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Internet Of Things: 6 Obstacles

A report from McKinsey and the Global Semiconductor Alliance finds excitement and uncertainty among companies building the pieces of the Internet of Things.

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The Internet of Things (IoT) may be the sum of smart devices, but it doesn't necessarily add up for companies creating IoT technology.

A report released this month by McKinsey & Company and the Global Semiconductor Alliance (GSA) found that semiconductor executives had mixed opinions about the potential of IoT, which is widely seen as a source of growth for a broad set of technology companies.

The report was overseen by a steering committee of 11 senior executives from GSA member companies and McKinsey. The process involved interviewing 30 GSA members who were senior executives at semiconductor companies, or at companies in adjacent industries that are part of the IoT ecosystem, such as network equipment and industrial automation, and surveying 229 semiconductor executives at GSA member companies.

The IoT, as defined by McKinsey and the GSA, refers to sensors that communicate over the Internet without human intervention. That definition includes wearables and smartphones, both of which communicate autonomously if allowed. It also includes smart devices for cars, homes, and cities, and for healthcare and industrial equipment.

Looking ahead, the benefits and growing ubiquity of connectivity appear likely to make "smart" the default for objects of significant value. Perhaps the term will even disappear as it becomes the norm, to be replaced by "dumb" (or something less pejorative like "silent") for those rare instances when objects can't communicate.

But several challenges may delay that future, and the McKinsey/GSA survey sees six obstacles of note.

1. Security and data privacy. "Overall security is only as good as its weakest point," said one executive interviewed for the report. Certainly weak points are abundant on the Internet today.

This explains why Samsung spent considerable effort at the recent Internet of Things World conference emphasizing the presence of Secure Element hardware in its new ARTIK line of IoT modules.

The report lumps security and privacy into a single concern. That's arguably the ideal case -- owner-controlled encryption -- but typically security and privacy diverge. Companies that keep data secure may define privacy to mean "private to other companies but available to us." Those making IoT devices need to understand that security and privacy can't be an afterthought, or a single idea.

[ Think you're ready for IoT? Think again: IoT And The Looming Mobile Tidal Wave. ]

The automatic communication of IoT devices makes privacy more difficult by encouraging a usage pattern where communication consent is given in advance, rather than at a contextually relevant moment.

2. Customer demand. At least in the consumer market, the report anticipates that the IoT market will grow through a variety of applications, rather than via a single killer app. The report advises that semiconductor companies help developers create compelling IoT products and guide businesses with an interest in IoT deployment.

Part of the problem is that IoT products may be more interesting to their makers -- by providing companies with data and customer engagement -- than to customers. Users of IoT devices need to be able to derive real, repeatable benefits from the technology, or they just won't bother with it.

(Image: McKinsey/GSA)

(Image: McKinsey/GSA)

3. Limited consensus on standards. This lack of standards is particularly the case among emerging protocols with low-power consumption like LTE Cat.0, 802.11ah, Sigfox, and OnRamp. The report suggests that chipmakers hedge their bets until there's more clarity.

4. Market fragmentation. The diversity of IoT applications means no single chip is likely to be suitable for all applications. Such fragmentation represents a concern because it limits economies of scale, thus raising production costs. The report recommends that chipmakers focus on silicon that can serve multiple markets -- an approach Samsung has taken with its three distinct ARTIK modules.

5. Elusive new revenue sources. Perhaps the most intriguing aspect of the report is the finding that semiconductor companies are looking beyond silicon manufacturing for profits. Many of the companies interviewed are looking to add value at multiple layers of the technology stack, through software, security, and systems integration. IoT appears to be a ladder up the value chain.

6. Technology shortcomings. Finally, while two-thirds of survey respondents expressed confidence that IoT technology is where it needs to be to thrive, another third suggested that reduced power consumption would stimulate demand for IoT devices and applications.

The Internet of Things is here, but it may take some time to figure out which side is up.

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Thomas Claburn has been writing about business and technology since 1996, for publications such as New Architect, PC Computing, InformationWeek, Salon, Wired, and Ziff Davis Smart Business. Before that, he worked in film and television, having earned a not particularly useful ... View Full Bio

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User Rank: Moderator
5/27/2015 | 11:50:35 AM
Great overview
IoT represents significant opportunity. However, it's also opens the door to some significant challenges. If organizations are going to thrive in this space there needs to be not only investments in making the technology seamless, but also the interactions between the various organizations groups significantly better as well.  Peter Fretty, IDG blogger working on behalf of CSC
User Rank: Ninja
5/17/2015 | 12:07:12 AM
Re: Standards will eventually emerge
I think these are crucial issues that IoT industries must resolve in order for this technology to become more mainstream, security, standards, market need, etc.  For the consumer market, it will take a long time.  But, as you indicated, specific industries could really improve their processes by using IoT.
User Rank: Ninja
5/16/2015 | 2:57:52 PM
Standards will eventually emerge
The lack of standards is, well, standard for all new technologies. Will they bubble up from the bottom, or be asserted downwards from the top, or, more likely, a combination of both? I think security and data privacy are the largest barriers that the IOT faces; it would be nice to be able to control what's going on in a private home from a distance, but it could be a disaster if someone up to no good could do so. I think that this is going to be one technology that will see its first major implementations on the commercial side. As another InformationWeek article from a few days ago described, there is very great value for a manufacturer to know from afar the intimate details of how a critical, multimillion dollar installation is performing.
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