The Internet-of-Things (IoT) as a market is at once both a simple and complex concept. In some respects this market has been around for a long time. But like many hyped market trends it has been renamed as time went on, with IoT being the most recent moniker and the one that has stuck. I actually wrote about the tech market segment that is now known as IoT as far back as 2005 in the article “The High Tech House“. Today we’ll explore some of the basics of this evolving mega-market trend as well as how to approach areas of opportunity for software and hardware companies.
What is IoT?
The “Internet of Things” as a phrase was apparently coined by a gentleman named Kevin Ashton; he’s claimed that he came up with the term in 1999 while at Proctor & Gamble. The phrase didn’t come into common use until 2009 starting with an article in RFID Journal.

Let’s provide some definitions. WikiPedia defines IoT as follows: “The Internet of Things (IoT) is the network of physical objects or “things” embedded with electronics, software, sensors, and network connectivity, which enables these objects to collect and exchange data.” Forbes says “Simply put this is the concept of basically connecting any device with an on and off switch to the Internet (and/or to each other). This includes everything from cell phones, coffee makers, washing machines, headphones, lamps, wearable devices and almost anything else you can think of. This also applies to components of machines, for example a jet engine of an airplane or the drill of an oil rig. Finally, Webopedia says “The Internet of Things (IoT) refers to the ever-growing network of physical objects that feature an IP address for internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems.”
Got it? It’s really a pretty simple concept; Internet-connected consumer and commercial devices of all types which allows data collection, device-to-device communication and remote control for a plethora of applications. So there are distinct B2B/Industrial and consumer segments, with a gazillion sub-segments of each of these.
IoT Market projections
According to the respected technology research company IDC, IoT spending is expected to be $698.6 billion in 2015 They forecast the market to grow at a 17.0 percent compound annual growth rate (CAGR) ending up at nearly $1.3 trillion in 2019. By the way, IDC’s definition of IoT is “a network of uniquely identifiable, autonomously communicating endpoints (or ‘things’).”
Interestingly, IDC says that the Asia-Pacific region is currently the largest geographic segment of IoT with more than 40 percent of worldwide spending, with North America and Western Europe following. This is unusual as North America typically leads in technology adoption, especially relatively early in tech cycles. They attribute Asia-Pacific’s lead in IoT to Asian countries’ higher technology investment needs, government investments incorporating a high mix of IoT components as well as a blossoming new consumer class spending more on IoT goods and services.
IDC says there will be 20.9 billion devices by 2020. Juniper research says there will be 38.5 billion connected devices by then. Gartner predicts 25 billion. By definition, they’re all wrong at this point and every grandiose forecast is. But notice how LARGE these predictions are. It doesn’t really matter what the best forecast is–they’re all BIG.
Now, this wouldn’t be the first large market where venerable market research firms predicted huge markets that never developed (see 3D TVs). But this market is already at the tipping point where I feel comfortable that IoT growth is off to the races. Along with the hype many useful “point” products are already in the market serving as trojan horses, setting the stage for huge market numbers to follow. In my opinion, the connected IoT world as a real market is no longer a question of if, but when and how much.
How Soon will the IoT market mature?
Again, we’re describing a wide-ranging secular trend which includes many different market segments, each of which will progress at their own pace. So it’s difficult to generalize a maturity rate as it might apply to your particular software, hardware or semiconductor company. As I stated above, “point applications” such as individual industrial or consumer devices being tracked or managed via the Internet are widely sold now and this has been developing slowly over quite a long period of time. I don’t believe that there is any specific market segment today where it’s already “too late” for a tech company to enter the market with a real contribution. But some segments are definitely ahead of others and the slope of adoption will be different for each individual segment. So it’s important, as always, to consider your companies individual strengths, weaknesses and ability to execute your strategy within a time frame realistic to achieve success in a particular segment.
So how should a software/hardware company participate?
