The internet of things has some big problems: most of the "things" in it are useless and the ones that are valuable: bad security and high costs. This presentation outlines how IBM has been thinking about the future of the Internet of Things and what's needed to create sustainable value without compromising security and privacy. We believe that solution should include a big investment in Block Chain technology, the foundation that underpins bitcoin as well as a big focus on making every connected device part of the Economy of Things.

1. © 2015 IBM Corporation
Institute for Business Value
Facebook, 12 January 2015
Device Democracy:
Saving The Internet of Things

2. © 2015 IBM CorporationPage
Agenda
2
The Internet of Things Really Small Enormous Problem
Fixing The Value Proposition
Evolution & Revolution
Fixing The Technology
From Here To There

3. © 2015 IBM CorporationPage 3
You
can
see
the
computer
age
everywhere
but
in
the
productivity
statistics.
Robert
Solow,
1987

4. © 2015 IBM CorporationPage
Computers spread through enterprises throughout the 1970s and 1980s even as growth stalled
4
0
5,625
11,250
16,875
22,500
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
IBM PC Apple II Macintosh Amiga
Atari 400/800 Atari ST C 64 TRS-80
NeXT PET Other
PC
Platform
Volumes,
1980-­‐1990
jeremyreimer.com
0%
1%
1%
2%
3%
1970s 1980s 1990s
GPD
Per
Capita
Growth,
G7
OECD

5. © 2015 IBM CorporationPage
0
100,000
200,000
300,000
400,000
1975 1979 1983 1987 1991 1995 1999 2003 2007
IBM PC
Apple II
Macintosh
All Others
Though personal computers seemed to be everywhere, the reality is that we had only just started
to really consume computing power
5
PC
Platform
Volumes,
1975-­‐2010
jeremyreimer.com
PC
“Wins”

6. © 2015 IBM CorporationPage
In the PC industry, the market development era had to be completed before we could see the
value of scale and productivity
6
Perfect
The
Product
Build
The
Ecosystem
Establish
Control
Points
Market
Development
Era
IBM
PC
5150
Cut
Costs
&
Grow
Scale
Focus
on
Value
Creation
Refine
User
Experience
Scale
&
Productivity
Era
Dell
scaled
up
PC
business
with
Build
To
Order

7. © 2015 IBM CorporationPage
The mobile industry today is where the PC industry was in 1990: just out of the first battles for
market-share and into the period of scaling up
7
0
150
300
450
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Symbian WinMobile
PalmOS Blackberry
Android iPhone
Linux Others
Smartphone
Platform
Market
Share
&
Shipments,
2000-­‐2012
jeremyreimer.com

8. © 2015 IBM CorporationPage
Though the volumes may seem large, only about 20% of the world population have mobile phones
or are connected through social networks. We’re just getting started.
8
Perfect
The
Product
Build
The
Ecosystem
Establish
Control
Points
Market
Development
Era
The
T-­‐Mobile
G1:
First
Android
Phone
Cut
Costs
&
Grow
Scale
Focus
on
Value
Creation
Refine
User
Experience
Scale
&
Productivity
Era
The
Smartisan
T1
Android
Phone

9. © 2015 IBM CorporationPage
When it comes to the internet of things, we’re still in the market development era - defining
platforms and value propositions before we achieve real scale
9
Smart
Cities
Smart
Infrastructure
Connected
Home
Medical
Wearables
Smart
Watches

10. © 2015 IBM CorporationPage
The Internet Of Things Is going to be about much more than volume, however. Tomorrow’s
embedded devices are going to be radically smarter as well.
10
Full ARM SoC as powerful
as many cell phones with
2GB of RAM.
Boots when connected.
Runs Mac OS Core (XNU)
Receives MPEG stream and
converts it to HDMI output.
The
Apple
Lightning
to
HDMI
Connector
Source:
ExtremeTech.com
report
on
Apple
lightning
HDMI
connector
cable,
retrieved
March
2013

