What will create value in the Internet of Things ?

Explosive Growth: The Internet of Things or “IoT” is a red-hot topic. Business and tech pundits are citing predictions that some 30 billion objects may be connected to the Internet of Things by 2020.

Impressive numbers, but getting back to basics - what is the IoT and how will its growth create tangible economic value?

Let’s start with a simple definition: According to McKinsey & Company the Internet of Things refers to the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects.

In 5 years - 30 billion objects may be connect to the IoT.

What’s good about all this? The data amassed from these devices can then be analyzed to optimize products, services, and operations, and this can lead to redefined and new business models.

An early success story for the IoT includes energy optimization: Sensors deployed across an electricity grid can help utility companies remotely monitor energy use and adjust generation and distribution flows to account for peak times and down times.

The US power grid is the largest interconnected machine on earth with 9200 electric generating units with over one million megawatts of generating capability. 

And it’s being rebuilt today using IoT technology. Check out the US Department of Energy’s “The Smart Grid” for a non-technical overview of this undertaking.

Redefined Business Models: Consumers are buying smart thermostats and smoke / carbon monoxide alarms from NEST – a start-up company acquired by Google in early 2014 for a staggering $ 3.2 billion in cash. Following the acquisition announcement, the jokes flew: “If your house is burning down you’ll now get G Mail ads for fire extinguishers,” Valleywag’s Sam Biddle tweeted.

Wired has observed that this deal sets the stage for an for an entire world populated with Google-powered smart devices. And Google got Nest CEO Tony Fadell, a real product master – best known for designing the iPod. Nest will also help evolve the Google business model to include the interconnectedness of hardware. As the devices talk to each other it helps build an aggregate picture of human behavior, anticipating what we want before we even know we want it.

Efficiency: Other IoT uses include “wearable” devices to track personal physical fitness and insurance companies installing sensors in cars so they can base premiums on actual driving behavior versus projections. Axeda is a leader in “vehicle tele-matics” that is empowering car insurance underwriters like Ensurance to use hard data on driving behaviors to help set their rates.

Physicians are using information collected from wireless sensors to improve their management of chronic diseases. McKinsey predicts that continuous monitoring versus periodic testing might reduce treatment costs by 10-20% saving billions in the care of congestive heart failure alone.

Joep van Beurden from CSR.

In an interview with McKinsey & Company – Joep van Beurden the CEO of semiconductor company CSR (that produces many wireless technologies) provided some fascinating insights on the IoT sector:

“A lot of analysts have evaluated the potential financial value that Internet of Things applications may create over the next five to ten years—it’s a $300 billion or $15 trillion opportunity, depending on whom you listen to.”

Connectivity: van Beurden continued “When you drill down, however, you see that about 10 percent of this value is created by the 'things,' while 90 percent comes from connecting these things to the Internet. The Internet of Things is not just about storing information in the cloud; the data only becomes interesting when you combine them with sensors and analytics.”

Van Beurden went on to qualify the factors that will impact IoT growth: “But a certain degree of alignment must happen for those connections to take place and for the Internet of Things to take off. The industry must adopt common standards and business models, and it must address issues relating to privacy and security.”

Economic Impact: The McKinsey Global Institute research estimates that the impact of the Internet of Things on the global economy might be as high as $6.2 trillion by 2025. At the same time, the corporate leaders polled admit they lack a clear perspective on the concrete business opportunities in the Internet of Things given the breadth of applications being developed, the potential markets affected—consumer, healthcare, and industrial segments, among others—and the fact that the trend is still nascent.

As Gartner recently observed: Connected things, such as automated teller machines and airline check-in machines, have previously existed. But, new and novel devices, and many ordinary objects, are also being reinvented with digital sensing, computing and communications capabilities.

 

The "digital voice" is comprised of data.

This functionality provides both new and previously passive objects with a "digital voice", and the ability to create and deliver an information stream reflecting their status and that of their surrounding environment. Such developments radically change the value proposition of many businesses, creating new services and usage scenarios and driving new business models.

