IoT: biting the dust or coming of age?
As market mature suppliers refine their focus, some are cutting their losses whilst other invest in their successes. Having a generic cloud compute with an IoT add-on doesn’t cut it anymore.
At some point in life, we need to “get real” with our experimental projects and assess their true value. For businesses, this is typically the decision point at which a strategic investment is turned into a profitable business. With IBM now reported to be joining Google in depreciating their IoT platforms, this decision appears to already have been reached. Market rumors shoot that IBM and Google are not alone — with other large hyperscalers, software vendors, and IT giants soon to join the camp. These tech giants have decided to focus on what they are very good at: scaling existing software businesses, consultancy services, or cloud computing. But they are not well known for disruptive innovations well beyond their core businesses, and industrial IoT platforms are exactly that — disruptive innovation.
Was $1.7 trillion dollars a pipedream?
Back in the early 2010s when the nascent hyperscalers started their expedition into the burgeoning IoT market, the future of IoT was bright but massively overhyped. IoT had the mother of all hockey stick growth curves. In 2013, IDC predicted that IoT would grow to a humongous $1.7 trillion-dollar market by 2020 with the largest proportion of this happening in the later years. While the IoT market is still one of the fastest growing markets, these grossly inflated early predictions would always be impossible to realize.
The early, bold expectations convinced a lot of technology vendors to launch IoT platform initiatives to capture their share of the gold at the end of the rainbow. I remember one analyst saying years ago that analyzing the IoT platform market is a nightmare and that they had never seen so many offerings crowded into one space. Analysts were tracking over 600 competing IoT platforms. As the years moved on, the difference between the early hype and the actual strong growth became wider and wider, and led many commentators to the same conclusion: a market shakedown is inevitable — leaving only those with a strong value proposition and a short Return-on-Investment that convinces customers to deploy the desired solution. In other words, successful customer references are key to expanding and becoming the leading player.
But that might not necessarily be the only reason for Google and IBM. They might have another reason: Focus. Let’s look at hyperscalers to better digest what is happening.
When facing complexity, focus is key
Let’s not be mistaken, cloud hyperscalers like Google, along with others like Microsoft, AWS, and Alibaba, have a singular goal: increasing the demand for their cloud compute and storage.
From this perspective, IoT looked like the perfect way to generate demand. Loads of data from billions of devices continuously flowing to and being processed by their cloud. What’s not to like? With the analysts predicting exceptional market growth, this appeared like a once in a generation opportunity that could not be missed.
Now let’s fast forward. The dawning realization is that IoT is a complex beast. It requires not only technical skills to solve the dual challenges of connectivity and security, but also industry domain knowledge. In other words, it demands a laser sharp focus on the product-market fit. Typically, something start-ups excel in doing when solving a single business problem. But not multinational tech giants.
Compute, compute, compute, and more compute
This need for domain specialization, and the necessity for suppliers to be competent when engaging a continuously maturing landscape of customers, creates a distraction away from the hyperscaler’s focus on growing their cloud computing business. And this growth isn’t at a pedestrian pace, it’s a full-on sprint against your most fearless competitors to capture as much cloud computing market as possible. Today, for every two servers made, one is placed in a cloud data center. Microsoft’s cloud business alone has been growing at 25% to 36% year-on-year, and now has annual revenues of more than $25 billion USD. AWS will reach revenues of more than $80 billion USD in 2022 with growth of over 25%. The growth of this scale would put incredible pressure on any business, and requires the dedication, attention, and focus of everyone in the organization. For these hyperscalers, the importance of IoT revenues pales in significance.
Another consideration is that the Operational Technology (e.g., sensors, controllers, and actuators), which the IoT platforms connect with, is highly fragmented with heterogenous protocols and devices. There are few common “standards” the hyperscalers are used to in the IT domain. Even those standards like Modbus or OPC-UA, can be used in a proprietary way, and require the development and maintenance of specific adaptors. These are costly, non-scalable investments which consume considerable amounts of expertise and are hard to recoup by hyperscalers.
And who is the buying persona? A cloud computing buyer is typically a knowledgeable senior IT manager who has been tasked with delivering the technical capabilities at the best price. A typical IoT buyer — on the other hand — is a business manager highly experienced in their industrial domain, with a keen desire to leverage IoT to transform their products with new digital services, but little desire to know the minutia of IoT. Cloud computing buyers are looking for a new commodity, whereas IoT buyers are looking for solutions. The engagement techniques for one rarely work for the other.
So, taking all the points into consideration, it’s no wonder that hyperscalers are streamlining their operations. The question whether hyperscalers should “do-it-themselves” or forge strategic partnerships with dedicated IoT platform providers is now being answered, as each focus on their key competencies and value generators. See my earlier blog, Google is Sunsetting IoT Core: Now What?
Coming of age
Now let’s answer the initial question, is IoT biting the dust? No, far from it. For me, IoT is only just coming of age. It is only natural that organizations invest in IoT products to capture the early promises, are forced to re-assess their approach. The IoT market growth is strong — really strong, in fact, at over 30% CAGR in some sectors.
With Google and IBM discontinuing their IoT products, we are witnessing the start of the next chapter in the IoT story, with the market reaching its early maturity. Having a generic IoT add-on is no longer good enough. To achieve a product-market fit, a “generic” IoT offering is never going to be successful, dedication and specialization is essential.
The withdrawal of the generic IoT offerings by the hyperscalers will create an enormous potential for the established proven, dedicated IoT platforms like Cumulocity IoT and others. Our focus, for example, remains on a few segments. The platform’s self-service capabilities allow non-experts to rapidly create their own branded solutions that leverage a vibrant Operational Technology (OT) eco-system.
A good example of the Operational Technology eco-system was the recent SPS industrial trade show in Nürnberg. The majority of industrial machinery manufacturers were showcasing digital services around their connected products. Over a dozen of these manufacturers, including Endress+Hauser, Insys, IFM, Red Lion, SMC, and many more based their digital solutions on Cumulocity IoT, including a solution promoted at the Microsoft booth. This illustrates that the recipe for IoT success is where hardware device partners, domain experts, and cloud providers work alongside dedicated IoT platform providers.
So no, IoT is not dying. The future for IoT remains very bright indeed.