Business Insider IoT Report

Here Comes The Internet
Of Things
Ross Rubin | October 23, 2013

Here Comes The Internet Of
Things
Ross Rubin | October 23, 2013



The Internet Of Things, or IoT, represents a major
departure in the history of the Internet. The Internet is
moving beyond the rectangular confines of smartphones and
tablets and helping to power billions of everyday devices, from
parking meters to home thermostats.



The numbers being forecast for the IoT are truly
mind-boggling. Since it will come to encompass a layer of
devices and apps across industries, it will account for an
increasingly huge number of connections, 1.9 billion devices
today, and 9 billion by 2018, according to BII estimates.



But the really valuable applications may be enterprise uses
such as the auto insurance industry’s early use of monitors to
charge motorists only for the amount of time they actually
drive. Market research and tech firms agree that the
IoT, especially enterprise uses, will come to drive
trillions in economic value as it permeates consumer
and business life.



On the consumer side, the IoT has already given rise to an
ecosystem of startups marketing home automation, lighting,
heating, and home security systems connected to the Internet.



The main obstacles to the quick rollout of the IoT are
still-immature and fast-changing technologies and
standards, as well as the massive scale and uncertain
ROI of investment in IoT-type projects.

2

Copyright © 2013, Business Insider, Inc. All rights reserved.

Executive Summary

The past five years have seen the rise of the smartphone as the main
connected device we rely on for everyday tasks. The tablet followed as
a kind of second act, sharing mobile operating systems and a touch
interface with the smartphone.
The next generation of devices will innovate further and take the
Internet beyond the rectangular confines of handsets and tablets.
The Internet of Things, or IoT, refers to a class of devices that —
according to a definition by the McKinsey Global Institute — “can
monitor their environment, report their status, receive instructions,
and even take action based on the information they receive.”
Unlike smartphones and tablets, IoT objects often have a limited user
interface and often exist solely to collect data and feed it to other
devices.

3


The idea is that IoT devices are ubiquitous and offer an additional
layer of functionality, efficiency, and convenience to everyday
experiences. The IoT transforms once-inert objects, tools, and
appliances into a category of sensor-laden intelligent devices that can
communicate with the other gadgets in our lives, particularly our PCs,
smartphones, and tablets.

Once the IoT is grasped, it’s easy to imagine whole categories of
consumer and business applications that would fit within the IoT,
which might also be described as “connected life,” including building
and home automation, heating and air conditioning, traffic
management (e.g., smart traffic lights), senior care, security systems,
Internet-connected cars, and Internet-connected billboards.
What devices will be used to manage the IoT? There will be some
dispersal of user interfaces. For example, our refrigerators and
thermostats might come to include a touch screen. But it’s very likely
that smartphones and minitablets will become de facto remote

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controls for the IoT devices in consumers’ lives and serve as the hub
for managing their settings and the data they produce.
Estimates for total devices connected to the Internet by 2020 range
from 22 billion to 75 billion. That’s up from around 10 billion today.
Much of the growth will be driven by IoT-type devices and
applications.
The estimates for IoT market value are massive, though they should
be taken with a grain of salt. It’s a question how useful these estimates
are, since by definition the IoT will be a diffuse layer of devices,
sensors, and computing power that overlays entire industries.
But, according to estimates from McKinsey and Cisco, specific IoT
categories such as connected marketing and advertising could drive
somewhere in the vicinity of $1 to $2 trillion in total economic value
by 2020.
Click here to download the charts and data for this report in Excel »

Gauging The Present And Future
Size Of The IoT
The IoT trend will drive the number of Internet-connected devices
going forward.
In fact, the IoT will soon come to account for a plurality of Internetconnected devices, and by 2018 it will be roughly equal to the number
of smartphones, smart TVs, tablets, wearable computers, and
PCs combined.
The Internet of Things will account for an increasingly huge number
of connections, 1.9 billion devices by year-end, and 9 billion by 2018,
according to BII estimates.
Value in the IoT will follow a “trickle-up” progression. Ericsson has
depicted this happening in three waves: It has begun by connecting

5


devices that serve consumers, it will expand into connecting devices
for enterprises, and finally come into widespread use throughout
government and society.
Forrester has found that most IT executives have a positive
perception of IoT and plan to deploy in the coming years.
How big will the IoT become? In terms of total economic value, outfits
like the McKinsey Global Institute and Cisco project numbers in the
trillions. That’s because as its name implies, the IoT will be a kind of
layer of devices and technology, rather than a stand-alone industry or
category. To lend some perspective to the numbers, consider that
global GDP is somewhere in the neighborhood of $70 trillion.