“The digital shift instigated by the Nexus of Forces (cloud, mobile, social and information), and boosted by IoT, threatens many existing businesses. They have no choice but to pursue IoT, like they’ve done with the consumerization of IT,” said Jim Tully, an analyst at Gartner. 

Widespread Applications: Tully continued "This sudden expansion will boost the economic impact of the IoT as consumers, businesses, city authorities, hospitals and many other entities find new ways in which to exploit the technology." Gartner estimates that IoT will support total services spending of $69.5 billion in 2015 and $263 billion by 2020. 

Automotive sector will have fastest growth.

Consumer applications will drive the number of connected things, while enterprise will account for most of the revenue. Gartner estimates that 2.9 billion connected things will be in use in the consumer sector in 2015 and will reach over 13 billion in 2020, about half the McKinsey estimate. The automotive sector will show the highest growth rate at 96 percent in 2015. 

From an industry perspective, manufacturing, utilities and transportation will be the top three verticals using IoT in 2015 – all together they will have 736 million connected things in use.

Steve Prentice from Gartner.

“The number of connected intelligent devices will continue to grow exponentially, giving ’smart things’ the ability to sense, interpret, communicate and negotiate, and effectively have a digital ‘voice’," said Steve Prentice, vice president and Gartner Fellow. He continued, “CIOs must look for opportunities to create new services, usage scenarios and business models based on this growth.”

So the IoT sector is likely to see exponential growth the next ten years, and its ability to spawn new business models and create economic value is already evident. It may be time to listen carefully for the “digital voice” of the future, a chorus being created by technology, throwing off valuable “data exhaust” - one device at a time.

A “Mash-Up” as a Business Model

The term “mash-up” is most commonly used in the context of web development. It happens when content from more than one source is used (via an open API) to create a single new service that shows information in a new way. Mapdango, is a good example in which Official National Park Service (NPS) maps are overlaid on Google Maps.

A “mash-up” can also describe a business model that mashes-up digital / web based content or services with the analog world. There are two smart start ups using this approach to meet some very basic needs: food and shelter.

The food example, “Mary’s Secret Ingredients,” started with a simple love for food and cooking by Mary Pisarkiewicz. She is a St. Louis native who was trained at Parsons The New School for Design and has owned a highly successful marketing and design boutique in NYC for many years.

However cooking is her true passion. A couple of years ago, when she wanted to publish a cookbook, publishing experts told her she did not have any credibility in the food / cooking world. She responded by starting: “Love- The Secret Ingredient” blog. Three years later it now has 29K+ followers.  

Her blog features engaging stories of love, joy, comfort and friendship interspersed with proven, scrumptious, healthy recipes. Mary confides the "secret ingredient" for all this wonderful food is love.

Mary's Secret Ingredients Gift Box.

She then developed the idea for creating a sampling / surprise subscription gift box as way to share the special natural ingredients she uses with fellow food lovers – and in the process a mash-up business was born. 

Mary’s Secret Ingredients (MSI) is a limited edition culinary surprise box containing unique gourmet and artisanal ingredients, along with innovative small kitchen products. Every season, a limited number of themed boxes are filled with surprises to inspire cooking, delivered right to the subscriber’s door. 

One of her most popular creations is Bruce Cost Ginger Ale Spice Cake made with Bruce Cost ginger ale – created in Brooklyn,  with real fresh ginger and pure cane sugar, was part of the Summer MSI 2014 gift box.

The blog’s engagement numbers really tell the story in terms of a low “bounce rate,” tens of thousands page views, numerous comments, and social media “likes” on Facebook and loads of Twitter impressions. Some fans have even taken to making original streamed video reviews of her surprise gift boxes.

MSI is being marketed with a “growth hacker” approach that will use creativity, analytical thinking, and social metrics to sell products and gain exposure. The MSI team is in the process of delivering an optimized mix of owned, earned and paid media to build sales volume. 