- Find a niche: Again, IoT is really not even a market but a collection of many markets, segments and sub-segments, some if them huge in their own right. So for everyone but the very biggest players out there (if you aren’t sure, you’re not one of them!) this means finding a currently unmet or very lightly met need. While the market overall has been in development for a while, it’s still very early from a commercial perspective. So…
- Research & plan before jumping in: Don’t just pick something that looks like a “big segment” or dive headlong into an area that looks like it will align with your current technology. While both of those criteria should be part of your strategic discussion, this could be one of those once in a lifetime opportunities for your company and it’s still pretty early. So take some time and study the current state of interesting segments, potential competition, your potential defensible advantages, how fast the segment might ramp, etc. before you jump.
- Beware of “platform” bets: Even at this early stage of IoT development, there are many different companies and standards bodies maneuvering to make their hardware or software the “standard platform” for a specific market segment. I understand both the sense of urgency as well as the need to focus scarce resources. But a lot of platforms will be introduced into this huge opportunity and the vast majority of them will fail. So whether you’re thinking about introducing a platform yourself, or are thinking about making a bet on riding the coattails of one this early – I caution you to take a breath and think twice. This strategy is the ultimate “swing for the fences” for those who understand this baseball analogy. If at all possible, try to pick an standards-agnostic opportunity (likely a “point application at this stage), or one where it is possible to spend just a little more time and money to make your product play well with the platforms of all of the likely winners. If you can take this approach your odds for a positive return on investment increase dramatically, even if it might feel sub-optimal to you now.
- Time to get creative: As I stated above, I believe this will be a once in a lifetime opportunity for many companies. One reason is that IoT represents a true sea change for many market verticals, enabling fundamental business model and process changes which can greatly enhance productivity for a business or household. So now is not necessarily the time to “go conservative” and introduce some modest improvement into a market. If you can come up with something that represents a real jump, shoot for the stars! There are big rewards to be had when the operating canvass is wiped clean. If you can come up with a truly revolutionary idea the chances for acceptance are greater in times of great change such as IoT represents.
- More room for software companies: While there are many possible sub-segments as I stated above, software-oriented businesses should be able to most easily find vertical, industry-segmented niches to launch a new product category for their business. Hardware and semiconductor businesses will need to work a little harder at their research. Even though there appears to be broad opportunity, there tends to be a quicker standardization around a smaller number of hardware and electronic component platforms that will be used for basic “IoT-enablement” across a wide variety of vertical markets. In some cases hardware companies might be able (and need to) go the extra mile to and focus on customized hardware for specific, tight vertical markets to compete effectively in the long run.
- A software niche example: While most marker players without massive size should focus their efforts on a vertical segment that they can get to early and dominate, there are also some more horizontal opportunities where a newer player might have a chance if they get there early. A potential example is the analytics software market. As you probably know there are now a huge number of software companies focused on business intelligence, dashboards/reporting and analytics. I have seen many previous markets of this nature develop and mature over time. What often happens is that in the beginning, each market segment starts out with focused (point) management software , sometimes just to manage and provide analytics for single device. What happens over time is that there are far too many of these applications for a business or household to manage. This presents an opportunity for an AGGREGATOR” of all this analytics data and management consoles into a platform that is broadly usable, without having to learn and use 20 different software applications. While this is an aggregation software opportunity for someone, I’m sure, the danger is that this need will develop a little farther down the road in the development of the IoT market than we are at now. As we all know, sometimes pioneers end up keeled over with arrows in their back while waiting for a market to develop enough to support their business. So this is an example of why it’s important to consider many environmental factor (here how fast the market will develop) in addition to market size and your strategic advantages. Getting the timing right (not too early, not too late) will be critical to capitalize on this type of opportunity, especially for newer companies.
There you have it – my humble advice on the commercial potential as well as how to attack the IoT marketplace At this market stage there are many opinions on how a company should proceed. What’s your opinion? Post a comment to fill us in on how you view the Internet-of-Things market opportunity!
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