For hardware and component vendors, the Internet of Things (IoT) represents the opportunity to sell lots of parts — particularly sensors – to OEMs. But as several research firms point out, the IoT won’t do anyone much good without the ability to communicate and measure the data that’s being produced by smart machines.
“IoT devices offer huge potential for electronic component manufacturers, “ according to Yole Développement, “but this is clearly not where the value will stop. Most of the added value in IoT solutions will come from the processing of the generated data. In fact, the ratio between electronic components and data processing can reach 1:50 in certain long-term cases.”
But the very purpose of the IoT – to make sensing ubiquitous at a very low cost—may put a damper on overly optimistic IoT forecasts. “Indeed, very strong price pressure is expected for IoT devices, and strong volumes are expected but at very low cost,” the research firm said in a recent report. “Even though the general electronics market will experience strong growth, it will be through decreased costs, increased manufacturing capabilities and reduced margins. This trend has already been seen in the MEMS field over the past few years, and will repeat itself in the future.” Nevertheless, the component market should reach $70B by 2018, before decreasing, says Yole.
The same is to be expected for the cloud computing industry. Large investments in terms of data storage will be needed, but strong price pressure is expected, and an overall low value will be attributed to the physical data. Actually, the war on price has already begun, according to Yole, between the major cloud computing companies, which are cutting data storage prices while growing their capabilities. Integration within the IoT market represents the highest potential for growth, according to Yole. Three industrial and service sectors will be integral to the development of this new market:
- The electronics industry, which will manufacture the sensing devices
- The communication and cloud data storage industry, which will handle data transmission, storage and processing
- Service companies, which will valorize the data either through processing or by selling to a third party
Some companies have already started positioning themselves in these fields: for example, Oracle and Amazon are developing their cloud computing capabilities; Bosch Connected Devices and Solutions GmbH and STMicroelectronics have teams dedicated to the IoT; and Google and Facebook are continuously developing their data processing models while looking to acquire companies linked to data gathering. Of course, not all of them will be winners.
Meanwhile, on the data processing side, more and more information will be available, and at low cost. Service companies will be the big winners in this field. In order to secure some of this value, hardware and cloud companies will have no choice but to try and integrate themselves vertically in order to valorize themselves and the data they’ll be responsible for.
The market research firm estimates the overall IoT market to reach $400B in 2024, with $46B coming from hardware, $59B from the cloud and $296B from data processing.