Mary, who is in the process of seeking an initial round of seed funding for early 2015, envisions a digital marketplace and a mobile app that will connect the recipes to the marketplace, along with streamed web content. She would also like to see a line of MSI cookware and a Mary’s Marketplace (in brick and mortar) akin to famed NYC venues like Chelsea Market or Eataly. 

If Mary’s business acumen is like her cooking skills, she is sure to have a recipe for success. 

The shelter example is NYC-based Zenly, co-founded by Isaac Palka and Omer Palka. Zenly is the first online apartment rental marketplace that lets people browse various Manhattan venues with video tours and rent online without a broker.

Before Zenly, a typical Manhattan apartment hunter poured over Craig’s List then made numerous calls often in search of elusive apartments. The alternative was to run around town with a residential real estate broker. With rental apartment vacancy rates now hovering at near all-time lows, the whole process is considered a real nightmare.

For the first time ever, Zenly’s innovative web-based business allows people to see what apartments actually look like without having to run all over town.

Zenly's online apartment listing: An end-to-end solution.

Zenly offers an end-to-end solution, from viewing properties online to scheduling visits to the apartments without a broker, to an online application process on a secure web-based platform. The business offers to greatly reduce the stress normally involved with the apartment search process, making it more “Zen” as it helps drop illusions and allows things to be seen without distortion.

Zenly also employs a pricing model that makes this business quite attractive to prospective customers. The Zenly “no-broker” model charges a 5% fee only one third of the15% traditional Manhattan broker’s fee. 

Underpinning the Zenly brand is a genuine “trust factor” as their listings come directly from property managers, and then Zenly sends “apartment verifiers” out to every listing to review the listing for accuracy and create video tours. Brokers cannot list on Zenly, and listings are not aggregated from other websites. 

I suspect that Zenly may get a call from Douglas Elliman Realty in NYC early in the new year with a big fat acquisition offer. Elliman will likely make this move to simply shut down Zenly, as a defensive measure to protect their massive broker sales force. 

Should we Fear or Embrace Artificial Intelligence?

Elon Musk, the mind behind Tesla Motors, CEO of Space X and a co-founder of Pay Pal generated lots of news starting last August from his comments on Artificial Intelligence, including a comparison to nuclear weapons. 

 

In October the billionaire tech guru warned an MIT audience, "With artificial intelligence we are summoning the demon" He went on to say, "In all those stories where there's the guy with the pentagram and the holy water, it's like yeah he's sure he can control the demon. Didn't work out…"

Adario Strange from Mashable wrote a sensible follow-up article to Musk’s comments that takes into account the perspectives of other leaders in the AI field, and at a recent BlueWater Labs NYC meet-up he declared: “Musk may have ready too much science fiction…”

AI has not escaped the attention of many tech giants with deep pockets. Google paid $ 400 million last January for a British start-up Deep Mind. Indeed, its stated mission is simple if not ambitious: Solve Intelligence. The new company combines the best techniques from machine learning and systems neuroscience to build powerful, general-purpose learning algorithms.

The MIT Technology Review reported that Deep Mind has unveiled a prototype computer that mimics some of the properties of the human brain’s short-term working memory. This apparently solves one of the great challenges of neuroscience to replicate the same kind of memory in silico.


The Deep Mind computer is a type of “neural network” that has been adapted to work with an external memory. The result is a computer that learns as it stores memories which can later be retrieved to perform logical tasks beyond those it has been trained to do. Wow.

The future of the mundane work commute?

Yet there is still confusion about the basic definition of AI. Some think of AI as a machine that learns a specific algorithm, while others talk about autonomous robots or self-driving cars.

