Wednesday, December 31, 2014

Why Internet of Things Matters

With the Internet of Things at the peak of its hype cycle, we will all be hearing predictions of non-linear growth. Many forecasts, for example, call for deployment of 20 billion or 30 billion IoT units by 2020.

The stakes for telecommunications service providers are huge. If one assumes that most tier one service providers will have to replace about half their current revenue over about a decade’s time, and if one assumes the broad IoT category represents the best candidate for driving as much as half of that new revenue, it matters greatly whether service providers actually can do so.

In other words, practitioners hope that the broad IoT category can drive new revenue growth, within a decade, representing about 25 percent of all current revenues. That is a big deal, especially if the industry proves unable to grow all other new revenue sources at a level representing about 25 percent of current proceeds.

The uncertainty is palpable, at the moment.

A recent survey of executives watching the market admit they lack a clear perspective on the concrete IoT business opportunities. That isn’t as flaky or fuzzy as it might seem.

Few would have been able to predict the many revenue models and businesses created by the Internet, either. Of course, the key qualifier is that revenues earned by service providers within the Internet ecosystem are a fraction of total revenues.

A few years ago, some analysts had predicted that, by 2020, the market for connected devices would be between 50 billion and 100 billion units. The point is that projections already have proven too optimistic.

None of that is at all unusual. But service providers are pinning rather large hopes on their ability to create a big new business in IoT.

Semiconductor executives surveyed in June 2014 by McKinsey said the Internet of Things will be the most important source of growth for them over the next several years—more important, for example, than trends in wireless computing or big data.

Those hopes might be misplaced, though. “For players in the traditional semiconductor market, the Internet of Things may spark some growth, but it certainly will not change two percent industry growth today to the 10 to 15 percent growth we had in the 1980s,” one industry executive says.  

If so, that might imply that hopes for massive new service provider revenues might also be excessively optimistic, at the moment.

Important innovations in the communications business often seem to have far less market impact than expected, early on.

Even really important and fundamental technology innovations (steam engine, electricity, automobile, personal computer, World Wide Web) can take much longer than expected to produce measurable changes.

Quite often, there is a long period of small, incremental changes, then an inflection point, and then the whole market is transformed relatively quickly, but only after a long period of incremental growth.

Mobile phones and broadband are among the two best examples. Until the early 1990s, few people actually used mobile phones, as odd as that seems now.

Not until about 2006 did 10 percent of people actually use 3G. But mobiles relatively suddenly became the primary way people globally make phone calls and arguably also have become the primary way most people use the Internet, in term of instances of use, if not volume of use.

Prior to the mobile phone revolution, policy makers really could not figure out how to provide affordable phone service to billions of people who had “never made a phone call.”

IoT might prove to mimic that pattern. And that is the optimistic scenario. Not all innovations prove to have such impact.

Still, the reason the industry needs to create viable and big business models around IoT is that it now is the single best hope for replacing about a quarter of all current revenues.

We might reasonably expect video entertainment, mobile data and out or market expansion to produce additional revenue representing about a quarter of the size of existing firm activity.

The issue there is that some of those gains are “zero sum.” Gains by one contestant come only at the expense of another contestant, and do not represent net market growth. IoT is among the few big new revenue sources that actually grow the market.

And that is why IoT matters.

No comments:

Sales Friction Creates Barriers to Buying Behavior

Sales friction occurs when a sales process is: too long (the line at the grocery store) too complicated (working with real estate agents) a...