The future of connectivity: Enabling the Internet of Things
With
new connectivity technologies unlocking opportunities along the IoT value
chain, companies must create detailed plans to harness their potential.
The Internet of Things
(IoT)—the network of
connected “smart” devices that communicate seamlessly over the Internet—is
transforming how we live and work. At farms, wireless IoT sensors can transmit
information about soil moisture and nutrients to agricultural experts across
the country. IoT alarm systems, equipped with batteries that last for years,
provide homeowners with long-term protection. Wearable fitness devices—for both
people and pets—can monitor activity levels and provide feedback on heart rate
and respiration. Although these applications serve different purposes, they all
share one characteristic: dependence on strong connectivity.
IoT stakeholders
seeking connectivity solutions include radio and chipset makers, platform
vendors, device manufacturers, and companies in various industries that
purchase IoT-enabled products, either for their own use or for sale to the
public. These companies can now choose from more than 30 different connectivity
options with different bandwidth, range, cost, reliability, and
network-management features. This wide variety, combined with constantly
evolving technology requirements, creates a quandary. If stakeholders bet on
one connectivity option and another becomes dominant, their IoT devices,
applications, and solutions could quickly become obsolete. If they hesitate to
see how the connectivity landscape evolves, they could fall behind more
aggressive competitors.
Cellular 5G
networks—now being refined—might eventually become a universal solution for IoT
connectivity. Although some global telecommunications networks and industrial
applications now use 5G, this technology will not be widely available for at
least five years, because of high development and deployment costs. With annual
economic benefits related to the Internet of Things expected to reach $3.9 trillion to $11.1 trillion by 2025, companies cannot afford to defer their IoT investment
until 5G arrives.
To help business
leaders identify the connectivity solutions that best meet their current needs,
we analyzed 13 sectors, including automotive, manufacturing, construction, and
consumer, where IoT applications are common.1In each sector, we
focused on connectivity requirements for likely use cases—in other words, the
tasks or activities that may be most amenable to IoT solutions. We then
identified the most relevant connectivity solutions for each one. In addition,
we examined business factors that may influence how the connectivity landscape
evolves, as well as the elements of a strong connectivity strategy.
A vast assortment of connectivity offerings
When contemplating
their options for IoT connectivity, companies must choose among solutions
from four categories: unlicensed; low power, wide area (LPWA); cellular; and
extraterrestrial. Companies may find it difficult to choose among these
technologies because each IoT use case presents unique requirements for
bandwidth, range, and other connectivity features. LPWA options are also
difficult to evaluate because they are still in the early stages of deployment,
and their full potential and drawbacks will not become obvious until they are
implemented on a greater scale.
Unlicensed connectivity solutions
These solutions are not
exclusively licensed to a particular company, allowing the public to access
them on any IoT device that uses this technology. Unlicensed solutions are
relatively inexpensive and allow businesses to manage their own networks,
rather than relying on a mobile operator to do so. On the downside, unlicensed
technologies are vulnerable to interference from electrical or environmental
obstacles, such as a large number of buildings that may interfere with signal
transmission. They also face difficulty providing connectivity over long
distances (more than 100 meters). Companies have various options for unlicensed
connectivity, all of which have distinct features. For instance, Wi-Fi—perhaps
the most well-known unlicensed option—has bandwidth of up to one gigabyte per
second. That is higher than the bandwith for Bluetooth, Zigbee, and Z-Wave.
Low-power, wide-area connectivity
LPWA technologies are relatively new. As
their name implies, they have two characteristics:
·
Low
power. They can allow
devices to operate for years, assuming that they collect and analyze data
hourly and factoring in the typical impact of battery self-discharge and
degradation.
·
Wide
area. These
technologies deliver at least 500 meters of signal range from the gateway
device to the end point. Coverage is lowest in challenging deployment
environments, such as urban or underground locations.
In addition to
providing long battery life and extensive range, LPWA technologies are reliable
and associated with low costs. No other technology offers these four
characteristics in combination. For instance, unlicensed technologies are
unreliable, while cellular technologies are expensive and cannot provide power
for multiple years on a single charge. Thus, LPWA fills an unmet need in IoT
connectivity.
Only 20 percent of the
global population is now covered by LPWA networks, so they cannot become the
default solution within the next five years, but their availability is growing
rapidly. By 2022, we expect that most IoT applications will use LPWA networks,
which will make connectivity choices less confusing. (5G will still not be
widely available at that point).
Some companies have
developed proprietary LPWA technologies, including Ingenu (formerly On-Ramp
Wireless), Link Labs, LoRa, Sigfox, and Weightless. The 3rd Generation
Partnership Project, an organization that develops connectivity guidelines, is
also working to standardize several nonproprietary technologies that are
supported by many or all mobile-equipment, chipset, and module manufacturers.
