Next Steps in Device Proliferation: Toward a Consumer Internet of Things (IoT)

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As the smartphone and tablet markets saturate and mature, device vendors and consumers are looking toward new smart connected devices that will expand the frontiers of usefulness and entertainment value, while driving growth for device vendors, software developers, software vendors and other adjacent market sectors. While “wearables,” portable devices that often interface with users’ smartphones, have attracted the greatest attention, TBR believes the larger potential market is in fixed devices in the home. The leader in this category is the Nest thermostat, offered by the Nest Labs, now a subsidiary of Google. We think the consumer IoT will complement and often lead the commercial IoT, and together, they will fuel a wave of innovation and expansion in all segments of IT.

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Next Steps in Device Proliferation: Toward a Consumer Internet of Things (IoT)

  1. 1. TBRT ECH N O LO G Y B U SIN ESS RESEARCH , IN C. TBR SPECIAL REPORT Next Steps in Device Proliferation: Toward a Consumer Internet of Things (IoT) Ezra Gottheil, Principal Analyst, Devices (ezra.gottheil@tbri.com) May 29, 2014 TBR Perspective As the smartphone and tablet markets saturate and mature, device vendors and consumers are looking toward new smart connected devices that will expand the frontiers of usefulness and entertainment value, while driving growth for device vendors, software developers, software vendors and other adjacent market sectors. While “wearables,” portable devices that often interface with users’ smartphones, have attracted the greatest attention, TBR believes the larger potential market is in fixed devices in the home. The leader in this category is the Nest thermostat, offered by the Nest Labs, now a subsidiary of Google. We think the consumer IoT will complement and often lead the commercial IoT, and together, they will fuel a wave of innovation and expansion in all segments of IT. Technology, vendors and consumers are poised for innovation Most of the technology for new device types is in place or available at prices that make possible widespread adoption of devices that deliver practical or entertainment value. The network infrastructure, both wired and wireless, already exists. There is a large and ambitious global community of software developers and hardware hackers. The rapid growth and widespread adoption of smartphones and tablets have driven the growth of an industry that produces sophisticated components at low cost and in very large volume. In many cases, all the parts are available; in others, a single component like a sensor needs to be created. The manufacturing, assembly and logistics capacity are available, and providers are eager to provide their services at attractive prices. Existing device vendors are eager to introduce new products to drive growth, as the expansion of smartphone and tablet sales has dropped dramatically. Not only do they need new revenue and profit, but they also need products that keep alive their brands and reputations for innovation. Likewise, their distribution and sales partners want to keep their businesses growing. At the same time, the startup ecosystem is thriving. Inexpensive software and hardware development platforms, as well as pay-as-you-go hosting facilities, make it easier than ever before to self-fund new ventures. The venture community has large reserves that must be invested, and established
  2. 2. TBR www.tbri.com pg. 2 companies like Google, Amazon, Facebook and Samsung are looking for opportunities to leverage their substantial cash reserves or take advantage of very low interest rates. Consumers are interested, or at least potentially interested, in new devices. New types of devices make the news; consumers read about them and talk about them. Consumers value smartphones and tablets not only for their convenience and capabilities, but also for their newness. While the global economy has not fully recovered from the Great Recession, it has recovered somewhat and consumer confidence is higher than it has been in recent years. TBR believes refresh rates of smartphones are decreasing as new models offer fewer killer features, and less-expensive tablets and smartphones are better than the top-line models of the past. This frees up consumer funds for new purchases. Taken together, all the pieces are in place for a surge in consumer sales of new device types. Winning the new device market is simple, but not easy TBR believes the formula for success in the consumer IoT market is simple to describe, but difficult to execute. The requirements are the same for any new product, especially any new consumer product, because consumers, unlike commercial purchasers, are not interested in long-term benefits.  Maximize the upside for the buyer: The new device must provide the purchaser with a benefit, and ideally it is a single, easily explained benefit. This is the killer feature. The killer feature of the cell phone was constant connection. The killer feature of the first generation of smartphones, the BlackBerry, was email. The killer feature of modern smartphones was first Internet access, and then applications. The benefit can be practical or entertaining or both.  Minimize the downside for the buyer: The cost to the buyer, in both dollars and inconvenience, must be minimal. For years, the cost of adding new devices was data availability. Once synchronization services like Dropbox were available it became easy to have as many devices as possible, and the sale of devices took off. Inconvenience can be something like set-up and data transfer, or it can just be the pain of changing a habitual way of doing things.  A clear path: Buyers should quickly understand how to add the new device to their lives. This includes installation and data synchronization, but also how to get value out of the new device.  A good story: The new devices must be marketed effectively. The story is not about the device; it is about the user. How will life with the device be better than it was before? Will the buyer be more entertained, save money, be healthier, be safer? Effective marketing is one of the biggest barriers to success in the new devices market. Public relations is often the key to cost-effective marketing, but it is critical to get the press to talk and write about how the device will change lives instead of just talking about the device itself.  Luck: Competition in this attractive new market is intense. To be successful, a product must be among the early entrants, it must comply with the winning formula and its story must get out. Very few new products will have good luck. There is one new product that has already succeeded. The Chromebook is not usually thought of as part of the IoT, but it is a new type of device, spawned by the available technology and market, that fits the formula.
  3. 3. TBR www.tbri.com pg. 3 Even successful products, like Chromebook, will not have the astonishing rate of adoption of smartphones or tablets. These two device types are among the fastest-growing products in any category in history, and it is unlikely that level of success will be repeated soon. Where are the opportunities? In wearables, the early entrants have not done well because they failed to maximize the upside or minimize the downside. The compelling value of Google Glass and smartwatches is not clear. At the same time, their unusual appearance poses a considerable downside. We believe Google Glass, and other heads-up display devices, will find a market, but not as an all-day consumer product. In vertical applications like healthcare and public safety, Google Glass has real potential. It can also function as a guide in museums or for walking tours. Personal fitness devices such as Fitbit have led the wearables category. TBR believes health and fitness presents the largest opportunity, followed by personal safety. We think there is growth potential for wearable devices that reduce health and safety risks, which may also be reimbursed by insurers, both public and private. The smartwatch and Fitbit represent the most likely development course for wearables; these devices rely on the smartphone as their mobile hub, storing data and communicating with the network. Smartphones are ready to take on this role, as low-power consumption processors enable them to acquire data while “sleeping.” For in-home devices, there are opportunities in climate control, such as the first Nest device, as well as in monitoring of children and pets. Despite the recall of the Nest smoke and CO2 detector, home safety and security are obvious growth areas for devices, with insurers helping drive adoption. Home networking devices present a big opportunity. In fact, home routers, which are often remotely manageable, are early entrants in the IoT. Existing home networking devices are complex and have poor interfaces, and there is room for a new generation of devices that takes the pain out of home networking. This would certainly attract Google’s Nest, as Google benefits from every improvement in connectivity. Google also offers telephone products, and home VoIP devices would fit its needs. Inevitably, home appliances will be integrated into the IoT. These include washers and dryers, and more obviously, food preparation appliances. Finally, the automobile is the likely site of a number of devices. These involve safety, navigation, communication and entertainment. Conclusion The IoT is not poised to take off; it is taking off. Adoption will not be as explosive as it was with smartphones, but the number of devices each consumer uses is already increasing. Each device generates data for use by the consumer or by third parties like Google, insurers or healthcare providers, and this data will drive software, storage and compute capacity. Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.
  4. 4. TBR www.tbri.com pg. 4 ©2014 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.

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