Cisco believes the IoT will create over $14 trillion in value over the
next ten years, as it helps global corporations and organizations
become more efficient and provide better services and products to
their customers. This isn’t a revenue number. Rather, it’s a calculation

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of the overall possible economic benefits to be gained from the growth
of the IoT.
Machina defines “Connected Life Market Revenue” as the sum of all
of the revenue accruing from the sale of connected devices and
services as well as the related services that are provided over those
devices, such as pay-as-you-drive car insurance. They see this revenue
ballooning to $2.5 trillion by 2020.
According to Markets and Markets, the Internet of Things or
machine-to-machine market was worth $44 billion in 2011, and is
expected to grow to $290 billion by 2017.
There’s evidence that excitement for the IoT is starting to build. For
one, there has been some serious merger and acquisition activity in
this space. Some relevant IoT-related deals have included Sierra
Wireless’s acquisition of Wavecom, Cinterion’s purchase of Gemalto,
and Telit acquiring Motorola’s M2M business.

Examples Of IoT Devices And
Applications
In the consumer space alone, many product categories have already
crossed over into the IoT, including:


Consumer electronics products spanning alarm clocks, digital
video cameras, home audio systems, and speakers.



Kitchen and home appliances such as refrigerators. washers
and dryers, and coffee makers.



Lighting and heating products, including bulbs, thermostats,
and air conditioners.



Safety and security monitoring devices such as baby and
assisted living monitoring systems, smoke detectors, fire
hydrants, cameras, sensor-equipped drawers and safes, and
home alarm systems. Machina and the GSM Association
believe that there will be $270 billion in savings by 2020

7


thanks to sensors and devices that enable the elderly to live
independently as opposed to care homes.


Musical instruments.



Robots.



Toys ranging from desk-friendly remote-controlled mini-cars
to hovering quadricopters.



Health and fitness products that measure exercise, steps,
sleep, weight, blood pressure, and other statistics.

In the world of business-to-business and government, IoT use cases
begin to proliferate even more.
Again, while many of these applications do not directly relate to
mobile computing, it’s likely that many will have some facet of their
management integrated with mobile devices and applications:



Connected advertising and marketing: Cisco believes
that this category (think Internet-connected billboards) will be

8


one of the top three IoT categories, along with smart factories,
and telecommuting support systems.


Intelligent traffic management systems. Machina
research, in a paper prepared for the GSM Association, sees
$100 billion in revenue by 2020 for applications such as tolltaking and congestion penalties. A related revenue source will
be smart parking-space management, expected to drive $30
billion in revenue



Waste management systems. One innovation has been
equipping garbage cans and recycle bins with RFID tags that
allow sanitation staff to see when garbage has been put out. By
doing this, the city of Cleveland was able to eliminate 10
pickup routes and cut operating costs by 13 percent. In
Cincinnati, residential waste volume fell 17 percent and
recycling volume grew by 49 percent through use of a “pay as
you throw” program that penalizes those who exceed waste
limits.



Smart electricity grids that adjust rates for peak
energy usage. These will represent savings of $200 billion to
$500 billion per year by 2025, according to the McKinsey
Global Institute.



Smart water systems and meters. The cities of Doha, São
Paulo, and Beijing have reduced leaks by 40 to 50% by putting
sensors on pumps and other water infrastructure.



Industrial uses including Internet-managed assembly lines,
connected factories, and warehouses, etc.

Machina Research, in a paper prepared for the GSM Association, sees
10 categories of applications driving 60 percent of “connected life”
revenue by 2020 driven by IoT. These include the connected car,
traffic management, and building automation.

9


Related Markets
For some, the IoT includes several fast-emerging categories of
Internet-connected devices. However, in our own estimates for the
IoT, we consider these markets to be separate.



Cars and other vehicles. Connected cars are expected to
account for 90 percent of passenger cars, up from 10 percent
today.



Connected TVs.



Watches and other wearable computers.



While wearables might be broken out as a separate category as
we do, it is also useful to think of them as a continuous
category with IoT, since activity trackers might integrate with
hardware such as smart scales, and child or senior citizenmonitoring gadgets might be wearables.

