What’s new with the Internet of Things?
·
Adoption
of the Internet of Things is proceeding more slowly than expected, but
semiconductor companies can help accelerate growth through new technologies and
business models.
Niccolò Machiavelli, one of history’s great
futurists, might have predicted the Internet of Things (IoT) when he wrote,
“There is nothing more difficult to take in hand, more perilous to conduct, or
more uncertain in its success, than to take the lead in the introduction of a
new order of things.” The IoT’s early innovators, who have grappled with mixed
overall demand, a lack of consistent standards, and other challenges, would
agree that their road has been difficult. But, like other visionaries before
them, they have persisted in establishing a new order because they see the
promise ahead.
Both consumers and the
media are fascinated by IoT innovations that have already hit the market. These
“smart” devices have sensors that communicate seamlessly over the Internet with
other devices or the cloud, generating data that make the world safer, more
productive, and healthier. In just a few years, some IoT devices have become
standard, including thermostats that automatically adjust the temperature and
production-line sensors that inform workshop supervisors of machine condition.
Now innovators want to enable more sophisticated IoT technologies for
self-driving cars, drone-delivery services, and other advanced applications.
Although some analysts
are excited about the IoT’s potential, others have argued that it is overhyped.
We take a more balanced view, based on our extensive research as well as our
direct work with IoT application developers and their customers. Like the
optimists, we believe that the IoT could have a significant, and possibly
revolutionary, impact across society. But we also think that the lead time to
achieve these benefits, as well as the widespread adoption of IoT applications,
may take longer than anticipated. The uptake of IoT applications could be
particularly slow in the industrial sector, since companies are often
constrained by long capital cycles, organizational inertia, and a shortage of
talented staff that can develop and deploy IoT solutions.
For semiconductor
companies, which are looking for new sources of revenue, the rate of IoT
adoption is an important concern. In this article, we will look at the case for
optimism, as well as the reasons for more modest expectations. We will also
examine new technologies that could accelerate the IoT’s growth and product-development
strategies that semiconductor companies could implement to increase the appeal
of IoT offerings.
Reasons for optimism: Increased connectivity helps the
IoT
If we look at the IoT’s
recent growth, the optimists have reason to be encouraged. Consumers are more
connected than ever, owning an average of four IoT devices that communicate
with the cloud. Globally, an estimated 127 new devices connect to the Internet
every second. A report from the McKinsey Global Institute estimates that the
IoT could have an annual economic impact of $3.9 trillion to $11.1 trillion by 2025 across many different
settings, including factories, cities, retail environments, and the human body .
The IoT is also
benefiting from infrastructure improvements that have enhanced connectivity.
For example, only 20 percent of the global population is now covered by
low-power, wide-area networks (LPWANs) that allow long-range communications
among connected devices while optimizing both costs and power-consumption
requirements. By 2022, however, we expect that 100 percent of the population
will have LPWAN coverage. Similarly, technological advances are reducing power
requirements, decreasing costs, and promoting the development of more
integrated IoT solutions. Consider lidar sensors, the laser-based sensor
packages that scan and detect surroundings, which are essential for autonomous
driving. Their price has declined more than 10-fold over the past eight years
and is expected to drop more than 65-fold over the next two. This decrease,
combined with the increased technological sophistication of lidar, is
contributing to the development of fully autonomous cars, which could
constitute 25 percent of all vehicle purchases by 2035.
Reality check: Industrial IoT adoption has been slower
than expected
Many experts view the
IoT’s slower-than-expected growth within the industrial sector with particular
concern. To gain more perspective, we investigated how industrial companies are
using IoT applications and tried to estimate whether business-to-business (B2B)
growth might accelerate. In addition to basic research, we interviewed and
surveyed over 100 leaders from various industries, including public sector and
utilities, discrete manufacturing, oil and gas, mining, telecommunications,
technology, media, healthcare, and pharmaceuticals.
Few large-scale IoT projects
Our interviews revealed
that most businesses are adopting the IoT only to a limited extent. With the
exception of oil and gas and mining, leaders from all industries reported that
their companies often received real-time data from IoT sensors. However, most
leaders reported that their enterprise deployments were still at
proof-of-concept stage, and none have yet embarked on large-scale programs.
