Since the term Internet of Things, or IoT, was coined in 1999, the industry has had its share of hype, consternation, successes, and now even twitter parody accounts (@InternetOfShit).
Although large-scale advertising campaigns for the IoT have become mainstream (seen any IBM Watson, Ring, or GE Digital ads lately?), recent news that GE had throttled growth expectations for its Predix IoT platform begs the following questions.
What is the current state of Industrial IoT? Where are the areas of opportunity and what will emerge as winners?
As an Entrepreneur in IoT for the last decade helping to find product/market fit for companies like Greenwave Systems and August Home, I believe there are significant opportunities in the Industrial IoT segment, a less visible, but a significantly larger compliment to Consumer IoT.
Leveraging the baseline of consumer IoT and widespread adoption of Smart Grid and Telematics technologies, new “Verticalized IoT” startups – those attacking a specific industry vertical with an offering tailored to their unique requirements - will power the next wave of our industry’s evolution.
Where at we at with Industrial IoT?
Case studies have begun to quantify the early impact of Industrial IoT deployments. The city of Barcelona saves $37 million a year, thanks to smart lighting. Hershey used IoT sensors and Microsoft Azure algorithms for machine learning to improve production efficiencies on a Twizzler candy line. Each 1% change in sizing (i.e. from 2.02 oz. to 2.00 oz.) for Twizzlers in a 14,000-pound holding tank resulted in a savings of $500,000.
OSI Soft, a leading enterprise infrastructure system to connect sensor-based data, systems, and people helped #2 Gold Producer Barrick save over a $1 million/mo in just one plant by optimizing oxygen consumption for production.
Large companies such as GE, IBM, and Verizon, and startups like Relayr, Greenwave, and Sight Machine have begun to partner accelerate overall adoption. Strategic partnerships, large marketing campaigns, and early successes have led to some lofty growth projections:
McKinsey & Co. estimates a potential economic impact of IoT systems of as much as $11.1 trillion per year in 2025. Approximately 70% of the value is derived from B2B applications.
GE believes the IoT will add $10 to $15 trillion to worldwide GDP growth by 2030—the equivalent of China’s entire current economy.
Intel forecasts 200 billion connected devices by 2020, nearly 25 connected devices for every person on earth.
IBM believes that making sense of data embedded in intelligent devices is creating a significant market opportunity that is expected to reach $1.7 trillion by 2020.
Despite these compelling statistics, there are problems with current approaches. For example, IBM believes almost 90 percent of the data captured via the IoT is never acted upon.
McKinsey also found that currently only 1% of sensor data from an oil rig with 30,000+ sensors is examined.
Why is that?
Consumer IoT will continue to move forward as a vertical opportunity (subject to a separate post) but the Enterprise will need better tools, newer methods to extract industry insights, and the ability to benefit from the information that the IoT enables.
Other Factors for Success
Attacking the Seam of “Incumbents” – In cases where target customers do not want larger system integrations and consulting spend, new "seam startups” have appeared. Seam startups focus on specific industries and/or segment opportunities so they can fill gaps within the current offerings.
As these specialized seam startups begin to scale, they can partner more deeply with the large platforms and receive strategic investment dollars, but may ultimately choose to compete directly against the platforms. In a recent LinkedIn post, GE CEO John Flannery reiterated his commitment to the GE Predix platform but discussed how their industry focus was going to center around a narrower band of vertical industries:
“Our strategic focus is on our verticals. We will leverage what we do best in energy, oil and gas, aviation, healthcare, rail, and mining, and draw on our core assets and equipment to deliver the best value and execution. We will broaden and strengthen our partner relationships to create a strong Predix ecosystem.” - John Flannery, CEO, GE
Software focused – As physical hardware becomes price pressured and more ubiquitous connectivity options are available to connect, new companies will be formed with a software focus. Resting on top of these connectivity/collection solutions, new software offerings in processing & analysis utilizing artificial intelligence and machine learning will deliver insights that will impact these industries.
Application software opportunities also exist within the enterprise. Does hardware truly become a commodity? Absolutely not! Hardware, if executed correctly, will create a moat around software and reinforce the differentiation of a verticalized IoT startup.
SaaS / PaaS business model – Given the perceived risk many large companies face as they transition from physical to digital processes, SaaS business models are ideal. Target customers may lack the capital budgets to purchase, maintain, and secure a new IoT offering and SaaS offers the financial benefit (operating expense vs. capital expense) that has made it so prevalent in today’s enterprise. Additionally, look for outcome-based business models where efficacy for the engagement can be measured in expense savings, increased revenue, or higher uptimes.
Repeat Performers – According to the Kauffman Foundation, Entrepreneurs who succeeded in a prior venture have a 30% chance of succeeding in their next venture. First-time entrepreneurs only have an 18% chance of succeeding. Repeat entrepreneurs who’ve experienced applying communications networking technology to industry have the benefit of IoT experience and rolodexes. Narrow opportunity windows for seam startups will require laser focus and rapid execution.
What Comes Next?
The next 6 -18 months will be critical in our industry. Can Industrial IoT leverage successes across smart cities, connected homes, and quantified factories to meet these lofty analyst projections? Will we as an industry fall into the trough of the hype cycle?
The sheer inevitability of IoT technologies is without debate but the realization of the opportunity takes collaboration among a myriad of sometimes-competitive stakeholders; practitioners, entrepreneurs, regulators, and investors. We believe that Verticalized IoT startups will play a major role to awaken the enterprise and deliver on the promise of Industrial IoT.
What are your thoughts? What industries do you think are most likely to embrace verticalized IoT? What are IoT approaches that have delighted your customers or helped you gain velocity? Who are the early leaders? We’d love to continue the conversation, please tweet us at @KPCB @naywilliams.