10


IoT does overlap with many other technology fields, including
telemetry, telematics, machine-to-machine (M2M) communication,
smart grids, intelligent transportation systems, and wearables. Here
are a few definitions that might help:


M2M is simply communications between machines, although
the term is usually applied to systems of machines connected
together to share data and improve overall operational
efficiency, as might be the case with factory machines or utility
meters. In the context of IoT, one can imagine a system of
sensors in a home that communicate with smart windows and
other appliances to guarantee energy efficiency.



Telemetry is simply the measurement at remote points for
transmission to a central processing station. In the context of
IoT it might apply to measurement of a refrigerator’s different
drawers so that a homeowner might know if their perishables
— ice cream, wine, etc. — are being chilled at the right
temperature.



Telematics is the remote tracking and control of a moving
device coupled with control of that same device. The term
usually refers to cars or other road vehicles that transmit
information wirelessly, allowing for settings or movement
itself to be controlled remotely in real-time. Telematics would
likely be used in any self-driving car, in addition to in-vehicle
sensors.

Just as the smartphone took lessons from the PC in terms of user
interface and functionality, so will the next generation of IoT devices
take lessons from the smartphone in terms of connectivity standards
and applications.

The Relationship Between The IoT
And Other Device Types
Much of our early experience with IoT will come from transforming
products that never communicated digitally into ones that do.

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From a consumer perspective, examples include adding Internet
connectivity and some intelligence to such ordinary items as Fitbit’s
pedometers, Nest’s thermostats and smoke alarms, and Pebble’s
smart watches.
And it’s not just startups. Major appliance vendors have folded
Internet connections and consumer-friendly software interfaces to
traditional home appliances.
There’s LG, with its smartThinQ refrigerator, washer/dryer, and oven.
Then there’s Friedrich, with its Kühl air conditioner.
SmartThings has built its entire business model around easily
deployable sensors, monitors, and apps that allow consumers to run
everything in their home through their smartphone. It raised a $3
million seed round late last year.
Other IoT applications and devices stem from taking things that were
already controlled by proprietary systems, and creating the software
and hardware hooks that allow them to communicate, via the Internet
or Bluetooth, with smartphones and tablets.
One example would be remote unlocking and starting capabilities for
cars, such as Directed Electronics’ Viper SmartStart offering. Indeed,
much of the domain that is considered the “smart home” or
“connected car” are more usefully seen as subsets of IoT.
It’s also helpful to think about IoT devices as a new device category
layer that exists as the connective tissue between the static nonconnected world, and the Internet-driven world of PCs, tablets, and
smartphones.
One open question is just how directly connected to the Internet IoT
devices or tags need to be, in order to be considered part of the
category. For example, some consider the use of RFID tags and even
bar codes to be components of the IoT, since they can be scanned into

12


Internet-driven systems to track merchandise in a showroom, or
products in a warehouse. But they don’t have connectivity embedded
into them, so many analyses would leave them out.

Understanding The Things In The
Internet Of Things
There are three basic building blocks to the “things” in the IoT. Each
“thing,” whether a smart refrigerator or Internet-connected smart
meter, would have three basic features that would define it as part of
the IoT:


Sensors: IoT devices and systems include sensors that track
and measure activity in the world. An example is the system
of Smartthings’ open-and-close sensors that detect whether or
not a drawer, window, or door in your home is open or closed.



Connectivity: Internet connectivity is either contained in the
item itself, or a connected hub, smartphone, or base station,
while the IoT system is usually connected to the Internet and
the cloud.



Processors: Just like any computing device, IoT devices will
contain some computing power “under the hood,” if only to be
able to parse incoming data and transmit it.

These characteristics all apply to today’s smartphones, of course, but
there are several characteristics that differentiate many IoT devices —
particularly remote ones — from today’s smartphones.


Energy-efficiency: Many devices in the IoT may be difficult,
costly, or dangerous to access for charging or battery
replacement. One may even think of the Mars Curiosity Rover
as an example of such a device. Therefore, they may need to be
able to operate for a year or more unattended or be able to
wake up only periodically to relay data.



Cost-effectiveness: Objects that contain sensors may need
to be distributed broadly, as in the case of sensors in food

13


products in supermarkets that would indicate if the item has
spoiled. They need to be relatively inexpensive to purchase and
deploy.


Quality and reliability: IoT devices may need to operate in
harsh environments outdoors and for extended periods of
time.



Security: IoT devices may need to relay sensitive or regulated
information such as health-related data.

The Internet of Things raises the stakes on cost and durability. It’s not
inconceivable that innovation pushed along by the need for resistant
IoT systems makes its way back into the smartphone and tablet
ecosystem.