These include narrowband IoT (NB-IoT), which is the newest LPWA option and was
specifically developed for the Internet of Things. Other nonproprietary
technologies include LTE machine-type communications (user equipment categories
1, 0, and M), extended-coverage GSM (EC-GSM), and low-throughput networks.
Each LPWA technology
has different advantages and implementation requirements. For instance, Sigfox
manages its own networks, while LoRa is supported by more than 400 partners.
NB-IoT relies on existing cellular infrastructure for the small pilots in which
it is being tested. This will also be the case when NB-IoT becomes more widely
available and is applied in larger-scale programs. Since the LPWA market is
still in its early stages, it is difficult to predict which LPWA solution will
emerge as the winner.
Cellular connectivity
Current 4G LTE
technology offers high bandwidth of up to 100 megabytes per second and a large
range of more than ten kilometers. Reliability and availability are also good.
On the downside, 4G LTE technology is associated with high costs—several
dollars or more for a module compared to less than a dollar for Wi-Fi. Cellular
connectivity also has high power-consumption requirements, making it less than
ideal for IoT applications, where battery life should extend over multiple
years.
Companies can deploy 4G
LTE connectivity over public or private networks. Public networks use the same
connectivity infrastructure as mobile phones, while private networks segregate
devices into a separate system by sublicensing unused frequencies from mobile
operators with enterprise-owned infrastructure. Some companies in our analysis
managed private networks, but most lacked the necessary capabilities and
budget. This will also be the case within the wider population.
Extraterrestrial connectivity
This connectivity
option includes satellite and other microwave technologies. IoT stakeholders
generally use it only when cellular and fiber options are not feasible, since
it has the highest costs. For instance, organizations within national defense
may use satellite connectivity for unmanned drones. Extraterrestrial options
have low-to-medium bandwidth, high range, and medium-to-high reliability and
availability. Only a few industries rely on extraterrestrial connectivity for
IoT apps.
Connectivity requirements across industries
While no connectivity
solution is perfect, we were able to determine the most appropriate options for
each industry by identifying the likely use cases in each sector. Many of these
involved cost reduction and productivity improvement. For instance, companies
in many industries value IoT solutions that reduce machine downtime by
providing predictive maintenance, as well as those that give them better
visibility into the supply chain and eliminate bottlenecks. There is not yet an
IoT-based “killer application” for these services, or any other task, but one
could emerge over the next few years as connectivity technology advances. That
could increase both the volume and value of IoT.
Our research showed
that connectivity requirements often varied by industry, even when the
potential use cases were identical. For instance, predictive maintenance and
operations optimization are potential IoT use cases for manufacturing, mining,
construction, and oil and gas. Range and reliability requirements varied by
industry, however, as did the willingness and ability to manage networks.
After identifying the
likely use cases and associated requirements, we determined what connectivity
solutions are likely to gain traction in each industry over the next five years.
We believe that many companies will switch from unlicensed technologies to LPWA
as it becomes more widely available, because it better meets their connectivity
requirements. Consider mining. One company in this industry had to run cables
far below the earth’s surface and install frequent access points to deliver
Wi-Fi connectivity at one of its sites. (It could not use other connectivity
technologies because cellular and extraterrestrial solutions cannot transmit
signals so far below the earth’s surface.) LPWA can penetrate walls and other
barriers more easily, and it may become the company’s preferred connectivity
solution once it becomes commercially available in its area. Companies in many
other industries, including agriculture and manufacturing, may also shift from
unlicensed technologies to LPWA. In fact, we could see a situation in which IoT
grows in tandem with LPWA, since improved connectivity will increase both the
number of IoT devices in use and the locations where they are used.
Despite LPWA’s growing
popularity, cellular options will still enable connectivity for use cases in
numerous industries. The highest cellular demand will involve public LTE
networks, since private ones are costly to build and maintain.
Satellite and other
extraterrestrial communication solutions will continue to play a niche role,
providing connectivity only in situations where cellular or fiber technologies
are not feasible.
Business factors will help determine which connectivity
solutions gain the most traction
Our analysis suggests
that technology advances will not be the only force that determines which
connectivity solutions become dominant. In fact, the following business
factors—including those over which IoT stakeholders have little control—may
play an equally important role.
Changing business models of industrial-device
manufacturers
Most device
manufacturers that create industrial IoT solutions originally followed a
pay-per-unit business model in which they charged a single fee for each device
sold and made most of their income from long-term maintenance contracts. This
model inadvertently created a conflict of interest between customers, who
wanted their devices to work uninterrupted, and manufacturers, who profited
from servicing faulty devices. But this conflict may soon cease. Manufacturers
are now transitioning to a device-as-a-service (DaaS) model in which they sell
customers a subscription to their products. The subscription covers both the
initial device purchase and later maintenance costs, which allows manufacturers
to make money even if the products do not require service. In fact, they have
an incentive to keep their devices running, since service costs could reduce
their revenues. To facilitate the DaaS model, manufacturers want connectivity
solutions that allow them to connect, monitor, and perform updates remotely.