The AI discussion has in fact created a whole new vocabulary unto itself. Last month Vanity Fair took on the AI debate in their article entitled “Enthusiasts and Skeptics DebateArtificial Intelligence.” Topics included the evolution from “soft” to “hard” AI, and the debate around “Singularity” - defined as, "A technological singularity is a predicted point in the development of a civilization at which technological progress accelerates beyond the ability of present-day humans to fully comprehend or predict."

An argument has come up between the "Singularitarians" versus their skeptics about the moment when machine intelligence will surpass the human kind. This fascinating, if not somewhat ethereal debate is raging among the "digerati" - the elite of the computer industry and online communities.


The Maginot Line for this inflection point between the opposing camps is simple: A computer will be able to pass for human by 2030. The test for this is known as the “Turing Test” in which an average human interrogator will not have more than a 70% chance of distinguishing a computer from a human after five minutes of questioning. A partial threshold was passed last summer at the Royal Society in London when a computer fooled 10 of 30 judges, or 33%.

Hans Moravec and robots.

But let’s take a moment for a reality check. One of the major stumbling blocks for AI research is called “Moravec’s Paradox,” which says things that are easy for people to do are extremely difficult for computers to do. 

As Moravec observed: "It is comparatively easy to make computers exhibit adult level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility."

This problem does not appear to be deterring the likes of Apple (with Siri) or IBM’s billion-dollar investment in Watson – its cognitive computing platform that uses natural language processing and analytics. Watson processes information akin to how people think, representing a major shift in an organization’s ability to quickly analyze, understand and respond to Big Data. Watson’s ability to answer complex questions posed in natural language with speed, accuracy and confidence is transforming decision-making across a variety of industries.

Frankly I like the pragmatic approach to employing AI that one well-known company is taking: Amazon is currently unleashing a robot army to speed holiday package sorting in their million-square foot order fulfillment center in Tracy, CA. 

"Whether it's consumables or toys or electronics, with 3,500,000 items plus in this building, the odds are, pretty much anything you wanted was likely here," says Dave Clark, Amazon's Senior Vice President of worldwide operations and customer service.

Kiva robots at work at Amazon facility in Tracy, CA.

 At most warehouses, goods are stored on shelves, and it's up to humans to out stock or retrieve stuff. But with the technology that Amazon acquired when it purchased Kiva Systems in March 2012, the goods come to the humans. Orange robots the shape and size of ottomans zip to the shelves, lift up the desired goods and whisk them to stations where workers complete the packing process.

With this system, not only is there no need for warehouse workers to march for miles up and down the aisles collecting orders, there is no need for aisles at all. This means Amazon can squeeze 50% more product into its already massive warehouse.

I am not quite ready to sleep with lights on in fear of Skynet - the self aware evil intelligence system featured in the Terminator franchise. It served as the series main antagonist and succeeded in scaring the daylights out of me starting back in the mid 1980s. 

Wonder about their IPO valuation?

But I do plan to give the whole matter of AI further investigation, all the while hoping that Amazon promptly processes my last minute holiday gift purchases this year, as I will surely wait until December 23rd to place my orders.







 

How the Internet of Things will evolve business models.

At a recent Hardwired NYC meet-up, Tim Chang a partner at Silicon Valley venture capital firm Mayfield, shared where he sees opportunity in the emerging tech company sector: The Device-as-Service business model.

Tim observed “Assume everything in your life will become cloud connected, the nest-tification of things in your life, like night lights and thermostats.” He continued “There will be beautiful, smarter versions of existing devices that will be connected to the cloud, with services so compelling people will be willing to subscribe just to access them, on devices that might even be given away in some cases."

There is a logical link here in what Tim was saying to The Internet of Things (IoT) and his idea seems compelling, if not more than a little out there. It warranted further investigation.

For many years the traditional manufacturing-driven business model reigned supreme. Service after a sale was viewed as an afterthought, of secondary importance for most businesses from a strategic and revenue generation standpoint. 

28 billions reasons to make money.

