We continue with insights from our most recent publication, IoT Developer Megatrends – a short publication on the most important trends for the Internet of Things. In this post, we look at the potential of consumer and enterprise IoT markets. Enterprise IoT (industrial, large-scale applications) are currently the biggest market in terms of revenues, but will that remain so forever? Consumer applications like Wearables and Smart Home are hyped in tech media, but will that translate into a real business opportunity? History and data can provide some answers to these questions.
Flashback to 2007. “Five hundred dollars fully subsidized with a plan!” Steve Ballmer laughed as the journalist asked for his reaction to the iPhone launch. “That is the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard. … Right now we’re selling millions and millions and millions of phones a year; Apple is selling zero phones a year. In six months, they’ll have the most expensive phone by far ever in the marketplace. … Let’s see how the competition goes.”
Who would buy an overpriced phone that doesn’t appeal to business customers, indeed! From a latecomer to the market with no experience in mobile telephony, nonetheless. Except for one small detail.
The demand for expensive iPhones (and later for Android) did not come from business users who wanted faster-better-cheaper. It came from consumers craving the millions of apps available on these devices. Not only was Windows Mobile overtaken by iPhone and Android, but these new products ultimately undermined the enterprise market that Microsoft and Blackberry owned. In 2014, iOS and Android accounted for 97% of new mobile device activations in enterprises, while the latter two were obliviated.
The new normal: consumers first
As it happens, the pattern we saw in smartphones is not the exception, but the rule for most recent computing technologies – Software-as-a-Service, social media, and even PCs. Likewise, IoT will find large-scale adoption in consumer markets first. After that, consumer technology will proceed to displace its supposedly superior enterprise equivalent. This might surprise you, as enterprise solutions comprise the bulk of the IoT market today.
Isn’t all the money in large enterprise projects then? [tweetable]Unlike in days past, the technology underlying the IoT is relatively cheap and ubiquitous[/tweetable]. It doesn’t require large government or enterprise budgets to fund so it is accessible to experiment and iterate with. Just like with mobile apps, innovators can take existing technology into countless needs and niches, most of them unimaginable today. (As opposed to inventing new technology to realize an existing vision.) The enterprise market caters to straight-forward, well-understood business needs and grows at a moderate pace. Meanwhile, for consumers without long procurement cycles, the plethora of use cases unlocks new demand – things we didn’t realize we needed – which grows the market at incredible speed. Finally, enterprise technology is overtaken: if I can have this fantastic, cheap, powerful consumer technology at home, why am I stuck with old, clunky tools at work?
It should come as no surprise then, that [tweetable]the most popular verticals in which IoT developers are active are the Smart Home and Wearables[/tweetable]: distinctly consumer-oriented sectors. The other verticals have a B2B orientation, requiring developers to sell their work to enterprises or partner with big companies to get their products to consumer markets. As a result, they are much less attractive to developers, and innovation will be slower there. The Connected Car market offers us an interesting view in what happens when a sector “consumerizes”. Up until now, developing car apps required partnering with car makers. Apple’s CarPlay and Android Auto enable – for the first time – a direct-to-consumer model for developers. Immediately we see an uptick in developer interest.
Market reset
IoT is a greenfield market. When new use cases lead to new demand, this new demand is fair game for everyone. The rules of the current market will not apply. New players can appear out of nowhere and overtake incumbents (as Apple and Google did in mobile). New business models can emerge, some of which disruptive to incumbents. Some newcomers might give for free (or at zero profit) what incumbents sell, in a model that boosts demand for their core product. History shows that it will be nigh impossible for incumbents to react effectively.
[tweetable]We predict that by 2020, new players with new business models will dominate IoT[/tweetable]. Most incumbents will be bankrupt, acquired or uncompetitive.