The Internet of Things, five years later
April 9 2021
by Christian Renaud
The 451 Take
IoT has emerged from early growing pains to become commonplace in projects and deployments, with 86% of respondents to 451 Research's Internet of Things, The OT Perspective: Technology and Vendor Decisions 2021 survey saying they were in some combination of in-use, discovery or active planning of IoT projects. Only 14% of respondents stated they were considering IoT with no current plan to implement. With maturity has come a culling of technologies and use cases that didn't demonstrate real value, with more yet to come as the market further consolidates and legacy equipment is gradually upgraded. With embedded sensors and connectivity, IoT has become the foundation for entirely new business models and value delivery, cementing its position in future equipment designs and go-to-market strategies.
Evolving definition of IoT
The IoT segment suffered from being overhyped early on, resulting in a rocky and uncertain start for a term that encompasses everything from home thermostats to manufacturing lines. The common thread among all the early examples was that the endpoints were connected to the internet, and had some form of rudimentary analytics that looked at the data generated from the endpoint to achieve some ill-defined end value.
Over the intervening years, connectivity and more sophisticated analytics have grown from a novelty (epitomized by the multitude of connected gadgets at CES) to being the foundation of new business models and innovations. Manufacturers of industrial equipment now offer previously expensive capital equipment purchases as a managed service, where the manufacturer owns the asset, and bills the operation and maintenance of the asset to the ultimate customer incrementally as the machine is used.
This business model, which focuses on the benefit to the customer and alleviates the complexity of ongoing equipment maintenance and large capital expenditure budgeting, is only possible (profitably) by having the connectivity and telemetry data from the machine, to be able to adhere to uptime agreements with proactive, predictive maintenance.
In industrial contexts, including manufacturing, energy and transportation, IoT is the most recent step in a long series of technology innovations that began with the industrialization of manufacturing in the 1780s, the first electric grids in the 1870s, and GM OnStar connecting cars in 1996. These have grown to include industrial robotics, augmented and virtual reality, distributed generation and storage, and advanced driver assistance systems with vehicle-to-cloud connectivity.
Companies have leveraged each incremental innovation to reduce unscheduled downtime, and improve quality, safety and fuel economy. But there have also emerged entirely new categories of applications and technologies made possible by increasing compute power in smaller footprints, pervasive high-speed wireless connectivity, and a plethora of analytics technologies now accessible by non-data scientists. Many of these same technologies and innovations have spread across industries from retail to healthcare, and common use cases such as asset tracking and video analytics have taken root across multiple industries, eschewing the verticality of most industrial use cases.
Edge computing, which entails placing compute, storage and analytics closer to the point of data origination, be that at the machine itself or in nearby locations, has recently been confused with IoT, given that many workloads that best justify edge computing investments are operational in nature and not traditional IT workloads.
The edge is a 'where' – part of a continuum of execution venues that both IoT and non-IoT workloads can run at, that stretches from the data generating device to the cloud, and includes near-edge venues like colocation facilities or core/cloud venues. As the edge market matures, the definition of the sub-species and boundaries of what constitutes edge computing are becoming clearer. The recent conflation of the 'where' (edge) and the 'what' (workload = IoT) will be disambiguated in due time as a greater number of non-IoT edge workloads emerge.
Adoption growing but reasons why are changing
Over the surveys that we have fielded, the adoption of IoT technologies has been trending higher across all verticals, with the emergence of use cases such as video analytics in local government contributing to more rapid growth in traditionally underrepresented verticals. Respondents to our Internet of Things surveys said that the top two reasons their organizations are deploying IoT projects are to reduce risk and optimize operations. This spans security and compliance as well as predictive/preventative maintenance of equipment, and is primarily 'back office' focused.
The reasons have not changed over the intervening half-decade of surveys. However, they have ceded ground to the next two reasons: developing new products or services or enhancing existing ones, and enhancing customer targeting/increasing sales. These two reasons primarily focus on top-line revenue growth. This shows how organizations are creating more connected, analytics-based products and services, and leveraging data from these devices and others (like smartphones) to further refine sales and marketing activity.
Delivery models have shifted from boxes to outcomes
The premise of many IT-focused vendors when the IoT market was first bearing fruit was that they would continue to sell individual best-of-breed technologies, and that customers would use these composable modules to craft their own outcomes. This largely ignored the traditional value delivery model for manufacturing, healthcare and other industries with extensive networks of professional services and integrator partners that are responsible for assembling these components into offerings that solve specific business problems and integrate with existing business processes.
Many vendors quickly recognized that the go-to-market approach didn't fit with how customers were prepared to consume the products. They have embraced partnerships with these delivery partners, as well as developed partner programs with ISVs that can round out technology or feature gaps in their portfolio, and engaged in joint ventures with industry incumbents that have existing relationships with purchasing centers.
IT moves from the back bench to the front bench
When 451 Research originally began surveying IT teams about IoT projects, we were struck by the dichotomy we found in respondents' perception that IT teams were a natural owner of these initiatives with their technical expertise, but seldom had a say in project design, vendor selection or budget/headcount contribution.
In the intervening time, we have seen IT teams grow in influence and contribution to digital transformation efforts, with the current balance of power between IT and OT teams at a 50/50 equilibrium in co-creating projects and contributing funding, and contributions from IT even exceeding other teams in some cases.