The
Internet of Things:
Sizing up the opportunity
Sizing up the opportunity
This connectivity trend is now recognized as a source of growth for semiconductor players and their customers. Here we consider the opportunities and constraints for components manufacturers.
The
semiconductor industryhas
been able to weather the fallout from the global financial crisis and
realize several years of healthy growth—in part because of the
widespread adoption of smartphones and tablets, which created demand
for mobile and wireless applications. The industry’s average annual
growth rate between 2010 and 2013 was about 5 percent. Could the same
sort of growth result from widespread adoption of the Internet of
Things? Many semiconductor players have been asking themselves just
this question.
The
Internet of Things refers to the networking of physical objects
through the use of embedded sensors, actuators, and other devices
that can collect or transmit information about the objects. The data
amassed from these devices can then be analyzed to optimize products,
services, and operations. Perhaps one of the earliest and best-known
applications of such technology has been in the area of energy
optimization: sensors deployed across the electricity grid can help
utilities remotely monitor energy usage and adjust generation and
distribution flows to account for peak times and downtimes. But
applications are also being introduced in a number of other
industries. Some insurance companies, for example, now offer plans
that require drivers to install a sensor in their cars, allowing
insurers to base premiums on actual driving behavior rather than
projections. And physicians can use the information collected from
wireless sensors in their patients’ homes to improve their
management of chronic diseases. Through continuous monitoring rather
than periodic testing, physicians could reduce their treatment costs
by between 10 and 20 percent, according to McKinsey Global Institute
research—billions of dollars could be saved in the care of
congestive heart failure alone.
In
each of these cases, the connected devices that transmit information
across the relevant networks rely on innovations from semiconductor
players—highly integrated microchip designs, for instance, and very
low-power functions in certain applications. The semiconductor
companies that can effectively deliver these and other innovations to
original-equipment manufacturers, original-device manufacturers, and
others that are building Internet of Things products and applications
will play an important role in the development of the market. That
market, in turn, may represent a significant growth opportunity for
semiconductor players.
Indeed,
semiconductor executives surveyed in June 2014 as part of our
quarterly poll of the components-manufacturing market said the
Internet of Things will be the most important source of growth for
them over the next several years—more important, for example, than
trends in wireless computing or big data. McKinsey Global Institute
research supports that belief, estimating that the impact of the
Internet of Things on the global economy might be as high as $6.2
trillion by 2025.1 At
the same time, the corporate leaders polled admit they lack a clear
perspective on the concrete business opportunities in the Internet of
Things given the breadth of applications being developed, the
potential markets affected—consumer, healthcare, and industrial
segments, among others—and the fact that the trend is still
nascent.
In
this article, we take the pulse of the market for Internet of Things
applications and devices. Where along the development curve are the
enabling technologies, and where can semiconductor players insert
themselves in the evolving ecosystem? We believe components
manufacturers may be able to capture significant value primarily by
acting as trusted facilitators—it is their silicon, after all, that
can enable not just unprecedented connectivity but also long-term
innovation across the Internet of Things.
Sizing the opportunity
Three
years ago, industry pundits and analysts predicted that, by 2020, the
market for connected devices would be between 50 billion and 100
billion units. Today, the forecast is for a more reasonable but still
sizable 20 billion or 30 billion units. This leveling off of
expectations is in line with what we have seen in past introductions
of new technologies. Throughout the late 1990s and early 2000s, for
instance, there was much discussion in the semiconductor industry
about the potential benefits and implications of Bluetooth
technology, but the inflection point for Bluetooth did not happen
until 2003 or 2004, when a large enough number of industry players
adopted it as a standard and pushed new Bluetooth-based devices and
applications into the market. The market for Internet of Things
devices, products, and services appears to be accelerating toward
just such an inflection point, in view of four critical indicators.
Supplier
attention.
Internet of Things developer tools and products are now available.
Apple, for instance, has released HealthKit and HomeKit developer
tools as part of its latest operating-system upgrade, and Google
acquired Nest to catalyze the development of an Internet of Things
platform and applications.
Technological
advances.
Some of the semiconductor components that are central to most
Internet of Things applications are showing much more functionality
at lower prices. Newer processors, such as the ARM Cortex M, use only
about one-tenth of the power that most energy-efficient 16-bit
processors used only two years ago. This leap forward in
technological capabilities is apparent in the evolving market for
smart watches. The first such products released in 2012 boasted
400-megahertz single processors and simple three-axis accelerometers.
Now a typical smart watch will include 1-gigahertz dual-core
processors and high-end, six-axis devices that combine gyroscopes and
accelerometers. Meanwhile, the prices of the chip sets used in these
products have declined by about 25 percent per year over the past two
years.
Increasing
demand.
