A ZK Research Whitepaper. November e t. It s INTERNET OF THINGS

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1 A ZK Research Whitepaper November 2014 It s inesses to em s u b r o bra f e ce tim t he INTERNET OF THINGS

2 The Era of the Internet of Things Has Arrived The term perfect storm is used to describe a scenario in which several forces come together to create a single, massive force. In the 1990s, the technology industry had its own perfect storm. Forces such as low-cost PCs, home broadband, the development of the browser and the evolution of Windows came together and kicked off the Internet era. This storm was so powerful that it created a new economic model, and Internet-related companies thrived and became some of the largest businesses the world has ever seen. Today, we sit on the precipice of another perfect storm, this time ushering in the era of the Internet of Things (IoT) as more and more unconnected devices become connected. ABOUT THE AUTHOR Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his clients in the current business climate and long-term strategic advice. He delivers research and advice to the following constituents: end-user IT and network managers; vendors of IT hardware, software and services; and members of the financial community looking to invest in the companies that he covers. Several forces are driving IoT: > Low-cost sensors: Historically, connecting a device could cost as much as $10 to $15. This made connecting everyday devices somewhat impractical. Today, the cost of a sensor is as low as 10 cents, meaning that almost anything from coffee cups to airplanes can be outfitted with a connectivity sensor. > The standardization to Internet Protocol (IP): Legacy machine-to-machine (M2M) connections were made over a variety of protocols that did not interoperate with each other. This created a number of islands of connectivity with no real way to connect them. Today, almost all IoT connections are made over IP, allowing potentially hundreds of billions of de- 2

3 Exhibit One: 50 Billion Endpoints Connected by 2020 Internet of Things 50 billion endpoints Mobile Computing 10 billion endpoints Portable Computing 1 billion endpoints Fixed Computing 200 million endpoints Source: ZK Research, 2014 vices to be connected to one another. Additionally, IPv6 overcomes the limitations of IPv4 by enabling an almost infinite number of devices to be connected. IPv6 could assign an IP address to every grain of sand in the world and still have room for growth. This is critical because the number of connected devices is expected to explode to more than 50 billion by 2020 (Exhibit One). 3

4 > The growth of big data: IoT requires more than just connecting the unconnected. Although this is certainly important, it only creates the foundation for IoT. For IoT to thrive, organizations need to capture the massive amounts of data made available and analyze that information to make more intelligent decisions and even automate certain processes. With IoT, more data means more intelligence and better decision-making. > The rise of social media and cloud computing: With IoT, more data means more intelligence and better decision-making. Digital, social interactions create a new source of data to be included in the IoT equation. Social media can reveal customer likes and dislikes, shopping habits, driving patterns and other information. Additionally, the cloud creates a way to make the information available to almost any organization across the globe. > The pervasiveness of wireless technologies: Historically, many early adopters of IoT connected things such as factory floor equipment using wired connections or had to build their own wireless communications infrastructure with fixed wireless technologies. Today, cellular and Wi-Fi footprints have become nearly ubiquitous, allowing almost any device to connect from any location. The Internet of Things will be the largest technology shift since the birth of computing. It will connect many currently unconnected devices and create more economic value and opportunity than the Internet did. IoT will forever change the way people live, work and play, and businesses must be ready to capitalize on this trend. Those that do will thrive and leapfrog their 4

5 competition, while those that do not face becoming irrelevant. Section II: Building the Internet of Things The Internet of Things is happening today, and businesses need to be prepared for this massive shift. However, building IoT involves more than just connecting a bunch of unconnect- Exhibit Two: IoT Building Blocks IoT Services or Applications Processes Data Analytics Connected Endpoints Source: ZK Research,

6 ed endpoints. Connectivity is clearly a key building block of IoT, but it s only the starting point. This is similar to the shift that happened with the rise of the Internet. More and more sites were being connected to the Internet, but growth was slow. Then, businesses started prioritizing the Organizations will be able to refine processes and make more intelligent decisions by analyzing all the data collected from the connected endpoints. Internet and building processes around Internet technology, which kicked off the Internet era. Similarly, with IoT, connectivity is the foundation but businesses must also consider process change as well as data gathering and analytics (Exhibit Two). Process change is crucial to the success of IoT. Organizations must rethink how to best take advantage of a world where everything is connected. Key points to consider when building an IoT strategy are: > An architectural approach is required for the network. It s important that organizations consider how the network could be leveraged for multiple IoT services and consider an architectural approach. For example, in a smart city, the network that connects parking meters could also be used to connect smart lighting systems and provide citywide Wi-Fi service. This is much more efficient than deploying multiple overlay networks to accomplish the same goal. > Data is king. Organizations will be able to refine processes and make more intelligent decisions by analyzing all the data collected from the connected endpoints. This puts a premium on the ability to collect, store, archive and analyze data. > Security is mandatory. Many IoT services will work when users opt in to the service. This 6