This conventional view is being upended by the the rapid growth of IoT. For example Goldman Sachs is estimating that over 28 billion "things"  may be connected to the Internet by 2020, ranging from wearable bracelets to cars and even your dog. That number will be more than triple the projected global population in 15 years. 

In “IOT: Making sense of the next mega-trend” Goldman does a great job of giving dimension to the IOT sector. From the early IOT success stories like fitness trackers and thermostats, to the five early verticals of adoption, and IOT building blocks including “enablers” (Wi-Fi sensors) “platforms” (software apps for managing communications between devices, middle-ware, storage and data analytics) to “industrials” (B2C: home automation. B2B: factory floor optimization). 

Tim Chang of Mayfield.

Chang went on to observe that moving forward there could be products so dependent on a service layer that they’d be useless without it. People will be willing to pay for the service, more so than the hardware. He posed: “Is there an emotional connection made through the service layer?” and “Can it be made to be part of the work flow of the user’s life?”

One of Mayfield's portfolio companies is OUYA - a micro-console gaming manufacturer that runs on its own version of the Android OS. OUYA targets people who love to play and make games.  

"The offering is useless without the community,

game store and marketplace" according to Chang. Each OUYA console empowers the user to also be a developer. The revenue tail comes in the form of users purchasing game credits. 

The overall ability to couple products with a wide variety of after market services is emerging as a requirement to stay ahead in business, as well as a fertile ground for innovation. 

Consider AT&T’s “Connected Car” Service. It uses the Audiovox car connection device for $100 that plugs into most cars made after 1996 and sends real time wireless updates to smart phones, tablets and PCs. Then there are the added monthly subscription fees of $10 month for mobile share, and another $10 month for data. 

The "connected car" allows the owner to track the car location, and get walking to directions to where it is parked. It also automatically sends notices for maintenance issues and safety alerts for excessive speeding, and towed or stolen vehicles. It can produce “driver scores” for feedback on driving habits that could be improved. An additional smart phone app is available to discourage or block use of a mobile phone while the vehicle is being driven. Both are suitable for parents who want to remotely manage teen drivers. It can even be used to start the car remotely, just like in a James Bond movie. 

M2M (machine-to-machine) applications are mostly growing in the B2B context, such as equipment manufacturers developing remote services and support tied closely to their equipment and service contracts. Customer support and automation are the key benefits.

Making the dip-stick obsolete.

 ATEK Access Technologies, uses IoT generated data for the oil and gas industry to create a profit-generating service.The technology company uses the IoT to “service-ize” their business in a move that has differentiated them from the entire industry. 

From her office in Eden Prairie, Minnesota, Sherri McDaniel, President of ATEK, can see all of the company’s tank monitoring 
devices with a cloud interface.  

“Look, here are eight devices at
 one site in Nebraska,” she said. 
Sherri pointed to a icon on the screen that represented all the 
locations on a Tank Scan® monitor.

Sherri McDaniel of ATEK

Tank Scan® eliminates
the need for physical inspection of tanks holding liquids in terms of measuring fluid levels. The device in the tank measures fill 
levels from a sensor and sends the data to a gateway, which 
aggregates data from up to 20 tanks, and transmits that 
information to the cloud. 

As Goldman Sachs observed, “The Internet of Things will create new winners and leave in its wake a host of losers based on companies’ abilities to adapt to a world where things are connected.” 

The end benefits of all these connected IoT devices will:

· Help make lives easier (think: turn on the heat before you get home)

· Improve efficiency (think: turn on the washing machine when electricity usage and prices drop in the middle of the night)

· Anticipate the need for services (think full-body health monitors or car care diagnostics) 

At the end of his talk Tim Chang pondered the possibility of an IOT toilet. I did a little research, and in fact it is already in the works. 

This might give a whole new meaning to using “data exhaust” …to feed the “Potty Logger” spread sheet.

At least it might make the "toilet experience" smoother, for people who have the time to worry about such things. All kidding aside, the smart business bet is on the future of IoT.