The IoT juggernaut rolls on, and it appears more than likely the estimated 20B-25B connected devices by 2020 will be easily exceeded. The advent of turnkey IoT platforms, low power cellular standards (LPWAN) with compelling data plans, and improved security have all contributed to the rapid, global rise of digitization and connection of new devices in the past couple of years. While enterprise IoT commands the larger share of the market today, consumer IoT is poised for higher growth rates as connectivity expands to new regions and extends the reach of smart home services to new consumers.
Show me the IoT Money
However, questions still persist about the economics of IoT – a recent report by Strategy Analytics asked the question “IoT is growing but where’s the revenue”. While it's true that IoT has tremendous promise and potential, the combined revenues of solution providers (software, hardware, and services) thus far is a tiny fraction of the trillion-dollar market size estimation.
So, what’s been the problem? The challenge with any new technology is standardization – and IoT is far from standardized, with the plethora of hardware/module options, connectivity standards, cloud deployment options among others. In consumer IoT, which includes smart home products, appliance brands and retail, the uncertainty of which standards will be the ‘last one standing’ is creating friction. While standards are still evolving, adoption is growing slower than expected, translating into lower revenues. Moreover, integration requirements, security issues, and generally expensive deployments are also constraining adoption, at least until early 2018.
In the early days of consumer IoT, the consumer IoT value proposition and motivations for adopting IoT were unclear. There was initial traction because it was the cool new thing, but over time that view has matured and consumer brands are now focused on selling more units and expanding unit margin, and view IoT as an enabler of those outcomes.
From Market Promise to Business Value
At Ayla Networks, we’re at a unique vantage point to observe the IoT market dynamics and we’ve started to see some interesting changes over the past 12-18 months.
The most significant is that the demand for connected products is rising exponentially, as indicated in the revealing chart below. In a recent study of leading Ayla Networks customers covering smart home categories including locks, lights, HVAC, water treatment, coffee brewers the number of activated/sold has shown an impressive trajectory and indication that brands must respond to these changing demand dynamics in order to avoid getting left behind.
Our data also shows that the market is bearing higher price points for connected products – ranging from 3% higher to almost 350% higher, and these products are generating higher ratings with an average of 0.65 ‘more stars’ on retail sites like Amazon, Best Buy and Sears. All of this market data augurs well for the consumer IoT market and is projected to drive higher sales, profits and superior customer experience for the brands and their retail partners.
Connected products exhibit a strong price premium compared to regular ones
Simultaneously new business models have removed the friction to trialing IoT projects, and eventually launching and scaling them. Ayla Networks introduced Ayla Explorer an easy to implement, starter package that generates immediate value at a compelling price point, and this offering has generated significant market interest and new projects. That combined with flexible pricing options based on fixed per-device model and transaction (consumption) model has resulted in delivering true value-based pricing for the first time.
In summary, while market demand is growing, solution providers must continue to innovate in business models, pricing, and solutions packaging to eliminate friction and drive higher IoT adoption. At the same time, consumer brands have their best opportunity yet to make the necessary and important IoT investment to become more competitive and realize meaningful financial returns for the long term. To share ideas on IoT business and technical innovation or to learn more about how Ayla Networks is powering change in IoT visit www.aylanetworks.com or contact us at firstname.lastname@example.org.