11. © 2015 IBM CorporationPage
Billions and billions of devices. Every one of them as smart as the original iPhone. All of them as
smart as an enterprise class server in the early 1990s.
11
Billions
of
Devices
Millions
of
Locations
Terabytes
of
storage
&
bandwidth
The
cloud
is
moving
out
of
your
data
center
and
into
your
doorknob.
Image
Flickr
Creative
Commons
License

12. © 2015 IBM CorporationPage
Agenda
12
The Internet of Things Really Small Enormous Problem
Fixing The Value Proposition
The Evolution & Revolution
Fixing The Technology
From Here To There

13. © 2015 IBM CorporationPage 13
If
it
ain’t
broke,
don’t
fix
it.
Bert
Lance,
1977

14. © 2015 IBM CorporationPage
The Internet of Things has a big problem: with a few notable exceptions, it lacks a compelling
value proposition
14
No
Apps
No
Subscription
No
Problem

15. © 2015 IBM CorporationPage
In fact, beyond extremely high value, integrated systems, adoption of connected, intelligent
devices is stalled right now
15
Connectable vs.
Connected
Data vs.
Insight
Products vs.
Solutions
30%
40%
30%
Other
Connectable
Connected
100%
Predictive
Reactive
5%
15%
80%
Products
Services
SoluVons
Deployment of heavy industrial systems that are networked:
Source: IBM Research, Client data, 2012

16. © 2015 IBM CorporationPage
The unique properties for markets in information mean that expectations for analytics revenue are
often far too optimistic
16
If there is more than one source:
And the cost to make copies is:
BUT
$0
SO
Supply is:
And the market price heads to:
$0
Lots of Data Is Useful & Valuable
YES
Where can I find a parking spot?

17. © 2015 IBM CorporationPage
The Internet of Things has a couple of other problems as well
17
TWO “OTHER” PROBLEMS
COST SECURITY

18. © 2015 IBM CorporationPage 18
TWO “OTHER” PROBLEMS
COST SECURITY

19. © 2015 IBM CorporationPage 19
TWO “OTHER” PROBLEMS
COST SECURITY
MORE DEVICES
multiplied by
GREATER LONGEVITY

20. © 2015 IBM CorporationPage 20
TWO “OTHER” PROBLEMS
COST SECURITY
0
30
60
90
120
Subway House Jet Car Laptop Phone

21. © 2015 IBM CorporationPage 21
TWO “OTHER” PROBLEMS
COST SECURITY

22. © 2015 IBM CorporationPage
Agenda
22
The Internet of Things Really Small Enormous Problem
Fixing The Value Proposition
The Evolution & Revolution
Fixing The Technology
From Here To There

23. WHAT IF WE STARTED WITH A CLEAN SHEET OF PAPER?

24. © 2015 IBM CorporationPage 24
BETTER
PRODUCTS
.01FUNCTIONMAKE COOL STUFF

25. © 2015 IBM CorporationPage 25
BETTER
PRODUCTS
.01FUNCTIONMAKE COOL STUFF
CREATE
DIGITAL
MARKETS
CREATE
NEW
VALUE
.02
BUSINESS
MODEL
PLAY WELL
WITH OTHERS

26. © 2015 IBM CorporationPage 26
BETTER
PRODUCTS
CREATE
NEW
VALUE
.01FUNCTION
.02
BUSINESS
MODEL
MAKE COOL STUFF
PLAY WELL
WITH OTHERS
CREATE
DIGITAL
MARKETS
.03TECHNOLOGYSTAND UP TO
BULLIES
DECENTRALIZEDRESILIANT EFFICIENT

27. © 2015 IBM CorporationPage 27
WHAT IS NEEDED TO GROW FROM 10
BILLION TO 100 BILLION?
HOW DO WE ADDRESS SCALE &
SECURITY ISSUES?

