The Curious Eye

Personal opinions on a variety of things

Concerns regarding the Internet of Things wave

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Internet of Things is poised to be the next big wave that is going to hit us all. Everyone is preparing for it. Network companies installing/establishing M2M communications standards, electronics manufacturing firms designing chips and kits for techies to build their ideas upon, tech giants building operating systems to standardize the software part of integrating so many things and 3d printing devices scaling up capabilities to design and test out prototypes.

There is no doubt, the internet of things will change our surroundings in a big way. But I have some concerns about the business side of things.

A. High Costs:
The cost of an internet of things product or service will include four main components:
1. Hardware costs:
This includes the electronics circuitry/hardware, as well as the encasings/chasis. There will be also increased costs of designing, testing, manufacturing, assembling, actual shipping, warehousing and distribution.
2. Software costs:
Assuming that IoT software platforms will probably go the standard SaaS way of monetization. Which means some form of freemium revenue model. As you scale up, you pay up. Moreover, the costs won’t be restricted to merely platform deployment costs. But also the costs of server/cloud platforms given that data generated is going to be huge and more SaaS based tools will be used to leverage the analytics from that data.
3. Network costs:
Sensors, devices and things have to use networks to communicate with each other. This means, there will be subscription costs similar to our mobile connection. Worst case, there could be a network subscription cost for each and every sensor, that means not only each "device" comes with a fixed cost of manufacturing but also a variable cost of subscription, which increases as you increase the number of sensors. That’s not ideal
4. Operations costs:
Apart fom manufacturing and shipping costs, there will be costs of installation, after sales customer support (hardware, software and general) and maybe even servicing costs.

B. Comparatively difficult to achieve product market fit and robustness:
The lean-startup methodology suggest iteratively testing out user response to various feature to achieve the best product market fit. Achieving product market fit will be much difficult with IoT products mainly because of its real world considerations which entail slower pace of designing, development and shipping and also the significantly higher number of boundary conditions (false positive/false negatives) that will need testing. Moreover, there are sophisticated tools in digital world like A/B testing, behavior testing, which help you to quantify progress through metrics. Such tools are not present for IoT which will pose challenges in understanding the right product market fit.

C. Much slower growth:
Compared to websites, web-apps or mobile apps the scaling up is going to be naturally slow. While successful mobile apps can register millions of users in a single month upon hitting the bulls eye of product-market fit and word-of-mouth, an IoT based product will find it difficult to scale up at that pace given that it is a real world product not just a digital one. In many cases, the scaling up will require installation and integration of various sensors, ensuring they work properly and are in line with the targeted user workflow.

D. Will need stronger value proposition, higher revenue streams and better business models:
IoT will be significantly costlier than developing a mobile app based business thanks to network costs, hardware cost, software costs, and operations cost. To make sure, that these costs are offset significantly, the revenue model will have to be much more solid. That also means, the value proposition has to be equally solid and should generate high demand among end-users.
One argument is that just because a technology has evolved doesn’t mean we all need it. Steve Jobs also says in his videos is that taking technology first and then trying to fit it in with end user experience is not the right approach. The correct way is to find out what the end user needs and then work backwards toward technology. In that case of IoT, I have not been fully convinced on many applications yet. There are many flaws and in many cases the benefit is marginal. Chances are high that people don’t need so many devices and so much automation in so many parts of thei lives. Even if they do need it, IoT may not be affordable because of the high price or marginal value creation compared to existing solutions.
Unless IoT reduces significant time or cost in existing operations or workflows, chances are high that there may not be so many applications which add value. In my opinion, B2B setups like manufacturing plants and operations intensive industries might find quick applications of the IoT technology. However, each setup will have its own environment and IoT offerings will end up becoming services or solutions rather than standard products. Which kind of goes against the principle of rapid scaling up. In fact, similar lack of standardization could be the case with B2C applications as well. In such a case, either IoT business models have to tap into the holy grail or mass customization or provide small-pointed solutions that address a small need rather than covering a complete experience. And the problem with small-pointed solutions is that they get commoditized easily and lose margins.

I personally believe IoT will go through the hype cycle and will lose a lot of momentum until finally the right business, value prop and revenue models are established, startups will not be as highly valued as their pure web based counterparts. I hope I am proved wrong on many points and IoT lives up to the trillions of dollars of global value it promises.

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Written by pghode

September 12, 2015 at 6:41 pm

Posted in Uncategorized

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