidly determine whether to enhance or abandon early concepts.
  2. Don’t wait for standards to gel. Provide new “minimum viable products” (MVPs) offerings now using existing tools and protocols to gain immediate feedback.
  3. Be nimble. Use flexible, extensible, development approaches that can rapidly accommodate new products, protocols and architectural changes that are sure to emerge in coming months.
  4. Track and engage with standards groups (e.g., AllJoyn, Open Internet Consortium, Thread) and seek targeted partnerships with large technology companies to secure third-party credibility they impart as well as future visibility, distribution opportunities, strategic funding and potential acquisitions.
  5. Secure adequate funding that will last at least 50 percent longer than you think you need. Slower adoption, inertia and market confusion may slow initial sales and market development requiring your company to sustain itself longer than you imagine. This will be especially true if the IoT falls into the Gartner “Trough of Disillusionment” and paralyzes the IoT market as has happened to many other emerging technology waves.
  6. Don’t succumb to the “partial solution” trap. Your customers are seeking a complete solution or service. Although most of your expertise may lie in one area and you may want to restrict your efforts to focus on and build a specific device or capability, remember that your customers want a “whole solution.” If you can’t provide it, then ensure you deliver it by partnering with other IoT players. You may need to integrate with other technologies, partner with other companies and employ a service business model in order to deliver the optimal solution for your customers. 

Established technology providers:

  1. Develop an “embrace and extend” strategy. Leverage IoT to enhance your current and future offerings by adding value for your customers or improving your operations.
  2. Identify core strengths. Focus on key areas where you will provide value versus what you will encourage third-party developers and partners to provide.
  3. Build an ecosystem and partner program to support your platform, product or service offerings. Encourage third-party add-on offerings and services that will give you greater credibility, more offerings and flesh out your “whole solution.”  
  4. Track and engage with innovative startups. They can participate on your platform, provide greater value to your clients and offer potential revenue sharing or acquisition targets. Evaluate them as potential competitors, partners and acquisition targets.
  5. Identify standards bodies that best support your strategy and align with them for active participation. 

Enterprises — IT, networking groups and business unit evangelists:

  1. Align the IoT with company strategies. Identify key areas where the IoT can add value to your business and/or your customers so that it is aligned with overall company priorities and strategies (e.g., reaching new customers, providing new services, speeding operations, reducing costs, etc.).
  2. Don’t build a technical solution in search of a problem. Involve business units and customer evangelists to get real-world input and buy-in to IoT projects. The IoT needs to meet business objectives, better serve customers or improve operations — not just be a technology experiment.
  3. Develop a nimble mindset. In some areas you may have the good fortune to have a “green field” opportunity where you can create brand new IoT use cases from scratch. In others you’ll need to integrate with your current systems, data and infrastructure investments (e.g., ERP, CRM, mobile apps, website, networks, support systems, etc.). Try to avoid “rip and replace.”
  4. Just do it. Actively explore new technologies, participate in standards, set up trials, encourage experimentation and testing in order to develop in-house experience and expertise while quickly weeding out or vetting good ideas. Be prepared for rapid iterations in the IoT journey.
  5. Don’t get “disrupted.” Track IoT startups that provide offerings related to your industry and the partnerships they establish. Attend conferences and track your competitors’ IoT initiatives. Evaluate alternative business models and ways to provide new value, innovate on business model and partnerships — not just technology or product offerings.

Final thoughts 

The Internet of Things is a new wave of technology advancement in the early stages of market development. Like many preceding waves of technology evolution it is characterized by innovation, fragmentation, confusion, competitive jostling and emerging standards. Startups are shaking up the status quo as established technology companies react and adjust. 

The IoT will leverage, embrace, extend and enhance cloud, big data, personal/mobile devices and social networks to provide more granular sensors and devices closer to the “edge.” As it does so, it will provide entirely new applications and use cases that will drive new business models and revenue opportunities. It will also threaten many existing industries, markets and products.   

It will likely collide and impact adjacent disrupting trends and markets. For example, the IoT has the potential to further accelerate the “sharing economy.” By providing new ways to track and manage smaller things, it will enable the sharing of new, smaller and less expensive items beyond houses, planes, cars and bikes. In some ways the IoT is the next logical extension of the “long tail” concept. It pushes devices and sensors to more granular levels and enables the creation of new uses, new applications, new services and new business models that were not previously economically viable. 

As the IoT evolves, much of the value will migrate from devices and components into “whole solutions” and services. Therein lie the opportunities for new value creation, new business models and new revenue streams for market participants. A bigger challenge than developing technology breakthroughs may be in answering the question “What problems can I solve with the IoT and what new value can I provide my customers?” 

Chris Kocher is a founder and managing director of Grey Heron, a high-tech business strategy consulting and advisory firm. In addition to managing pioneering products at HP and a business unit at Symantec, he has advised over 100 high-tech companies. He specializes in increasing revenues and growing company valuations by helping management teams identify new business opportunities and developing strategies to accelerate adoption in evolving markets like IoT, big data, cloud and mobile. Contact him at














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