By Neil Strother, Navigant Research
If you cringe at the mention of the Internet of Things (IoT) concept as so much bloated hype, you will get no argument from me. Seems everyone and every company even remotely connected to technology has an IoT story or angle.
Yet market forces point to some real momentum pressing the idea forward. Key stakeholders are making substantial bets on the idea to go along with emerging strategies. For those in the utility sector, these moves have important implications, especially for the residential segment.
Consider these moves: Samsung paid approximately $200 million for SmartThings in 2014; IBM has said it intends to invest $3 billion in IoT technology over the next four years; Intel is taking over Altera for about $17 billion, a move inspired in part by IoT motives; and UK-based Dialog Semiconductor is acquiring Atmel for $4.6 billion as part of its plan to exploit the IoT trend. Other corporate IoT strategies are emerging as well from technology titans. For example, Google is betting on its Brillo platform that has several components: an Android-based embedded operating system, some core services based on Weave, and a developer kit. Apple’s HomeKit is the company’s platform for residential IoT devices that are just entering the market.
In the smart grid sector, major players have formulated their own IoT strategies. Meter manufacturer Itron has been actively pursuing the IoT through Riva, its adaptive communications platform based on Cisco’s open standards IPv6 network. The Riva-Cisco combination enables the network and the components to determine on the fly an optimized data pathway, either radio frequency (RF) or power line communication (PLC). The company also launched a developer community around Riva earlier this year in an effort to accelerate application development.
Energy management provider Landis+Gyr has its own strategy for the IoT. The company has broadened its offerings to include a smart metering solution that can run on G3 PLC technology, which incorporates IPv6. This IPv6 layer is seen as a key enabler of IoT applications for the smart grid and the smart home. In addition, Landis+Gyr officials also see the company’s involvement in Japanese utility TEPCO’s 27 million smart meter project as one of the world’s largest IoT deployments, thus giving it a leading position as the trend unfolds.
Likewise, smart grid network provider Silver Spring Networks recently unveiled Starfish, an international wireless IPv6 service for the IoT. Starfish is designed to enable utilities, cities and enterprises to leverage a reliable and secure network for IoT services. Starfish is based on the open IEEE 802.15.4g wireless interoperability standard known as Wi-SUN. The company plans to make Starfish available to customers in North America, Latin America, Europe, Asia, Australia and New Zealand starting in 2016.
What is IoT?
In simple terms, Internet of Things is a collection of intelligent devices and sensors that provide control, with or without human intervention. These connected things also relay data via wired or wireless connections, sometimes with the aid of the Internet or Cloud functionality. The benefits of the IoT broadly include automation, energy efficiency, enhanced maintenance, greater control, improved comfort and stronger security.
Smart meter, or advanced metering infrastructure (AMI), deployments are one of the main drivers of the IoT trend for utilities and their suppliers. Once the infrastructure is in place, it enables applications based on the massive data volumes generated from the connected devices. Analyzing this grid data then becomes a focal point for the business and drives insights for commercial and residential customers, as well as increased grid stability and optimized real time power procurement.
Among consumers, IoT technology promises smarter homes with enhanced systems that integrate smart meters, smart thermostats, connected lighting, smart appliances and security systems that combine door locks, motion sensors and cameras. As people become more familiar with these integrated systems, there is a growing awareness of energy management capabilities that can boost a home’s energy efficiency and reduce monthly energy bills.
Another driver from the customer demand side is the proliferation of mobile devices and applications, which has created a strong expectation that in-home devices will be connected through Wi-Fi or Bluetooth or existing wires, and that these devices should be able to interoperate. Another expectation is that devices like thermostats can connect to the Internet and share data with other devices, and be reachable by owners over wide-area cellular connections, be they 3G or 4G. Moreover, installing the latest devices has gotten somewhat easier with standard protocols like Wi-Fi, making plug-and-play more of a reality.
From a manufacturing standpoint, an important driver of IoT adoption has been falling component costs. For many devices, the costs of key chipsets or sensors have fallen to very affordable levels as volumes have increased, helping drive overall device costs down.
In addition, the boom in cloud computing is a clear driver. The wide availability and lower costs for cloud storage and processing power enable many stakeholders to affordably gather and analyze data from devices and deliver value and insights beyond just connectivity.
As with any emerging technology trend, however, there are barriers. Though standards do exist for communicating among devices, there are numerous protocols and differing standards that create interoperability issues. With incompatible technology choices available, consumers can be confused, which stalls adoption. For device manufacturers and solution providers, the various protocols and standards create tough decisions, too, about which ones to support, or not.
More expensive devices tend to hinder the IoT market as well. Even with component prices dropping, IoT hardware is often more costly than traditional alternatives, and this is likely to be the case for at least the next couple of years. For instance, the latest smart thermostats are several times more expensive than the standard products, and smart meters cost more than conventional versions. Another obstacle is battery life; some IoT devices rely on batteries in order to function, and there is still some uncertainty about how long those batteries need to last.
Beyond these issues, overall IoT awareness is still lacking among many consumers who have vague notions about IoT products for their homes, and how they might benefit. Many consumers have yet to experience the technology and do not understand the potential benefits. In addition, some harbor privacy concerns as an increasing number of connected devices share personal usage data that could be abused. Similarly, others raise the issue of potential security breaches, which has some validity given that a home or business with a growing number of connected devices will have multiple entry points that cybercriminals might exploit, despite the security layers built into IoT protocols.
A Growing IoT Market
Even though these barriers exist, Navigant Research views the drivers as more dominant, and as a result the IoT market is likely to grow. Navigant Research expects overall revenue attributed to residential IoT devices to grow from $7.3 billion in 2015 to $67.7 billion in 2025, which represents a compound annual growth rate (CAGR) of 25 percent. The North America market is expected to see revenue grow from nearly $2.5 billion in 2015 to $17.7 billion in 2025, with a CAGR of 21.7 percent. In Europe, IoT device revenue is anticipated to increase from $2.9 billion in 2015 to $24 billion in 2025, which represents a CAGR of 23.6 percent. Shipments of smart meters, smart appliances, smart thermostats and security and management systems are expected to be among the main revenue drivers.
IoT Momentum Accelerating
With millions of connected devices already in use, from smart meters to smart thermostats to connected lighting systems, the IoT market already exists, even if many don’t recognize it yet. And the momentum is accelerating. At the recent European Utility Week conference in Austria, the IoT was on many people’s minds. Most agree the market drivers are strong and the barriers can be overcome. And even though there is plenty of uncertainty at this relatively early stage of development, utilities, hardware vendors and software providers see new opportunities for IoT technology, although growth is likely to be more evolutionary than revolutionary. The hype seems to be waning just a bit.
Neil Strother is a principal research analyst in the Energy Practice at Navigant. Neil’s current work focuses on smart metering technologies, home energy management, and the related business practices.