28. © 2015 IBM CorporationPage 28
BLOCK CHAIN
+
BITTORRENT
TELEHASH
+

29. © 2015 IBM CorporationPage
The Block Chain foundation comes from BitCoin, a wholly decentralized banking system
29
Traditional banks are built on
private, centralized systems:
There is one central ledger for
accounts, identities, and transactions.
Account owners
Bank balances
Transaction records
New
Transactions
In Bitcoin, the central functions are distributed to all the
participants in the system:
Thanks to cheap computing power and clever process design, BitCoin
enables truly distributed transaction processing.
Every user has access to their own copy of the entire transaction ledger in
a long file called the BLOCK CHAIN:

30. © 2015 IBM CorporationPage
The Block Chain enables something crucial: computing after trust
30
Transactions are confirmed by
CONSENSUS
Multiple ecosystem participants
check on each transaction to
provide REDUNDANT
VERIFICATION
No single point of failure
No need to trust all the
participants

31. © 2015 IBM CorporationPage
Extract the financial component from BitCoin and you have a generic transaction processing
system that is programmable
31
Take Bitcoin and remove the
financial component
You a have powerful distributed
transaction processing system
Account owners
Bank balances
Transaction records
Any transaction-
intensive processing
activity
Transaction processing engines are the foundation of
many key technology systems:
Travel Reservations
Billing Systems
Health Records
Social Media
Device Data
Documents
Both old… And new…

32. © 2015 IBM CorporationPage
Efficient
32
Server-less architecture means far lower
centralized costs for management &
administration:
Our current estimate on the cost manage
millions of devices for enterprises.
-99%

33. © 2015 IBM CorporationPage
Secure
33
Transparent, open-source nature of
BitCoin platform creates security
through transparency.
This reverses the traditional online
approach to security and enables trust
through verification.

34. © 2015 IBM CorporationPage
Enduring
34
0
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
BitCoin NYSE Twitter Facebook
Transactions Per Day
Various Online Services
Standard Scale
As of April 2014
1
100
10,000
1,000,000
100,000,000
10,000,000,000
BitCoin NYSE Twitter Facebook
Transactions Per Day
Various Online Services
Log Scale
As of April 2014
0
22,500
45,000
67,500
90,000
2009
2010
2011
2012
2013
2014
BitCoin Transactions Per Day
Overall Growth Trend
Standard Scale
As of April 2014

35. © 2015 IBM CorporationPage 35
BitCoin technology, on
everything, everywhere

36. © 2015 IBM CorporationPage
We can put the Block Chain on smaller and smaller devices
36

37. © 2015 IBM CorporationPage
At CES, IBM and Samsung showed off our joint Block-Chain based proof of concept
37
2 Block-Chain Demos:
Advertising
marketplace for Large
Format Displays
Washing machine that
orders spares &
service and manages
power consumption.

38. © 2015 IBM CorporationPage
Agenda
38
The Internet of Things Really Small Enormous Problem
Fixing The Value Proposition
The Evolution & Revolution
Fixing The Technology
From Here To There

39. © 2015 IBM CorporationPage 39
The
future
is
already
here.
It’s
just
not
very
evenly
distributed.
William
Gibson

40. © 2015 IBM CorporationPage
When it comes to the business model for the internet of things, we believe there are two key
opportunities
40
BETTER
PRODUCTS
FUNCTIONMAKE COOL STUFF
.03TECHNOLOGYSTAND UP TO
BULLIES
DECENTRALIZEDRESILIENT EFFICIENT
CREATE
DIGITAL
MARKETS
CREATE
NEW
VALUE
.02
BUSINESS
MODEL
PLAY WELL
WITH OTHERS

41. © 2015 IBM CorporationPage
The internet turned digital products into liquid digital assets
41
DISCOVER
USE
PAY
Online
Payment
icon
(cc)
by
Slawek
Jurczyk
from
the
Noun
Project