Limited use of IoT data
Although IoT sensors collect vast
stores of data, a recent report from
MGI showed that companies do not analyze most of them.2For example, on an oil rig that had
30,000 sensors, managers examined only 1 percent of data. What’s more, business
leaders seldom consider information from IoT sensors when making important
decisions, including those related to maintenance planning or automation
procedures. Their reluctance to examine IoT data stems from several factors,
including a lack of data-analytics staff, but the most important reason is simple:
as humans, we prefer to consult other people for advice or to look back on our
own experience, when making decisions. Although hard data from IoT devices are
more complete and objective, we tend to assign them less value. Before IoT data
gain a more prominent role in corporate decision making, business leaders and
other important managers—maintenance supervisors, field service technicians,
and retail merchandisers, to name just a few—will have to appreciate their
value.
A focus on simple IoT applications
In our survey,
respondents favored simple use cases that enable tracking data and sending
status alerts related to changes in the physical world. Some companies, for
instance, have placed sensors in food packaging that track a product’s location
throughout the distribution supply chain. Simple tracking and alert functions
are relatively easy to deploy because they do not require advanced analytics,
complex algorithms, or data-science capabilities, allowing them to generate
value quickly. Although some innovators are enthusiastic about IoT applications
for optimization and prediction, we expect that most customers will remain
focused on simple use cases, at least for the immediate future. And that means
they will not obtain full value from the IoT.
IoT security concerns
IoT devices, connected
cars, and edge gateways are all potential entry points for a cyberattack—and we recently
saw the full extent of this vulnerability. In the 2016 Mirai botnet attack,
hackers specifically targeted IoT devices, including appliances and routers,
and disrupted many major Internet service providers. The attack, the most
significant of its kind, was possible only because of human weakness—a failure
to reset generic or default password and username combinations. This attack,
and others like it, demonstrate that IoT vulnerabilities often result from a
lack of basic care in managing and maintaining devices. Such weaknesses cannot
be eliminated through encryption, attack-detection programs, biometric-access
control, or other sophisticated technologies. That means companies that want to
expand their IoT efforts will need to launch comprehensive security initiatives
that address weaknesses resulting from both technological vulnerabilities and a
lack of caution among those who use IoT devices.
Technology developments: IoT growth could accelerate
A few important, and
potentially disruptive, developments could accelerate IoT uptake and create
opportunities for semiconductor players.
Microphones and video: The ultimate IoT sensors
Video analytics—the
application of sophisticated algorithms to video feeds—is spurring the creation of new IoT
applications and use cases. For
instance, data analysts can now examine customer demographics by applying
sophisticated algorithms to videos taken as shoppers browse through merchandise.
Recent evidence also suggests that the IoT will benefit from audio captured on
microphones.
The costs associated
with video and audio feeds are falling, with sensors now embedded in devices at
low cost—under $2 each. The data gathered from these feeds are extremely rich,
diverse, and relevant to many widely used IoT applications. Lower
data-communication rates, the growth of 5G data networks, and ongoing decreases
in cloud-storage costs will continue to encourage developers to find new uses for
video and audio.
For semiconductor
companies, the increased importance of IoT video and audio feeds may create an
opportunity to combine hardware with end-to-end approaches for analytics and
control. They will have to move quickly to meet customer needs, however, since
the technology related to advanced applications, such as those that use
analytics to recognize faces, is evolving rapidly. Semiconductor customers may
be particularly interested in products that integrate hardware and software
more closely, as well as new architectures that optimize transmission,
processing, and analytics on devices, in the network, and in the cloud.
Energy harvesting: Providing power to IoT devices
The advent of standards
that support truly LPWANs, including LoRa, NarrowBand IOT, and Sigfox, will
enable large-scale sensor deployment of IoT applications in many areas,
including agriculture (analysis of soil conditions), safety (citywide
monitoring of air quality), and productivity (real-time logistical tracking
along the supply chain). But the growth of the IoT, combined with the increase
in sensors and connectivity, will also make it more challenging to provide
power to untethered devices and sending nodes. Even with long-life battery
technology, many of these devices can only function for a few months without a
recharge.
Energy harvesting, a
process in which energy derived from external sources is captured and stored
for use in wireless devices, might resolve power-related issues. Although solar
energy could provide an answer for many IoT applications, semiconductor
companies should also investigate other sources, such as wind, thermal energy
(derived from heat), and kinetic energy (derived from an object’s motion).
Optimizing energy harvesting, management, and storage will require companies to
create innovative designs, at both the silicon and system level.
Embedded intelligence and device analytics: Better power
and storage
As the IoT expands,
innovators are rapidly developing complementary architectures that combine the
following two important features:
·
the power of the cloud, which offers robust storage and
greatly extensible computing power at low cost
·
the ability to process
and store data on a device (or edge), or within a network at gateways that
connect multiple end-devices to the cloud
Multiple IT
architectures with these properties have already reached the market, each
offering a compelling approach. But semiconductor companies have an opportunity
to go further—and to make more rapid progress—in defining the future
architecture of the IoT. In particular, they should focus on products related
to video and audio sensors, since these devices are proliferating and
generating significant amounts of data.