Demand for the first generation of Internet of Things products
(fitness bands, smart watches, and smart thermostats, for instance)
will increase as component technologies evolve and their costs
decline. A similar dynamic occurred with the rise of smartphone
usage. Consumer demand for smartphones jumped from about 170 million
devices sold annually just four or five years ago to more than a
billion devices in 2014. The increase in orders coincided with a
steep decline in the price of critical smartphone components.
Emerging
standards.
Over the past two years, semiconductor players have joined forces
with hardware, networking, and software companies, and with a number
of industry associations and academic consortiums, to develop formal
and informal standards for Internet of Things applications. AT&T,
Cisco, GE, IBM, and Intel, for instance, cofounded the Industrial
Internet Consortium, whose primary goal is to establish
interoperability standards across industrial environments so that
data about fleets, machines, and facilities can be accessed and
shared more reliably. Other groups have been focused on standardizing
the application programming interfaces (APIs) that enable basic
commands and data transfer among Internet of Things devices.
Implications for semiconductor players
Analysts
have predicted that the installed base for Internet of Things devices
will grow from around 10 billion connected devices today to as many
as 30 billion devices by 2020—an uptick of about 3 billion new
devices per year. Each of these devices will require, at a minimum, a
microcontroller to add intelligence to the device, one or more
sensors to allow for data collection, one or more chips to allow for
connectivity and data transmission, and a memory component. For
semiconductor players, this represents a direct growth opportunity
that goes beyond almost all other recent innovations—with the
exception, perhaps, of the smartphone.
A
new class of components will be required to address this opportunity:
system on a chip–based devices produced specifically for the
Internet of Things, with optimal power and connectivity features and
with sensor integration. First-generation chips are already on the
way, although it will probably be a few generations before chips can
deliver all the functionality required. Intel, for instance, is
releasing a low-power system on a chip designed for smaller products
in automotive and industrial environments. This chip also can be used
in fitness bands and other wearable devices. Additionally, sensors
based on microelectro-mechanical-systems (MEMS) technology will
continue to play a significant role in enabling Internet of Things
applications.
It’s
worth noting that semiconductor players may also be able to profit
indirectly from the Internet of Things, since the data generated from
billions of connected devices will need to be processed—all those
“little” data must be turned into big data—and users will
require greater storage capacity, spurring new demand for more
servers and more memory. Building on an existing market,
semiconductor companies can continue to provide the critical devices
and components that are at the heart of these products.
The
question, then, is no longer if the Internet of Things can provide
substantial growth for semiconductor players; the real consideration
is how best to capitalize on the trend. What are the critical
challenges or inhibitors? What are the possible enablers for growth
and adoption? Our research and discussions with semiconductor
executives have helped us identify potential challenges in two
critical areas—technology and ecosystem development.
The technological challenges
Semiconductor
players may need to invest heavily to adapt their chip designs and
development processes to account for specific Internet of Things
system requirements. For instance, because many applications would
require devices that are self-sustaining and rely on energy
harvesting or long-life batteries, semiconductor companies must
address the need for optimal power consumption and outstanding power
management in their products. Connectivity load will be another
critical concern, since hundreds or even thousands of devices may
need to be connected at the same time. The average smart home, for
instance, may contain 50 to 100 connected appliances, lights,
thermostats, and other devices, each with its own low-power
requirements. Existing connectivity solutions such as standard
Bluetooth or Wi-Fi will probably not be able to meet smart-home
requirements given their power and network limitations.
Manufacturers
may also need to emphasize flexible form factors to a greater degree
than they currently do. Components must be small enough to be
embedded in today’s smart watches and smart glasses but also
amenable to further shrinking for incorporation into
still-unidentified future products. And security and privacy issues
absolutely must be addressed. Internet of Things devices will not be
used for critical tasks in, say, industrial or medical environments
if connectivity protocols have not been established to prevent
hacking, loss of intellectual property, or other potential breaches.
Semiconductor
players are moving full steam ahead to address some of these
challenges. Their efforts in two areas in particular are highly
encouraging.
Increased
integration.
Some semiconductor players are already considering investing in new
integration capabilities—specifically, expertise in packaging and
in through silicon via, a connectivity technique in electronic
engineering, as well as in software development. The emergence of
more integrated system-in-package and system-on-a-chip devices is
helping to overcome some of the challenges described earlier, in part
by addressing power, cost, and size factors. The trend toward
multidimensional chip stacking and packaging (2.5-D and 3-D
integrated-circuit, or 2.5DIC and 3.0DIC, devices in particular) has
resulted in integrated circuits that are one-third smaller than
standard chips, with 50 percent lower power consumption and bandwidth
that is up to eight times higher—at a cost that can be up to 50
percent lower when compared with traditional systems on a chip of the
same functionality. Monolithic integration of MEMS sensor
technologies with complementary metal-oxide semiconductors is
considered unlikely for Internet of Things applications. In these
instances, the integration of substrates with silicon requires making
certain design trade-offs and optimizing both the sensor and the
logic circuits. Instead, we expect to see 2.5DIC and 3.0DIC
technologies being favored for Internet of Things–specific
integrated circuits.
