WTF is IoT °_°, how big is it and why now?

The definition

There is a lot of hype on IoT recently but what is in substance?

For the last years I came up with this simple definition:

def: IoT is the ability of objects to speak and respond.

Think of toy story or cars (my son favourite) Pixar movies where toy and car items interact. Yes you get it, it is as simple.

Well, you got the concept.

Now you might wonder how big is this?

According to IDC and Gartner, IoT is not big, it is massive. IDC estimates IoT spending in 2016 at $737 billion. The research institute forecasts IoT spending to grow by 15,6% on an annual basis for the next 5 years to reach $1.29 trillion in 2020, that is the size on todays’ Australian economy!

In terms of number of devices, Gartner predicts 6.4 Billion IoT objects in 2016, that is roughly the size of global population.

As a summary here, IoT value is equal to the size of the Netherland economy and there is 1 IoT devices per human on earth.

IoT market value = The Netherland GDP, 2016

1 IoT device = 1 human on earth

Why now and why so fast?

Well, basically there is a concordance of 4 phenomenas that explains IoT exponential growth:

the Moore law
the Nielsen law
the Metclaff law
Marshall Law

iot-boom

Those laws are not recent, some dated from 18th century, actually pretty old, but there is old saying that says, “good food is always made of old pans ” ,isn’t it?

Let me explain the 4 laws briefly:

The Moore law states that “the number of transistors in a dense integrated circuit doubles approximately by 18 months” that means the computing power (i.e. chips and memory) doubles every 18 months.

transistor_count_and_moores_law_-_2011-svg

The Nielsen law network connection speeds for high-end home users would double every 21 months

nielsen-law

The Metclaff law” states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2″). that means when there is 10 user of the system or network it means 100 unique connections by adding 1 user from 10 to 11, the numbers of unique connections increases by 21%. That is foundation of what in the tech industry people call “network effect”. By adding a new users you are increasing exponentially the value of the network. Now imagine in the scale of Facebook, Amazon of Ali Baba.

metcalfes-law-fundation-of-network-effect

The Marshall law claims “supply and demand is an economic model of price determination in a market”. It means if you go to the superstore nearby and buy one box of cereal it might cost you $3. There is deal offered by the store, you buy 2 cereal boxes at $5, the cost per boxes could be $2.5. So by increasing the quantity I am ready to buy (demand), the superstore is willing to decrease the price per box (supply).

supplydemand

After reading the 4 laws, you might guess where I am getting at ;).

As the computing power (Mhz) and bandwidth increase (4-5G, Fiber…) by 60% and 50% annually, the devices offering increases. As we are in a competitive market (except North Korea), the quantity of devices outpace the demand (you, me and all consumers) that pushes the device manufacturers to differentiate by increasing the value (more features at same price) and/or decrease prices to match consumer expectations and willingness to pay. Devices manufacturers are able to do that because the connection costs are failing as well. In fact if you connect 10 devices or 10 millions to the same telecom operator network, the connection cost per devices (ARPU) will be dramatically lower.

Lately, consumers buy the devices and is now connected to a global system where all devices are linked each other increasing the value of the network (think internet, mobile phones, social networks and IoT).