Many IoT applications
require data to be processed on the devices themselves. For instance,
applications for autonomous driving, surveillance, and security all have strict
latency specifications that require systems to respond immediately after data
input. To meet these requirements, the IoT devices that collect the data must
process them and use the output to make decisions. Applications that require
on-device processing are power hungry and include relatively expensive
components, such as multiple application processors. Semiconductor companies
could take the lead in optimizing on-device solutions for these applications.
For instance, they could create edge-device solutions for autonomous control,
facial recognition, and audio analytics, all of which have different hardware
and software requirements with respect to computing performance, signal
processing, and storage.
What needs to happen: How semiconductor companies and
other players can capture IoT opportunities
Before any company
explores IoT opportunities, it should take a new look at strategy, including
the factors that it considers when developing solutions.
Focusing on outcomes (not technology)
Both developers and
business leaders often focus on the technological potential of the IoT,
including its ability to collect and analyze vast stores of data. But
technological advances alone will not make an IoT application more valuable or
desirable to customers. Instead, developers should focus on outcomes—how a new
application will improve safety, financial returns (for businesses), and
convenience.
Consider, for example,
the outcomes that one airplane manufacturer achieved by using IoT sensors to
monitor jet-engine performance. By providing real-time data, the sensors
immediately alert the manufacturer about potential problems, which makes it
easy to conduct preventive maintenance and maximize uptime. Other sensors help
with parts-inventory management. Together, these IoT enhancements have
contributed to 9 percent revenue growth and a 30 percent increase in engine
availability. That means airplanes spend more miles in the air and less time on
the ground, consistently reducing overall operating costs.
To focus on outcomes,
companies will have to coordinate activities across the value chain. In
addition to providing the technology and data that enable the IoT, they
will need to adapt their business models—a difficult process, in our
experience, since incumbents often resist change. If they fail to evolve, a
start-up or another disruptive player may take the lead in establishing a new
approach to IoT application development, especially if new investors emerge to
finance innovative ventures.
As companies shift
their focus from technology to outcomes, they will need to provide incentives
that encourage upstream vendors and customers to support the use of their
applications.
Designing for people (not enterprises)
Just as IoT innovators
tend to focus on technology, many IoT marketing materials try to appeal to
customers by discussing the latest product upgrade, including better sensors,
connectivity, computing power, and analytics. But our experience has
consistently offered one clear insight: users, both personal and industrial,
are more likely to adopt IoT technologies that generate a positive emotional
reaction. Consider smart homes, where technology companies have
recently won many customers by offering voice-based products—devices with basic
conversational abilities that often respond to a name, just like a person. For
instance, Amazon’s Echo, a smart-home speaker, answers to the name Alexa and
can respond to basic commands and questions. Such qualities may create an
emotional connection between users and devices, and they could be partly
responsible for the strong sales of voice-based products.
As technology companies
develop new IoT offerings, they should ask digital designers to provide
insights about customer behavior, since this information might help them create
products that prompt strong positive feelings and accelerate adoption rates. As
always, products will also need strong technical and analytical capabilities,
but companies are more accustomed to delivering such features.
Current IoT trends
create an uncertain and sometimes confusing picture of the sector’s future
prospects. When we look at the evidence in total, however, we believe that the
IoT is poised to serve as a major growth driver for semiconductor companies.
Adoption rates have risen more slowly than expected, but that should not be a
reason for pessimism, since many IoT technologies are immature or undergoing
development. Semiconductor companies and other players can still undertake new
strategies to accelerate IoT growth. Rather than focusing on technology
upgrades, they could develop IoT products that truly improve customer outcomes
for cost, performance, and other important metrics. They could also emphasize
design-driven insights about customer needs, including the product features
that generate a positive emotional response. This new approach to development
will be challenging, but it will accelerate IoT adoption and help more customers,
both personal and industrial, achieve benefits from this exciting new
technology.
By Mark Patel, Jason Shangkuan, and
Christopher Thomas
http://www.mckinsey.com/industries/semiconductors/our-insights/whats-new-with-the-internet-of-things?cid=other-eml-alt-mip-mck-oth-1705&hlkid=9f8420979ff7413594204ff3edf3299a&hctky=1627601&hdpid=5148ff23-1908-4fb0-bed0-236090b1f9ad
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