The Internet of Things– overhyped but under estimated?

IoT has been one of this season’s buzzwords. Speak to any VC or angel and they will tell you they are developing an IoT sector focus. Publically traded Big Tech – from Google to Apple, from IBM to Intel – sees the idea as the next big growth vector. It sometimes seems that every entrepreneur pitch we see is one of: the analytics platform; the on ramp; the off ramp; a managed service; a service provider; or a unique-combination-of-hardware-and-software-with-a-compelling-energy-saving-business-case for IoT. It’s the new Big Data. (Actually machine learning might be the new Big Data…but that is another post)

Prior to Episode One, I worked at Cisco for a long time, and we liked to call IoT IoE – the Internet of Everything. We took a lot of flack for what people saw as a marketing term, a TLA designed to set our strategy apart from everyone else. But with the benefit of hindsight (and ignoring the admittedly strong marketing logic) Cisco was absolutely right. A simple way to think about IoT is as connecting the unconnected – adding devices and machines to the Internet, adding sensors, gateways, connectivity and management platforms. This is a necessary next step for sure, and there is plenty of money to be made and value to be created. But it completely underestimates what is really happening.

When everything and everyone is connected to everything else, then everything everywhere becomes addressable, programmable, replicable and interchangeable on a giant interconnected network. Product and service offers will be combined, replaced and reinvented, markets will no longer be clearly defined and industry boundaries will become completely blurred. The twin transformational technologies of automation (software) and industrialization (cloud based IT) allow everyone to have access to world class IT at an ever declining cost, while tech business models – think about the “freemium” model of getting the basic offer free of charge, or giving away the product to get the data, or even open sourcing IP and selling premium services – can be mobilized in every industry. The Internet becomes a giant software enabled business-service grid where every product, service and industry can be reinvented.

Think of an offer – a product or service. Let’s say an insurance premium or an MRI scanner. Now add industrialized IT to it. Then add the ability for it to record data, to measure itself, to learn who uses it and why, to make decisions and send alerts. Now add connectivity so it can tell other products what it has learnt, upgrade itself – re-price, replace software, respond to events, or act as part of a system. Now add Moore’s Law, Metcalfe’s Law, Andreesen’s stone tablets and your interpretation of Kurzweil’s Singularity to this process – and the rest is simply a matter of time. The grid becomes exponentially more powerful, more flexible, more responsive and more available. In my view, every industry is going to be completely transformed from top to bottom by this process, with markets shifting all over the place, and industry boundaries needing to be completely redrawn.

Try this obvious thought experiment. Think of a great tech company like Google, a company that gave us search, driverless cars, Google Maps and YouTube among much else. These are essential goods of the information age and we take them for granted. Except of course Google isn’t a tech company, it’s an advertising company, its revenues that would be counted in technology markets (mostly from Cloud last time I looked) are insignificant. The only thing it does for the tech industry is destroy addressable market by giving things away. And just as it has completely disrupted the tech and advertising industries, it is itself being disrupted by Facebook, Instagram, Pinterest, Twitter and a 1000 others who seem to have a better grasp of the fleeting interests of the mobile consumer.

Alternatively, think about an industry like Automotive. The front end is being transformed by the sharing economy and services like Uber that increase asset utilization – more people using the same set of cars means we need less cars. Ecommerce and services like our portfolio-company CarWow mean people can make a better informed, better value purchase when they are ready to buy. The software heart of the car that deals with GPS and entertainment is being outsourced to the tech firms that do it better – and even the future of automotive technology itself is increasingly more likely to come out of the labs of firms like Apple, Tesla and Google than traditional manufacturers. And you can perform a similar exercise for financial services, retail, dental hygiene – or pet grooming. Take your pick.

The reason this is important is that I am not sure this simple logic has reached the boardroom yet. For sure, these trends are not new – they have been underway for years. And IT is higher up the corporate agenda as a source of competitive advantage than before. There have even been some high-profile warnings from folks like Jamie Dimon at JPMC about new competition from Silicon Valley. But that is not the same as seeing the existential threat heading toward every industry and every company. As we complete the basic transformational infrastructure with IoT, and we export IT and the technology business model everywhere else, we will see more change in more industries in the next 20 years than we have seen in the last 1000. And it will be the biggest investment opportunity in history.


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