The global market for IoT devices is expected to grow from about 6 billion connected IoT devices in 2016 to approximately 18 billion by 2022. At the same time, IoT unit sales will increase from almost 2.3 billion devices in 2017 to roughly 5.7 billion devices in 2022 assuming a 20% CAGR and an average life of a IoT device of close to 7 years, even though the IoT device life time will vary widely by application area.
We have looked at a number of business sectors which have already adopted IoT. The U.S. is the clear leader in IoT in the world with the bulk of the installed devices.
One area where the U.S. is leading is when it comes to smart meters. According to the U.S. Energy Information Administration, U.S. utilities have aggressively rolled out smart meters to approximately 65 million locations. Of these, 57 million are residential covering about half of U.S. homes, 7 million are to commercial locations and only 310,000 are industrial locations. Nevertheless, there is still significant upside in smart meters.
An area of significant attention is connected cars. In 2016, 18.7 million cars were sold in the United States but only a small fraction was connected. By 2025, most if not all new cars in the U.S. should be connected. Even when looking at the global new car market, where 76 million cars were sold in 2016, we have to recognize that in absolute size the segment is small. The retrofit market is more of a hit and miss. While it makes perfect sense for an aging fleet provider or business with vehicles to add a connected device, the same value proposition does not exist for consumers. Businesses can be convinced by a business case to invest in such retrofit sensors to extend the life of the fleet, whereas consumers are generally impervious to facts and logic.
Insurance providers are also catching up to the potential of IoT. Progressive insurance has a program that requires drivers to install an IoT device in the vehicle that monitors their driving behavior and collects crash data. This allows Progressive to better adjust insurance rates as they are modified by the driver behavior. Currently the program is still voluntary, which makes it quite likely that only low risk drivers will apply for it.
The largest and most significant growth sector is healthcare. It is a high value, high impact market that is underdeveloped. Fitness meters are only the first step. Wide-area connected always-on blood glucose meters, blood pressure devices and other monitoring devices will revolutionize healthcare, lower treatment cost, create a wealth of data that allows for better outcomes. The entire aging in place segment that will allow the elderly to stay longer in their own homes will be a burgeoning business sector that connects everything from pill bottles to movement sensors and GPS systems to a dashboard that will allow near and far family members to be informed and alerted about the well-being of their aging family members.
Another growth segment will be the hospitality sector. Everything from door locks over in-room inventory management systems and connected pool-side ordering systems to connected golf carts will improve the hospitality experience.
Smart buildings and the connected home are going to allow both commercial landlords as well as owners and renters to improve heating and cooling in the home to optimize energy usage. Furthermore, home automation ranging from personal security systems to sous vide immersion tools (I highly recommend the Joule) are driving connected devices further into the home. Meanwhile, I am still waiting for the use case of the connected toaster…
Industrial applications, such as manufacturing, agriculture, infrastructure, logistics, as well as natural resources will have the bulk of IoT installations over the next five years. Only 35% of businesses use smart sensors today, which will roughly double over the next five years. In agriculture, soil sensors will improve profitability, increase crop yield and reduce water usage by providing detailed soil data that will help predict the right time to sow, water and harvest the crop. Digital cities will improve the way we travel through a city, regardless if using an automobile or public transportation, by improving traffic flow and patterns. Public services from trash collection to crime reporting will enhance the services that the cities will offer.
The growth is not only fueled by better use cases by also through lower cost for IoT modules. While lower prices open up new market segments and improve the business case in existing segments, it does not come without its challenges. It puts IoT module producers under significant pressure to build scale to escape what we estimate to be a roughly 10% price decline year after year. Companies need to grow or exit the market—a classical shake out scenario. Industry leaders such as Sierra Wireless or Telit Communications have become very acquisitive with more than a dozen deals between them. Just in the last year Telit purchased the modem business from Novatel and Stollman’s low power Bluetooth and Sierra Wireless purchased GenX to expand into automotive and Blue Creation for its Bluetooth, Wi-Fi and embedded technology. Both companies have expanded their software and management capabilities that are the likely next overall growth segment for the IoT solution as it is working towards an end-to-end solution.
By adding a software management layer on top of their modules, higher-end providers should be able to move away from providing just hardware that is more susceptible to commoditization and therefore price pressure from low cost providers. While a basic software management capability has become almost table stakes, a more comprehensive approach that focuses on a verticalized approach may create category winners and sustainable profitability. The line between hardware vendor and business and consumer facing brand will become increasingly blurry as hardware vendors move up the stack.
Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.