Jarich: Betting against the Internet of thing

Current Analysis Peter Jarich

     Peter Jarich

I spent an hour last week listening to another analyst firm's review of CES 2014. Beyond the fact that it came about a week and a half after our own analyses and recap, what struck me most is that CES is so sprawling you could probably pick random themes and still find plenty of fodder to justify them. One thing everyone seems to be agreed on, however, is that the Internet of Things (IoT) was one of the (if not THE) biggest themes of the show. You had connected cars. You had connected health and fitness devices. You had the CEO of Cisco, John Chambers, proclaiming that 2014 would be an inflection point for IoT. You even had AT&T potentially paving the way for new IoT business models with its Sponsored Data launch.

When people first started using "Internet of Things" as a catch-all for broader M2M and pervasive connectivity, I was somewhat perplexed.  As a kid, I really enjoyed the Addams Family.  And, yes, Thing was one of my favorite characters.  Who doesn't like the idea of a disembodied hand as a personal helper and friend?  But did he/she and his/her friends deserve their own Internet?  How would that even work?  Then, over time, it all began to make sense to me.  The "Internet of Thing" and "Internet of Things" were different concepts.  Yet, for anyone considering 2014 as the year that IoT goes mainstream, I can't help but see a connection.  The Addams Family theme song, it turns out, does a great job of characterizing the Internet of Things…and the challenges it faces.

·        Creepy.  Just as we all got home from CES, Google announced that it would be buying Nest Labs, moving it a little deeper into the connected home and setting the stage for thousands of Twitter posts about how Google will eventually know everything that goes on in your home.  If, as one former colleague suggested, Google will track the frequency of my nightly trips to the bathroom to suggest when I'll need a prostate exam, I probably won't argue; I suppose I'm getting to that age.  Still, there's no doubt that a key value of IoT is the data analytics angle along with the monetization of user data.  And while we might all just give up any hopes of privacy at some point, most people haven't gotten there yet.

·        Kooky.  Years ago, when the concept of IoT was still just a concept, people would joke about the connected toaster as a far-out extreme of where it might all lead.  Today, the idea of a connected appliance is tame when measured against some of the strangeness the IoT hype has engendered.  Don't get me wrong.  I put my own hard money behind Fitbark, a pet activity tracking Kickstarter project. I can understand the potential value of HAPILABS' connected fork or the connected toothbrush from Kolibree. I get the broader use case for Neurosky's brainwave controlled Necomimi cat ears.  I swear, I'm not an old curmudgeon yet.  Still, it's clear that the consumer IoT space has attracted its share of "let's throw it against the wall and see if it sticks" ideas.  It will take some time to sort out which ones are just too strange (aka kooky) to be commercially successful.

·        Mysterious.  I read an article the other week on why start-ups fail.  The big thought?  They fail to effectively monetize their products.  Yep, they can't (or don't know how to) make money from their big idea.  Sure, it's not some sort of amazing revelation, but it's a nice reminder that good ideas attached to hot trends aren't enough…and that copycat ideas are just begging to fail.  Anyone who walked through the CES health tech exhibits knows what I'm talking about; the path to success of the many Fitbit knock-offs simply isn't clear.  At the very least, it's a mystery to me.  The same goes for carriers that look at connected gadgets as nothing more than accessories with a good margin.  Sure there's money to be made there, but competing against every other big box retailer and gadget shop on the planet?  That won't be fun.  Credit, here, must go to folks like AT&T and its M2X platform (M2M data storage and analytics) but are they the exception or the rule?

·        Spooky.  Mass market adoption of any technology generally requires that it "just works."  At its best, the user experience should be slightly spooky, with devices connecting and doing whatever they're supposed to do (including leveraging knowledge of user) with limited user intervention.  Are we there yet with IoT?  Will we be over the next 12 months?  Ask anyone who's tried to use a Bluetooth Smart heart rate monitor to discover that it doesn't yet work with their device and that pairing (unlike other Bluetooth devices) is from within the favored app.  Better yet, ask anyone with a smart watch that only works with specific phone models.

For those of you who don't know who The Addams family is, I apologize; I can only point you to the US TV series from the 60's and the two movies from the 90's (and ask "what rock have you been living under?"). For those of you looking for an argument to dispute my thinking, well, I'd like to think you can point to more than one without too much deep thought.  As a favor, let me suggest the most obvious one.

Everything I've talked about above assumes a consumer-facing IoT.  The "C" in CES stands for "Consumer" so the context here makes sense.  It's only one facet of IoT.  A much more solid case can be made for any number of other IoT models: the industrial IoT, the healthcare IoT, the public-sector IoT…the list goes on and on.  Yet, as much as you can make a better near-term case for many of non-consumer IoT use cases, this diversity helps to highlight two more points worth remembering as 2014 rolls along.  First, the very broadness/vagueness of IoT is a potential problem.  It means that vendors and carriers, alike, can easily attach themselves to it without specific strategies for actually being successful at making money from IoT.  That's never a good thing.  Second, arguments for the potential success of non-consumer IoT models are usually based on the notion that businesses of all stripes will move forward on M2M deployments because the ROI is compelling and, increasingly, clear.  The last letter in "ROI," however, stands for "investment."  Any IoT deployment requires an upfront investment and if the money isn't around to support that investment, then it won't take place.  In a cash-strapped business environment, that means vendors and carriers may need to think about new business or financing models if they want to move things forward.  In a market where carriers are increasingly involved in device financing, and consumers (as a colleague likes to say) are notoriously bad at math, driving the consumer IoT space may require someone thinking about how to fund broader IoT experiences vs. connected products or devices.

Peter Jarich is the VP of Consumer and Infrastructure at Current Analysis. Follow him on Twitter: @pnjarich.

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