Understanding IoT Business Models or “Who killed my Unicorn?”

One of the memes that has been going around the industry this year, particularly amongst platform suppliers, is that the slow growth of IoT deployments is due to the fact that “Consumers don’t yet understand the real value of IoT”.  It’s an incredibly arrogant statement, which tells us a lot about the current start-up mentality, where too many have the perception that they’re entitled to become a billion-dollar company just because they’ve had the presence of mind to jump on the IoT bandwagon.  However, the fundamental fact remains that if you are going to succeed, you need a business model.  Unfortunately, profitable business models in the IoT are rather thin on the ground, largely because many of the self-styled IoT experts don’t really understand the market. 

What most people do agree on is that the IoT isn’t taking off at the rate which everyone had expected, although that’s no great surprise – technology growth curves almost never match the hockey stick curve that analysts predict.  Gartner’s famous Hype Curve constantly reminds us that the path to ubiquity is strewn with failed ideas, many of which never emerge from the trough of disillusionment.  The IoT suffers from a further problem, which is that the catch-all name has become to mean all things to all men (or maybe all machines).  Many forget that the popular IoT poster children which the press pick up and promote as IoT are generally more fluff than substance.

Which brings us back to business models.  The IoT will take off when companies work out how to make money out of it.  Sadly, that’s proving harder than it may seem, with the more cynical concluding that the only people to profit from the IoT so far are conference organisers.  So, let’s take a look at why developing a profitable business model is proving to be so challenging.

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The IoT Value Stack

If you listen to almost any conversation about the Internet of Things you’re likely to find that it fairly rapidly degenerates into a conversation about the communication protocols.  Should you use Sigfox or LoRa?  How about GPRS?  GPRS has already been turned off in most of the US, but it could be around for another decade in Europe.  Or what about NB-IOT?  Or maybe it’s better to go for LTE-M?  Not to forget the new radio that will be coming along in Release 15.  Or is it Release 16?

Almost all of this is irrelevant. We already have enough low power, low cost communication standards to fulfil almost any IoT use case we can think of.  The problem with the overabundance of ways to transmit data is that it diverts everyone from the more important (and much more difficult) part of the IoT, which is the rest of the value stack.  This is the first of two articles where I’ll explain the wider IoT value stack and why we need to stop fixating on the comms.  In this one I’ll go through the basics and then, in the second one, follow that up with more detail on security, the business models and the skills you need to succeed in the IoT.

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13 Companies announce NB-IoT Chips

If history is anything to go by, it’s going to be unlucky for some, but it’s an indication of the momentum which is growing around cellular IoT that so many chip companies have jumped on the bandwagon. 

It’s not cheap to develop a cellular chip, even one that is moderately simple, such as is the case with the NB-IoT standard.  Back in 2012, when I wrote about the cost of developing wireless standards, I put it at around $6 million for each chip and protocol stack.  That was looking at Bluetooth and Wi-Fi.  With the additional complexity of any cellular standard, along with network interoperability testing, it becomes far more expensive, as you need to test with as many operators as possible.  Hence the development cost to get a chip and stack to market is probably at least $15 million. 

With thirteen different companies bringing chips to market, that’s an investment of around $200 million.  Some of these have tried to cut their development time by acquiring start-ups which were already some way down the route.  Sony purchased Altair, Huawei bought Neul, ARM bought NextG-Com and Mistbase, Goodix acquired CommSolid, while Nordic Semiconductor picked up around 60 engineers in Finland’s Oulu.  We don’t know how much they spent on these acquisitions, but it’s probably well over $200 million.  Add to that the costs of the standardisation process, infrastructure development and initial market trials and it’s clear that somewhere between $500 million and $1 billion has already been spent on getting NB-IoT to the point where it is today.  That’s a level of investment that should be worrying competing standards like LoRa and Sigfox, as the NB-IoT companies will do all they can to recoup their investment.

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Is Sigfox the Uber of the IoT?

I’ve been wondering for some time how long it will be before Sigfox ditches their own proprietary protocol and adopts a different standard, probably going for NB-IoT.  Whilst many may question why they’d do it, making the assumption that the Sigfox protocol is their crown jewels, I’d question that assumption.  Last week, at the Sigfox World Expo in Prague, they made an announcement that suggests that that day may not be too far away.  I firmly believe that it has to happen, because Sigfox’s business model is looking a lot like Uber’s, which means going for global domination by any means possible.  The means to that end is probably not based on their own proprietary protocol.

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NB-IoT is Dead. Long Live NB-IoT.

As the old adage goes, “while the cat’s away, the mice will play”.  In the case of NB-IOT, “when the spec’s delayed, LPWAN will play”, which is exactly what’s happening in the Internet of Things market today.  The problem is that 3GPP (the 3rd Generation Partnership Project), the standards body which has been responsible for the 3G, 4G and 5G mobile standards, dropped the ball as far as the Internet of Things is concerned.  Seduced by the slabs of black glass which suck up both our attention and the mobile networks’ spectrum, the 3GPP engineers totally forgot to design something to replace the old 2G workhorse of GPRS, which is responsible for most of today’s machine to machine communications.  Instead, they spent all of their time designing high power, high speed, expensive variants of 4G to support an ongoing dynasty of iPhones, Galaxys and Pixels, none of which were any use for the Internet of Things.

Noticing this hole, a number of companies who had been developing proprietary, low cost, low speed, low power communication options saw an opportunity and created the Low Power WAN market.  Whilst many perceived them as a group of Emperors with no clothes, the network operators were so desperate to have something to offer for upcoming IoT applications that they started engaging with them, rolling out LPWAN infrastructure.  Whether they believed the LPWAN story, or just hoped it would fill a hole is difficult to ascertain, but no-one can deny that LPWAN is now firmly on the map, in the form of Sigfox, LoRa, Ingenu and a raft of others.  To address that challenge to their hegemony, the GSM Association (GSMA) directed the 3GPP to assemble their own suit of imperial clothing which would be called the Narrow Band Internet of Things, or NB-IoT.

This is the story of why NB-IOT was too late, why it will fail in the short term, why it will win in the long term, and why the industry will struggle to make any money from it.

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LoRa vs LTE-M vs Sigfox

There‘s a battle going on for the infrastructure technology that will support the Internet of Things.  Currently the three most talked about contenders are Sigfox, LoRa and LTE-M.  There are a lot of other alternatives and it’s quite possible that none of LoRa, Sigfox nor LTE-M0 will win, but that’s another story.  If you search for LPWAN (Low Power Wireless Area Networks) you’ll see that the battle for supremacy is a hot topic.  It’s largely because of the impending loss of the GPRS networks which power much of today’s M2M business.  As a result, almost every day you’ll find another article debating their respective technical merits.

I’m going to argue that these comparisons miss the point.  Which technology will win depends far more on the business model than on the underlying technology.  The three technologies listed above are interesting to compare, as they exemplify three significantly different approaches to an IoT business, which can be broadly summed up as:

  • Sigfox – become a global Internet of Things operator
  • LoRa – provide a technology that lets other companies enable a global Internet of Things
  • LTE-M – evolve an existing technology to make more money for network operators

Between them they promise to help us get to the predicted 50 billion connected devices in 2020.  A winning solution could allow the IoT to take off and make its supporters a lot of money.  The ones that fail may be limited to niche applications and lose investors hundreds of millions of dollars.  Only one is likely to win.  It’s also possible that all of the current pretenders could lose.  So let’s forget the technology and look at the business models.

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