7 requires a high level of trust because individuals will be exposing personal information such as location, presence status and shopping preferences. Users must have the highest level of trust and confidence that their personal information will not be compromised. This means individual devices must be secure and their access to other network components must be limited based on role and utility. Users must have the highest level of trust and confidence that their personal information will not be compromised. > Applications need to communicate with the network. IoT services are based on the dynamic exchange of information between applications and the data gathered from the underlying network. IoT requires that application developers have access to data gathered by the network. This data is best provided through REST APIs (representational state transfer application programming interfaces). REST enables software developers to build IoT-based applications without having to understand network protocols. > Fog computing becomes a reality. The fog is a compute model in which processing is done at the network edge rather than exclusively in the cloud. This enables the processing of IoT information to take place closer to the source and enables decisions to be made faster. > Contextual information creates personalized services. Organizations will be able to build personalized IoT services by using contextual information. This includes information such as presence status, location and other data that can identify a user and customize the information flow. 7

8 Section III: Benefits of the Internet of Things IoT will have a similar but bigger effect on the economy compared to the Internet s impact almost two decades ago. IoT will transform every person s life in almost every aspect from IoT will transform every person s life in almost every aspect from finding a place to park, to having a customized shopping experience, to managing the environmental controls in a building. finding a place to park, to having a customized shopping experience, to managing the environmental controls in a building. The ability to connect the unconnected through a common set of protocols enables information to be analyzed and decisions to be made in an instant. For example, a smart city whose parking meters are connected to a common network could alert a commuter to where the nearest parking spot is by sending a text message to his or her mobile phone or even to the car s navigation system. Every day, citizens spend hours searching for parking spots, which can create massive congestion in a city. Connecting the parking meters to a common network and sending information about open spots to drivers could alleviate significant traffic problems in all of the major cities around the globe. This is just one example of the benefits of IoT. In general, organizations should look to realize the following benefits from IoT: Lower Costs There are several ways IoT can save money; however, the primary way is through energy savings. Connecting previously unconnected devices enables businesses to make smarter decisions about when to power certain systems. For example, in many buildings, air conditioners 8

9 are set to automatically come on at a certain time whether people are in the office or not. This means that on holidays, for example, the systems could be running when no one is in the office. By connecting the building systems to the IT infrastructure and security systems, businesses An IoT-enabled hospital could listen for patient alarms, alert a clinician when an alarm is triggered and automatically locate the nearest equipment needed to treat the patient. could make better, more intelligent decisions. In the above example, all the systems could remain off until a worker swipes his or her security badge. Then, only the air conditioners, wireless access points, and printers and other infrastructure in that worker s area would be turned on. Once the worker swipes the badge and leaves, everything would be automatically turned off. There are other potential savings as well, but many of the use cases are vertically specific. For instance, in manufacturing, organizations have been connecting factory floor equipment for years. However, historically, sensors were connected to a local PC and controlled with an embedded module. IoT enables manufacturing organizations to use lower cost wireless technology instead of expensive wired connections. Automation of Processes Businesses can use real-time insights to make smarter, faster business decisions. Data collected from sensors can be collected and then analyzed in real time to monitor and improve processes and minimize human interaction. For example, in healthcare, IoT enables the remote monitoring of patients. An IoT-enabled hospital could listen for patient alarms, alert a clinician when an alarm is triggered and automatically locate the nearest equipment needed to treat the patient. Without this process, a 9

10 nurse or other clinician would need to actually hear the alert, possibly locate other medical personnel, wait for an order and then find the necessary equipment. In healthcare, where any delay in patient care can be catastrophic, IoT removes all the human latency from the process through automation. Optimized Asset Utilization IoT gives organizations the ability to track almost any asset through the use of sensors. Machinery, computers, vehicles and other equipment can be monitored when connected to a common network. Real-time visibility and insights can be gained into all of a company s assets and then extended to the supply chain. For instance, an industrial manufacturer could run preventative diagnostics on its equipment and then automatically order parts when needed. IoT can improve the longevity of the equipment and optimize utilization. New Sources of Revenue IoT creates an almost unlimited number of ways for organizations to create new, innovative services that can generate new revenue streams. By using data gathered through more sensors, combined with contextual information gathered from mobile applications and social media, businesses can create new personalized services. The vertical that has the biggest opportunity to transform itself is retail. For example, a retailer could collect information gathered about a customer through social media, and the store s mobile application could push information to the shopper. A shopper may be passing by 10

11 Exhibit Three: The Transformative Impact of the Internet of Things KEY BENEFITS TRANSFORMATION VERTICAL VERTICAL TRANSFORMATION KEY BENEFITS Personalized and predictive services, optimized inventory management, social innovation Connected inventory, greater knowledge of customers Retail Supply chain Real-time tracking for inventory Proactive problem resolution, operational efficiency Healthcare Manufacturing Faster and more accurate patient care, cost savings, improved clinician productivity, lower insurance costs Remote monitoring of patient equipment, presence status and inventory management Automated meter reading, significant cost savings, lower-cost services Connected meters, smart grids Utilities New customer services, proactive notification of maintenance, reduced pollution Automotive Real-time analysis of driving behavior, remote vehicle diagnostics Oil and gas Connected infrastructure Reduction in operating costs, proactive maintenance, lower fuel consumption Public sector Smart cities from connected infrastructure Facilities management Better security, reduced traffic congestion, cost savings from connected lighting Connected buildings, smart lighting, fire and cooling systems Smart sensors and digital control systems Reduced carbon footprint, significant cost savings from optimized resource utilization, preventative maintenance Faster response to fluctuations in demand, maximized efficiency Source: ZK Research,