42. © 2015 IBM CorporationPage
We believe that Internet of Things will do the same for the physical world
42
DISCOVER
USE
PAY

43. © 2015 IBM CorporationPage
Lots of vendors are already out there enabling these tecnologies
43
DISCOVER
USE
PAY

44. © 2015 IBM CorporationPage
Companies like Uber are already transforming the Taxi business
44
Drivers
and
customers
can
both
see
the
marketplace:
Analytics
tells
drivers
where
to
find
customers:
UBER
(and
similar
services)
are
using
data
to
bring
LIQUIDITY
to
markets:

45. © 2015 IBM CorporationPage
Uber and related services do much more than just labor & regulatory arbitrage
45
Sources:
Uber,
New
York
Taxi
&
Limousine
Commission,
Boston
Taxi
Commission,
UBER
fares
based
on
UberX
Today,
average
Taxi
utilization
is
relatively
low:
55%
UBER
fares
are
lower
than
regular
taxi
prices
-­‐18%
…but
Uber
drives
report
higher
incomes:
+22%

46. © 2015 IBM CorporationPage
If it’s driven by an asset that can be tagged, managed and shared, then a service is being built
around it:
46
The
number
of
new
digital
online
services
that
do
this
is
growing
enormously:
UBER
(and
similar
services)
are
using
data
to
bring
LIQUIDITY
to
markets:
Just
550
Employees
Estimated
$1bn
in
revenue
$10bn
Valuation

47. © 2015 IBM CorporationPage 47
OptimizationInstrumentation Monetization

48. © 2015 IBM CorporationPage 48
IBM invented the computer reservation
system for American Airlines
The world’s first physical marketplace
digitized:
• Eventually, every flight on every route
was available as a digital asset to be
bought and sold online
• Airlines could monitor their business in
real time and apply optimization tools
to inventory, pricing & routing

49. © 2015 IBM CorporationPage 49
Average US Airfares, Adjusted for Inflation
1979-2013
AverageAirfare,inConstant2000Dollars
0
125
250
375
500
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

50. © 2015 IBM CorporationPage 50
Total US Airline Industry Revenue, 1995-2013, US$ Billions
Revenue,US$Billions
0
40
80
120
160
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Network Carriers
Low Cost Carriers

51. © 2015 IBM CorporationPage 51
US Airline Industry Profits, US$ Billions, 2000-2013
Revenue,US$Billions
-$30
-$23
-$15
-$8
$0
$8
$15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sum
of all profit
since 2000:
-$44 Billion

52. © 2015 IBM CorporationPage
Even as the airlines were going bankrupt left and right, the most powerful players in the travel
market were the airline reservation systems (sound familiar?)
American spun-off SABRE in 1999. SABRE had an initial market
capitalization of $6billion. AA was only worth $3.8 billion in 2002
52

53. © 2015 IBM CorporationPage
Agenda
53
The Internet of Things Really Small Enormous Problem
Fixing The Value Proposition
The Evolution & Revolution
Fixing The Technology
From Here To There

54. © 2015 IBM CorporationPage
Five lessons we could learn from the Internet of Things so far
54
1. Just because you can connect it, doesn’t mean you should.
2. Current IoT architectures are mismatched to technology.
3. We cannot restore trust to computing.
4. Forget fitness trackers, we’re headed for the Economy of Things.
5. Where Facebook users go, enterprises follow.

55. © 2015 IBM CorporationPage 55
DO WE REALLY NEED A
SMARTER TOASTER?

56. © 2015 IBM CorporationPage 56

57. © 2015 IBM CorporationPage
Read all about it.
57
ibm.biz/DeviceDemocracy
Device Democracy:
Saving The Internet of Things
IoT Block Chain Technical
White Paper (Draft Version)
ibm.biz/BdEAyL
Device Democracy:
The Economy of Things
Coming in March 2015

58. © 2015 IBM Corportation
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