Last week's Consumer Electronics Show ("CES") put a spotlight on Internet of Things ("IOT") technology and its leading application, the smart home. The term Internet of Things was coined 17 years ago and has had a couple of waves of enthusiasm in the past. Has it now arrived? I'm skeptical because I don't yet see the killer app.
I first heard the phrase Internet of Things ("IOT") in 2000, from an entrepreneur out of the MIT Media Lab who was pitching a start-up to develop a networking technology to enable the IOT. That start-up became Ember and the technology evolved to ZigBee. In 2012 we sold Ember for about 80¢ on the investor dollar. The management team got a big bonus but not the "change your life" money they had hoped for.
I love the phrase "Internet of Things" because it suggests that the magic of the internet can be expanded from a world market of circa one billion computers and smart phones per year to all the world's smart devices, including cars, appliances, and controls and sensors of all kinds, about 10 billion devices sold per year. What venture investor would not be excited by the opportunity to create a 10x bigger Internet? We set out to build an inexpensive, easy to manage, secure network like Ethernet that would enable many services, from clocks that reset themselves to daylight time to complex monitoring and process control applications. Bob Metcalfe, the inventor of Ethernet and founding CEO of 3COM, a major networking company, also invested in Ember.
Of course, we made some mistakes. We were ahead of the market. We over-engineered ZigBee and lost a large part of the home market to a simpler, cheaper technology (Z-Wave). And we failed to bring a marketing genius on board who might have been able to stimulate more demand. But the biggest problem was the absence of a "killer app", what the spreadsheet was for the PC, a use case that a large number of consumers really cared about.
The apps that looked most promising were energy management and home automation/security. Industrial markets are fragmented and inherently slower to change. Seven years later, the smart home (encompassing automation, energy management, and security) is still the most promising market.
The learning from Ember was: few people feel a burning need for a smart home. Energy concerns come and go with energy prices, and since 2008 energy prices have been down and SUV sales are up. The ZigBee companies got a nice lift from smart meters around 2010, but that was mostly a regulator-driven initiative, versus consumer-driven. When the regulatory mandate was met, the market stalled.
Security is inherently a hard sale. Many people pay for security products (and insurance) when something happens close to them, or when a good salesman manages to tap into latent anxiety. Most of the time they prefer to ignore security and focus on more immediate needs and wants. The cable companies are attacking the security market because it enables them to grow revenue in a shrinking cable market by extending their technology, customer service, and relationship platform. It has been a slow build for them, however, because it's not an easy sell and cable companies move with deliberate speed.
Market penetration in these categories is still low. A survey that Accenture, LLC released last week showed that 10% of respondents own connected security cameras, 9% used smart thermostats and 5% used smart plugs.
Of course, a good deal has changed recently. IOT technology is better and cheaper. There is a large array of ZigBee and Z-Wave products. The big consumer technology companies have started investing in IOT: Google purchased of Nest and Revolv and Samsung purchased of SmartThings. The hacking plague is a negative development: consumers are concerned that their smart home could be hacked with painful consequences.
Smartphones are an even bigger difference; they give most of us a very smart remote control for IOT in our pocket. Many of the home automation systems (e.g., WeMo, SmartThings) are only accessible from a mobile device (no PC interface). And Apple and Google are building IOT support into their mobile operating systems.
So it's no surprise that enthusiasm is building for IOT again. A quick scan of the internet shows rosy forecasts for sales volumes in 2019 or 2020. IOT has been a hot topic at the Consumer Electronics Show ("CES") this year and recently.
But a Wall Street Journal article written during CES 2016 observed that "smart-home gadgets are still a hard sell ... mainstream consumers have still not found reasons to buy". The fundamental problem is, there is still no killer app for IOT: something a large group of customers really care about and just have to have.
