IoT: the Challenge and the Opportunity

2014 is the year of the Internet of Things. It could not be off to a better start than the Google's acquisition of Nest that cemented what the world focused on at CES. I simply feel this with my every sense. I went on a tour to China back in December 2013, visiting many prospective hardware partners there and I found it difficult to persuade them the tide of the IoT and Smart Home in particular is coming. Most of the time their standpoint was "we would wait on the sidelines and see how it develops". Then I came back a month later - the week when Nest was bought (which was a week after CES). It was amazing how much the attitude changed over this short period of time. Suddenly they all understand the IoT is already here. And they all "want it". I also see how our prospective customers we've been trying to evangelize over the last year about connected devices are suddenly coming back willing to engage in projects involving smart / connected devices.

IoT in a nutshell means this: every piece of hardware (any device, appliance, ...) consists of four elementary ingredients:

1. The hardware (which includes a microprocessor)
2. The firmware (the software running on the device)
3. The communications subsystem (usually wireless and usually integrated with the main microprocessor, but there are exceptions, like for example wireless can be replaced by PLC - power line communications for devices permanently attached to a power line)
4. The user interface (typically a smartphone application or a web page or a web service).

The combination above is a huge challenge for all established market players.

Most of the hardware companies know how to deal with 1 and 2. Sometimes they can do 3 (communications), but rarely in a way that is compatible with Web standards (NAT traversal, security). Very often they just emulate serial link over some wireless interface. Hardware / appliance vendors also have very little experience with distributed / scalable Cloud systems and with mobile apps (responsive Web, iOS, Android, etc.). And they do not have a clue what it takes to have a great mobile App. Not only the UX design aspect, but the entire life cycle. The other day I talked to a friend close to the Philips Hue team. He told me the App was killing them. Being a hardware company they never realized the meaning of the application life cycle. New iOS, new iPhone, new Android, etc., the application has to live and be updated on a continuous basis. A light bulb you just sell once and forget.

Most of the software companies, on the other hand, do not have a clue about hardware: design, manufacturing, testing. The design part is probably the easiest. With CAD tools it does not differ that much from software design. There are workbenches, milestones, prototypes (aka alpha / beta releases). But after the prototypes hardware is entirely different. It is physical. It scales physically. It cannot be submitted to a store for millions of customers to download. It requires an expensive and long process of tooling, molding, setting up a manufacturing line and testing each single device (in software it is enough to test one copy and be sure all other copies are identical and work). I know by my own hard experience hardware is a massive chasm to cross for a software company. Only a few will do this.

The challenges I describe have created a very unique opportunity for those who are able to cross the chasm dividing the software and hardware worlds. The companies able to quickly erect bridges across the chasm will be the big winners riding the IoT opportunity.