Connectivity
standards.
The current cellular, Wi-Fi, Bluetooth, and Zigbee specifications and
standards are sufficient to enable most Internet of Things
applications on the market. Some applications, however, will require
low-power, low-data-rate connectivity across a range of more than 20
meters—an area in which cellular technologies and Wi-Fi often fall
short. New technologies that target this need are emerging from
players such as those in the Bluetooth and Weightless interest
groups. The latter is an industry group comprising technology
companies that are exploring the use of free wireless spectrum to
establish an open communications protocol. Such standardization
efforts will enable Internet of Things applications that require
broadly distributed sensors operating at low power over low-cost
spectrum—for instance, temperature and moisture sensors used in
agricultural applications.
The ecosystem challenges
As
Joep van Beurden, the chief executive at CSR, notes, only about 10
percent of the financial value to be captured from the Internet of
Things trend is likely to be in the “things”; the rest is likely
to be in how these things are connected to the Internet. The
semiconductor players that focus primarily on the things themselves
should therefore find ways to support the development of a broader
ecosystem (beyond silicon) and find their niche as both enablers and
creators of value for their customers and their customers’
customers. This will mean developing partnerships with players
further downstream, such as companies that are building and providing
cloud-based products and services.
It
will be important for semiconductor companies to remember that
different industries are at different levels of maturity and
complexity with respect to the Internet of Things—so the roles that
components manufacturers can play in application development in
certain industries will vary, as will the timing of growth
opportunities. The market for home-automation tools, for instance,
has established some common APIs, but competing standards remain. A
number of application developers have already started generating
monitoring products for consumers, and once standardization issues
can be addressed, the market may experience significant growth rather
quickly. By contrast, the markets for monitoring and control systems
in factories and for beacon technologies in retail are much more
fragmented and will therefore take longer to develop. In retail, for
instance, all the players in the value chain—the stores, the data
aggregators, the Internet service providers, and other partners—must
sort out their roles and standards of operation before
beacon-technology providers can approach them with a clear customer
value proposition and business model.
In
these instances, semiconductor companies may want to test the waters
by forming alliances with hardware companies, systems players, and
customers or by finding ways to assist in developing standards. In
the factory-monitoring-systems market, for instance, players are
attempting to create common standards (through the Industrial
Internet Consortium initiative, for example, and the Europe-only
Industry 4.0 initiative), even though most of the hardware platforms
are still proprietary, as are the data, which reside in legacy
systems. Semiconductor players that pursue alliances and
standard-setting activities may be able to play an enabling role in
defining best practices in Internet of Things privacy, security, and
authentication—issues that will be critical in markets, such as
healthcare and wearables, that are dealing with sensitive consumer
data.
Given
the potential 90 percent distribution of value to players that
provide all the technologies “beyond” the silicon, there may
never be a compelling enough business case for components
manufacturers to develop individual chips and systems for hundreds of
thousands of discrete Internet of Things industry applications. We
believe semiconductor players should instead design a family of
devices that are sufficiently flexible to cater to the needs of
multiple industries—that can be used in industrial and consumer
Internet of Things applications that boast similar characteristics.
Our work suggests that these devices will probably fall somewhere
along a continuum of application requirements—at one extreme,
high-power, high-performance, application-processing Internet of
Things devices, such as those embedded in smart watches, and, at the
other extreme, low-cost, ultralow-power integrated sensors that
support sufficient (but not excessive) functionality and autonomous
device operation. To achieve this level of design flexibility and to
address the opportunity properly, semiconductor players may need to
rethink their approach to product and application development.
The
challenges associated with the Internet of Things are many;
semiconductor executives should consider ways to integrate new
development models, process capabilities, and go-to-market strategies
in their existing operations. Success will require bold moves, boards
that are willing to bet on unfamiliar models and activities, and
collaboration with those that are developing industry standards. But
the semiconductor industry should embrace this era of innovation and
reinvention. The opportunities for growth outweigh the challenges, as
components manufacturers explore the creation of a new class of
Internet of Things–enabled semiconductors that can cut across a
wider swath of potential customers than existing components can. The
sector may be on the cusp of unit growth similar to the surge it
experienced with the smartphone—and perhaps an even greater jump.
http://www.mckinsey.com/insights/high_tech_telecoms_internet/the_internet_of_things_sizing_up_the_opportunity?cid=other-eml-alt-mip-mck-oth-1412
No comments:
Post a Comment