The first great wave of internet innovation was getting people online. That revolution is currently in full swing. The next wave of internet innovation will be getting all the other things in the world online (such as objects, places, etc). If you thought that first wave was great, just wait for this next one. Today the internet allows you to efficiently interact with documents all around the world. Imagine what the world will be like when you can interact with any thing in the world– and those things can interact with each other. This post attempts to describe what might be some opportunities for entrepreneurs who wish to build such a future.
The business implications of this future, which many call the “Internet of Things“, are summarized quite cogently in a new McKinsey Quarterly article. In typical McKinsey style, the authors come up with a very helpful framework for understand the possibilities within the Internet of Things. They describe two general categories of applications:
- Information and analysis (including tracking behavior, enhanced situational awareness, and sensor-driven analytics)
- Automation and control (including process optimization, optimized resource consumption, and complex autonomous systems)
The article gives plenty of interesting examples of these applications, from smart jet engines that allow airlines to pay per unit of thrust, to smart farm equipment that uses satellite imagery to deliver just the right amount of water to each corner of a field, to smart data centers that efficiently balance load to reduce power consumption.
Although the article does a good job discussing the business implications, it doesn’t touch on the new business opportunities. If you just read the article quickly, you might go away thinking that each business will have the responsibility of implementing these smart systems themselves. Clearly, that is not realistic. The Internet of Things is going to be as transformative to the way businesses conduct operations as the spreadsheet was to the way businesses use personal computers. Just as it would have been silly for businesses to build Excel themselves, they are going to need a lot of help in taking advantage of the Internet of Things.
The way I see it, there will be three categories of startups that will be essential to helping businesses utilize the Internet of Things: The Sensors (to collect the data), The Plumbers (to transmit and integrate it), and The Miners (to analyze and act upon it).
The Sensors
To create an Internet of Things, all of these “things” need to have chips within then that allows them to sense their environment and transmit data over the network. Given current trends in semiconductor technology, it seems natural that these will be available as integrated systems-on-a-chip. Given the high capital costs to bring these to market, this is really Intel’s game to lose. It is going to be hard for new entrants to get the upper hand, although there may be some opportunities to grow from a niche, like Canesta is doing in building sensors that detect human gestures.
The Plumbers
This is where it gets interesting. Once all the “things” have sensors and networking, how can we organize the data streams that they will want to pass to each other? Who will provide the plumbing?
Idealists like me might hope for open data standards that allow for seamless sharing of data between all kinds of devices. But don’t bet on it. In recent years, the technology industry has shown that it is very slow to converge on data sharing standards. By the time they do, the game has already been won by a simpler (and closed) proprietary system. Take for example FOAF versus Facebook. FOAF has been around for a long time, but Facebook has won the war over the social graph.
Taking this example, what we can imagine is a Twitter or Facebook-like platform for devices. Instead of people “following/friending” each other and sharing various bits of information, this will be a platform for devices to “follow” one another and share various bits of information. Say you want to build a system that requires access to traffic information. Your system will be able to “follow” real-time streams from vehicles that provide exactly that information. There may even be a marketplace mechanism attached that lets you subscribe to those streams for a price. Let’s put all these concepts into a single buzzword-filled sentence: The Plumber for the Internet of Things will build an App Store for Following Device Feeds.
The Miners
Finally, to have tangible business value, companies are going to need to have simple ways of building systems that can analyze and act on this data once it has been collected. Today, that process is just far too complicated. Opportunities exist for startups to create software that vastly simplifies this process.
Let’s take the example of Wal-Mart, who has enormous database records that could potentially help the company with dynamic pricing. While I suspect that such systems already exist within Wal-Mart, I bet they took a very long time to build. They needed a small army of programmers to collect the data, a small army of statisticians to analyze it, and a small army of business economists to devise a robust set of pricing rules.
Ideally, what you’d like is for a non-technical pricing manager to be able to sit down and their desk and use simple visual software to model out their pricing rules. The inputs would come from the real-time stream of sensors. The model would express all the conditional logic. And the outputs would be the prices that are fed directly to the in-store digital price tags. Just like managers use spreadsheets to build financial models today, the managers of tomorrow will want to use software like this to build real-time business process logic. Once again, buzzword bingo: The Miner of the Internet of Things will build an Excel for Real-Time Business Operations.
All told, whether you are a Sensor, a Plumber, or a Miner, there are dozens of multi-billion dollar opportunities for entrepreneurs working in this space. The promise of the internet will only be fully realized once we build a future where ordinary things can think.
