2014 has started with an inescapable focus on a technology trend labeled the 'Internet of Things' (IoT). An ambiguous term, it nonetheless describes a number of diverse technological developments with the long-term potential to interconnect and change the way we as consumers live with our devices and the way marketers communicate. From cars that can identify a driver and match individual environment preferences, to smart homes that learn our behavior and adjust accordingly, the promise of the Internet of Things is as great as the hype that precedes it.
Cisco estimates that the IoT will bloom to involve "50 billion connected things in the world, with trillions of connections among them." By various measures, the IoT is currently generating more than $1 trillion in revenues and this hyper-connected future could represent a $14 trillion annual business within ten years. Cisco CEO John Chambers is calling his company's innovations the Internet of Everything (IoE). While Cisco isn't planning on selling directly to consumers, they are planning on indirectly impacting their lives through smarter power grids, personalized retail experiences, improved industrial efficiency, and the ability to control the infrastructure of an entire building through a single smartphone application. During his CES keynote address, Chambers promised that IoE will be "bigger than anything that's ever been done in high tech."
Dissecting the Internet of Things
The IoT is a network of real-world objects that access the Internet and their own internal sensors to improve operations. The information networks that arise from so many interconnected devices hold the potential to disrupt the many business sectors that have come to rely on those very connections. While essential everyday devices such as tablets, smartphones and video game consoles are connected viawireless networks, most others are not, at least in the widespread sense required by a hyper-connected Internet of Things. In the first weeks of 2014, however, the trend is stirring.
At CES, the IoT was high on the agenda, as industry analysts worked feverishly to put together the pieces of a puzzle that has barely been removed from its box. 2014 will be the year of the Internet of Things and IoT promises to be at the forefront at next January's CES. Less than one week after CES, Google acquired Nest Labs for the substantial price of $3.2 billion. (See more on Google's Nest acquisition below.) The company has two products, one a smart thermostat with the ability to learn your schedule and adjust the temperature accordingly; the other a smoke alarm that feeds information to a mobile device, reminding you to change the batteries or alter settings. More importantly, the two devices can communicate with one another to improve performance. The smoke detector, for example, may detect high levels of carbon monoxide and prompt the thermostat to turn off possible sources. In this small example we see both the potential and current limited scale of the IoT.
At home, at work, and everywhere we move in-between, connected devices could be at work, reacting to location, behavior, time of day and thousands of other inputs to improve our lives. This is why Google has moved to develop a core of talent in the field, and why executives in every organization must be aware of the implications of IoT to their business.
The 2002 film Minority Report presents a world where technology has taken over. Enter a store and you are automatically greeted by name, reminded of the last item that you purchased, and a new product is suggested based on your earlier preferences. The movie was set in 2054, and yet, in 2014 we are not far from making the film a reality. Apple's iBeacon is an indoor geo-location application that allows stores to track user preferences and provide users with customized directions and shopping guidance. While Apple has downplayed the importance of the iBeacon (it was too late to make a big announcement for the 2013-2014 holiday rush), it's currently available in an estimated 200 million iOS devices. iBeacon is the implementation of the Bluetooth Low Energy (BLE) profile, which triggers precise micro-location events in iOS7 apps. A BLE enabled iPhone will be able to receive exact location signals from an iBeacon, enabling a retailer to direct you not only to its front doors, but down the aisles, and straight to the shelf with the exact sale item. Combine iBeacon with BLE and new data gathering software, and suddenly you have transformed retail from a mass-consumer space into everybody's personal shopper.
As the retail industry continues to be a big predictor of consumer wants, the ability of The Internet of Things is adapting and growing through increasingly targeted applications. Smartphones and their applications have forced retailers to keep prices competitive and websites up to date. A recent Pew Internet study showed that 50 percent of adult cell phone owners use their device to help with in-store purchasing decisions. Smartphones allow us direct access to both the in-store and the online retail worlds. If a competitor is offering a better price, then we can not only find the product on our phone, but we can also immediately purchase it.
In the future world of IoT, the physical store is embedded with sensory technology that can connect to any mobile device. What if this store's technology realized that many people in the store are browsing but not buying? With this immediate data the store's embedded technology could send out a flash e-mail that offers a discounted offer. Through IoT, manufacturers can embed microscopic chips in apparel that emit a signal intended to be read by sensors at retail locations, identifying the fashion preferences of consumers and communicating with sales people and shoppers as they enter the store or walk past a window. Chips can be in CPG products, alerting consumers when its use-date has expired or when it needs to be replaced.
Auto manufacturers are already applying the early elements of connected devices to vehicles, think of EZ Pass as a very early application. Automatic braking systems in high-end cars and navigation systems that factor in heavy traffic reports are just the beginning. Once a car is fully hooked up to real-time data, it has the ability to use that information in almost any frustrating driving situation imaginable. Parking becomes a non-issue as every free spot within a mile or two is presented to the driver with directions and ETA, while traffic congestion becomes far simpler to avoid as every vehicle relays its position and prevailing delays to the cloud, allowing navigation systems to suggest an optimized route. Smarter routes could also be suggested as a driver's regular habits are learned, factoring in traffic and weather conditions before we even leave the house and relaying the recommendation by an alert pushed through a mobile device.