LPWA solutions best meet their needs, since unlicensed technologies such as
Wi-Fi do not work well in “noisy” environments with a lot of electrical and
environmental interference, including those in manufacturing plants.
Associated costs
Although IoT
connectivity chipsets may be relatively inexpensive, companies may face
additional costs to enable the solutions, including those for modules,
retrofitting, and infrastructure. For instance, companies may pay less than a
dollar for a Wi-Fi module, but they might need to purchase multiple access
points, install wiring, and undertake system integration to enable
connectivity—all costly endeavors. If LPWA is an option in such circumstances,
companies may favor it because their associated costs will be lower.
Even connectivity
technologies in the same category can have different associated costs, and this
may determine what solution a company chooses. Consider the various LPWA
options. While companies must build communication towers and purchase modules
to deploy Sigfox connectivity, NB-IoT requires only a module purchase, since it
can use existing cellular infrastructure.
Supporting ecosystems
Some IoT connectivity
solutions are easier to deploy because they have a strong ecosystem that
supports their use. For example, LoRa is an attractive LPWA option because
there are already hundreds of members in the LoRA Alliance, and the numbers are
growing.
Commercial readiness
Some emerging
connectivity solutions remain untested on a large scale. Consider NB-IoT, a new
LPWA technology that can be deployed through existing cellular infrastructure
and has very low power requirements. This technology is not widely available
commercially, although it is being tested in pilots. It may thus be at a
disadvantage against other LPWA solutions such as LoRa and Sigfox that have
been on the market for several years and are now part of a growing ecosystem.
The elements of a strong near-term connectivity strategy
As companies design
their IoT strategy, they must be open to change, adapting their game plan to
suit new connectivity standards and customer preferences for simplicity.
Likewise, they should be prepared to investigate new business models, since
advances in IoT connectivity may open some surprising opportunities.
Betting on multiple IoT connectivity
standards
Multiple groups are
attempting to establish connectivity standards for IoT, including the
Industrial Internet Consortium and individual companies that sponsor
open-standard initiatives. Such groups have successfully set standards for
connectivity in other technological spheres, but their efforts often move
slowly, which can delay growth. Some consortia of companies and single strong
players are also attempting to set de facto standards before standard-setting
bodies can align and define one.
Experience with other
technologies suggests that the IoT connectivity standards that are most likely
to become dominant will provide clear value for all stakeholders, such as
reduced costs or technical advantages. They will also have the support of all
players within one or more strong ecosystems that cover a large number of
products. Finally, the preferred standards will allow for rapid rollout and
scale-up, as well as easy adoption—something that is more likely to occur if
they have the support of a partnership or multiple groups.
Until IoT stakeholders
have more certainty about standards, they must remain flexible. For instance,
Ericsson and Huawei are introducing different versions of NB-IoT, but it is
unclear which one will become more popular. Therefore, platform vendors that
want to enable out-of-the-box device connectivity for IoT offerings may want to
make their products compatible with both versions. While this strategy ensures
that devices can communicate, it also creates additional complexity and could
potentially increase product costs.
Focusing on simplicity
We have talented
engineers and leading-edge technology companies to thank for the wealth of
connectivity technologies now available or in development. The most
sophisticated and complex solutions reflect well on the technological prowess
of their creators, and they may be best suited for many products. Within IoT,
however, companies must focus on use cases, rather than technological
sophistication, when selecting connectivity solutions. That means they should
be satisfied with connectivity solutions that satisfy the basic requirements
for device functionality, even if more advanced options are available, if they
can procure them at a lower cost.
Exploring new business models
One of the greatest
needs in IoT is ubiquitous connectivity—the ability to connect to any device,
regardless of location. Mobile virtual-network operators (MVNOs) are the only
players who currently provide this capability. These players lease wireless
capacity from other companies that own cellular networks in various
locations—ideally, in every major country. They then resell their capacity to
IoT stakeholders, such as device manufacturers. MVNOs will not necessarily
emerge as the leaders in IoT connectivity, however, because they do not bridge
the gap between companies that must use the same application. For instance, if
a shipping company is off-loading boxes to a truck, it needs to hand over its
data to the trucking company and then to the factory where the boxes will
eventually arrive. Companies that develop connectivity solutions to bridge
these gaps could emerge as IoT leaders.
IoT is complex by
nature, with devices and apps requiring the cooperation of multiple vendors.
Likewise, providing end-to-end IoT connectivity can be complicated because it
requires multiple vendors and companies may find that they need different
solutions for their potential use cases. Winning companies will try to sort
through the confusion and establish connectivity solutions now, even though
uncertainty abounds, so they can emerge as leaders in IoT.
By Daniel Alsén, Mark
Patel, and Jason Shangkuan NOV17
https://www.mckinsey.com/global-themes/internet-of-things/our-insights/the-future-of-connectivity-enabling-the-internet-of-things?cid=other-eml-alt-mip-mck-oth-1712
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