Weaving The Internet Of Things
Together
It’s one thing for a standalone device to communicate directly with an
app on a smartphone or even a cloud service. But a diffuse network of
devices ups the challenge of collecting data, maintaining it, and
transmitting it.

14


Service providers will play a critical role in the Internet of Things. One
of the great IoT opportunities is in functioning as a service provider,
serving as the conduit between the device and the consumer. In other
words, who will be the ISPs of the IoT? Will it be telecom companies,
or will there be a range of different specialists supporting their more
focused IoT efforts?


One example in the latter category includes Progressive
Auto Insurance, which offers usage-specific insurance rates
based on behavioral data gleaned from its Snapshot module.
The device lives on the car, and allows Progressive to track
how much its customers actually use their cars. Machina
Research and the GSM Association believe that $210 billion is
expected to be spent on connected car insurance policies by
2020, with another $35 billion in savings generated by
increased efficiency and customer service.



Security companies such as ADT and Vivint are also stepping
up their service provision across a range of products.

15




The telecommunications companies are also getting in the
game. AT&T is seeking to provide a more all-encompassing
IoT service, with its Digital Life offering now rolling out
nationally, which collects data from, and can often control,
security cameras, locks, a host of sensors on doors and
windows, thermostats, and lighting.

It’s early days yet, with the opportunity for an IoT-focused service
provider to carve out a space for itself across IoT categories.

Barriers To The IoT — Emerging
Standards
As noted earlier, there are a wide range of current technologies that
can go into bridging the Internet of Things, including bar codes, NFC,
Bluetooth, Wi-Fi and 4G, and a number of more obscure standards
from the home automation and industrial markets.
But others are being developed. The truth is that standards have not
matured to the point that there’s a widely accepted framework
standard in place, and so future development of the IoT will hinge on
the standards question coming together.
A particularly interesting challenge lies in devices that may need to
transmit data infrequently or remotely. Here are some of the newer
standards:


Bluetooth Smart: This standard is already here and has
been supported by Apple for some time. However, it is just
starting to be adopted by Android proper and Windows Phone.
Bluetooth Smart is a very low-power version of Bluetooth,
originally called WiBree, that enables devices to communicate
with each other without advance planning. Many fitness
devices such as the latest Fitbit One use Bluetooth Smart.
o

The technology is particularly noteworthy because it is
the foundation of a new feature being supported by

16


Apple called iBeacon, which are able to send messages
to iOS devices about where they are. Using iBeacons, a
retailer could send an iPhone information about
products in a particular part of the store as customers
pass by, and perhaps even enable the user to purchase
them without having to go through the cloud.
Companies that are already offering iBeacons
include Estimote and Roximity.


802.11ah: This proposed extension to the Wi-Fi standard
would be focused on low-power devices and operate in the
crowded 900 MHz spectrum used by older cordless phones.



802.11p: This standard is being promoted for use within
vehicles allowing them to communicate with road sensors and
other vehicles at high speeds, as shown in this video.



Weightless: Weightless proponents see the need for a new
protocol for long-range power. It aims to be a global standard
designed to operate in the much-discussed but tricky-to-use
“white space” between TV broadcast signals.



AllJoyn: Developed by Qualcomm, AllJoyn is not tied to a
particular kind of network. Rather, it is something of a
universal language to enable devices to query and control each
other.

At its annual developer forum, Intel announced Quark, a low-power
processor intended to be included in wearables and other objects.

Other Barriers To The IoT
In addition to the standards question, there are other potential
inhibitors to the IoT.
These include the scale involved in creating the infrastructure and
“big data” arrays needed for the collection and analysis of IoT devices.
There’s also a mixed bag of government policies and regulations that
may impinge on the development of the IoT, including the increasing
emphasis on data privacy in the European Union.

17


Finally, the ROI of specific IoT initiatives isn’t always easy to discern,
and investment might be stymied until a few IoT categories begin
establishing a clear track record of creating value for companies and
society.

THE BOTTOM LINE


The Internet of Things, or IoT, represents a major departure in
the history of the Internet.



The numbers being forecast for the IoT are truly staggering.



Market research and tech firms agree that the IoT, especially
enterprise uses, will come to drive trillions in economic value
as it permeates consumer and business life.



On the consumer side, the IoT has already given rise to an
ecosystem of startups marketing home automation, lighting,
heating, and home security systems connected to the Internet.



The main obstacles to the quick rollout of the IoT are stillimmature and fast-changing technologies and standards, as
well as the massive scale and uncertain ROI of investment in
IoT-type projects.

18


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