Off the roads and into the shopping malls, retailers and marketers will be challenged again and again by IoT. Still wading through the repercussions of digital disruptions to entertainment media and its subsequent impact on advertising, executives will need to activate strategies to loop together virtual and physical worlds, and the inevitable integration of traditional media campaigns with direct consumer communications, shopper marketing, events and experiential marketing. Smartphones will be at the center of this transition.
This presents an evolution for loyalty programs, which will need to spring into action long before the focus directly on pushing consumers to the cash register. Today's customer data collection is just the tip of the iceberg as a detailed personal record is built from the almost infinite number of apps and social networks and the ability to communicate that data directly from mobile devices directly to retailers, manufacturers, loyalty clubs, preferred cause-related organizations, approved partners and, yes, the government. Recent security lapses in retail data storage centers resulting in the release of the credit card information from millions of credit cards is just one of many challenging new realities confronting business, government and society.
The power of Internet-driven technologies has made our universe smaller. In order to survive in a shrinking world, companies must ensure that, in the words of Cisco CEO Chambers, they, "get the right data to the right device at the right time to the right person or machine to be able to make the right decision."
Internet of Things: In its Infancy
The Internet of Things will impact technological growth across multiple business, commerce and consumer sectors. As noted by Barry Shell in 1995, "the Internet, with its open, distributed structure, was designed to withstand a nuclear attack. If it can do that, it can withstand corporate America." The Internet of Things is not only withstanding corporate America, but it is changing its very infrastructure. New applications that know what the consumer wants and needs before they do are the wave of the future. Soon, consumers will become walking billboards, made so by their continuous connection to The Internet of Things through mobile devices and sensory embedded technologies. By 2020 an estimated 26 Billion connected devices will deliver a continuous stream of data to awaiting cloud-based processors that will instantly compute the intelligence and, in a continuous feedback loop, engage connected devices and communicate actions, offers, insights and alerts.
Why Google Shelled Out For Nest
Energy efficiency is a business opportunity ripe for improvement, as home energy solutions learn our environmental preferences, factor in current weather conditions and our location, and then adjust usage accordingly. Energy systems will recognize the mobile location of all household members and manage electrical and energy use and output accordingly. New energy management systems will optimize usage and costs.
Prior to Google's acquisition, few people had heard of Nest, not a surprise since Nest produces only two products: a home thermostat and a home fire detector. Despite this dearth of a product lineup, Google agreed to shell out $3.2 billion, which represents a 2000% return for the founders and original investors. What makes Nest such a hot commodity is the Internet of Things.
Nest Labs CEO Tony Fadell told an interviewer last October that "we're just at the very cusp." Relating the IoT to the development of personal computers, he added "How long did it take to get to the 'Internet of computers'? There are so many layers of software and hardware to be built, and standards to be built, that I do believe it's a 10-year proposition, easily." Fadell left the security of a job at Apple to go all in on his particular version of the IoT and in doing so netted himself hundreds of millions.
What's so special about Nest? Their lineup of smart thermostats and smart fire detectors allow a user to remotely set preferences for the interior of their home. Speak into your smart phone and turn down the heat. Leave the oven on and the Nest smoke detector will automatically shut it off. Fire? While calling the fire department, nest will shut down the electricity, gas, oil and other endangered systems while unlocking the door and communicating the cause and location of the fire to the arriving firemen. Google's betting that always-on machines will replace any and all human controls in the same way that bathrooms have automatic sinks and toilets. If you already have a Slingbox or activate your home DVR from your mobile device, you're already participating with the Internet of Things. There are some risks for Google but the acquisition of Nest signals that the company (in typical fashion) is looking at potential rewards first. They want to lead in the development and implementation (and of course profits from) the Internet of Things. From clocks to mixing bowls, clothes closets to pantries and refrigerators, from game rooms to bedrooms, from fish tank filters to lights and barbeque grills, from Google Glass to retailers' special offers, Nest represents Google's commitment to the multi-trillion-dollar Internet of Everything.
Google's first step -- and it's a mammoth step -- involves creating the source code that will define a common connection for smart devices. The good news for the company is that Google wants to put computing literally everywhere -- from your kitchen sink to your tool shed -- and there's no other company today with the resources, skill set and consumer connections that is willing to risk assets and create long-term plans for building such a massive infrastructure.
The acquisition of Nest represents both a strategic asset as well as a marketing plan. We can reasonably expect that future smart devices produced by Google will enter the market under the Nest or Nexus label. Nest/Nexus coffee machines, home appliances, hair dryers, home electronics, computers and other interconnected devices may become market leaders with the same speed as Android tablets and smartphones. Beyond the brand, however, Google will surely market the network: purchase a Nest/Nexus dishwasher and you can send it commands via your Android device. Log into Google+ and turn the lights on in your garage, activate the security system, view different rooms in your home, check whether you're out of milk and leave a message on the fridge.
If Google can succeed at developing a brand-specific Internet of Everything, they'll enjoy as dominant a near-monopoly over this market as they do with search marketing.
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