12 a rack of clothes and, based on personal preferences, the retailer could send a picture of an item of clothing on sale to the consumer s mobile device. Also, based on a customer s height, weight and size, a clothing store could identify sets of clothing that would fit the customer, speeding The era of IoT is here, and businesses need to embrace this transition quickly. up his or her shopping trip. Another example of revenue creation is insurance companies being able to offer pay as you drive auto coverage. This would enable them to offer lower cost insurance and attract customers from other carriers. Almost every vertical has the ability to create new sources of revenue by using IoT, and ZK Research estimates that more than $2.5 trillion in new revenue streams will be created because of IoT in the next 10 years. Ultimately, though, IoT will transform different verticals in different ways. Exhibit Three presents a number of industry verticals and the way each will likely change as a result of IoT. Section IV: Top Five IoT Considerations The era of IoT is here, and businesses need to embrace this transition quickly. Those that do will stand to capitalize on the trillions of dollars of value that will be created over the next decade. Those that don t will find the business climate increasingly difficult and will rapidly fall behind their competition. However, there are several business and technological challenges on the road to IoT. For example, one consideration is how businesses can integrate the current infrastructure with the new intelligent, connected infrastructure. There are a number of other 12

13 considerations as well, including the following five: 1. Identify the areas where IoT can offer the biggest benefits. Businesses should form Creating value from IoT requires more than just connecting sensors and devices. a task force that includes finance, sales, marketing and IT to identify and prioritize the opportunities and risks associated with IoT. This will vary by vertical, but the processes that should be investigated are ones that are highly manual or include sources of information from multiple systems. IT executives and business leaders should work together to gain a deep understanding of IoT benefits. 2. Understand the role of the network. IoT is a network-based compute model. In an environment where everything is connected, the network plays a key role in transmitting information and collecting data. Legacy machine-to-machine (M2M) solutions are often built on proprietary technologies that do not interoperate with other solutions. Businesses looking to take advantage of IoT today should consider leveraging the ubiquity of IP and the pervasiveness of wireless technologies such as Wi-Fi and cellular connectivity. Additionally, IT operations must shift to a network-centric model to enable real-time data access and eliminate location dependencies. 3. Build strong analytic capabilities. Creating value from IoT requires more than just connecting sensors and devices. Organizations need the ability to gather data from compute systems, beacons, mobile devices and the network and store it in a common system. Just as important is the ability to analyze the large volumes of data. Businesses need to gain skills in 13

14 cloud, big data and analytics to make the best possible decisions and keep up with the fast growing amounts of data. 4. Secure the Internet of Things. Many of the IoT services will work based on an opt in Businesses need to recruit and train workers with specific IoT skills such as data management, domain expertise and big data capability. model. This means citizens must choose to allow a city to track their movements, or a customer must download a mobile application and input personal information, or a worker must enable his or her mobile device to receive real-time information, for example. IoT only works if workers, customers, students and citizens trust the systems and believe their personal data will be protected. It s absolutely critical that the data, endpoints and infrastructure be secured with the best possible technology to ensure the trust exists to make IoT thrive. Also, each device s permissions to access information from other devices must be based on intended use. For example, a connected thermostat should only have access to environmental systems in a building; when it tries to access other sources of data, policies should restrict it from doing so. 5. Hire and train IoT talent. Wireless technologies, cloud and big data analytics are certainly important parts of the IoT ecosystem. However, equally important are the skills to manage and build IoT ecosystems. Businesses need to recruit and train workers with specific IoT skills such as data management, domain expertise and big data capability. Organizations can complement their in-house skill sets with help from a professional services firm that has an IoT practice. Regardless of how the talent is acquired, it s crucial for the business to rapidly add these skills. 14

15 Section V: Conclusion The Internet of Things perfect storm is currently under way. The forces of cloud, social media, connected endpoints, wireless technology and big data analytics are all coming together to create a single, transformative force that s bigger than anything in the history of business. Organizations should be prepared for the disruption of traditional business models but at a much faster rate than in the Internet era. The winners in IoT will be companies that understand how to weave IoT technology into the fabric of their business to compete with not only traditional competitors but also a number of new market entrants. Those that cannot will likely struggle to survive. Investing in IoT must be at the top of every IT and business leader s priority list today because it will evolve at an incredible rate in the next decade ZK Research: A Division of Kerravala Consulting All rights reserved. Reproduction or redistribution in any form without the express prior permission of ZK Research is expressly prohibited. For questions, comments or further information, 15

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