October 2013, IDC #243397

Industry Developments and Models

IDC's Worldwide Internet of Things (IoT) Taxonomy, 2013

Carrie MacGillivray Vernon TurnerDenise Lund Monika KumarScott Tiazkun

IDC OPINION

Autonomous communications between devices, or what has long been referred to as machine-to-

machine (M2M) communications, and the value generated for ecosystem players, end-user

businesses, and consumers alike has evolved. It is now unduly narrow to think of M2M as reflective of

the burgeoning, full opportunity. Billions of things are increasingly managed by intelligent systems,

transmitting exabytes, zettabytes, and yottabytes of data. The role of wireless connectivity, platforms,

analytics, and applications are increasing, making way for a broader, emerging Internet of Things

(IoT). IDC is examining all of the piece parts that come together and are connected to make the

Internet of Things a realistic and viable vision of connectivity-driven value over time. In this study, IDC

presents a comprehensive and standardized view of the worldwide Internet of Things market. In more

detail:

IDC defines the Internet of Things (IoT) concept as a network connecting (either wired or wireless) devices, or "things," that is characterized by autonomous provisioning, management,

and monitoring. The IoT is innately analytical and integrated.

Machine to machine is described as a network facilitating communications between — either

wired or wireless — devices that served as a precursor to, and now a subset of, the Internet of Things.

Devices, or things, in the IoT are managed by intelligent systems, which are defined as

securely managed electronic systems that run a high-level operator system (HLOS) and autonomously connect to the Internet, execute native or cloud-based applications, and analyze data collected. Intelligent systems possess greater programmability and performance

than an individual thing, integral connectivity, and the potential to capture, analyze, and forward data to/from other systems.

This taxonomy includes the five submarket segments that all work together and as such comprise the IoT: devices (i.e., sensors, RFID-enabled things) managed by intelligent

systems, connectivity, platforms (device, network, and application enabled), analytics and social business, and applications. Connectivity, within the IoT will drive revenue growth across the ecosystem and benefit mobile operators, device vendors, technology suppliers, platform

vendors, application vendors, and systems integrators.

IoT opens up opportunities for traditional IT vendors to the consumer market. Providing B2B2C

services to connect and run homes and automobiles, for example, will leverage even more opportunities to make use of networking capabilities.

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IN THIS STUDY

This study outlines IDC's current taxonomy for the Internet of Things market. It provides definitions for

all the components in this network — devices (sensors/RFIDs/smartcards within and outside of

intelligent systems), connectivity, platforms (device, network, and application enabled), analytics, and

applications (including vertical use cases). It also describes the role that security and professional

services play in this market and highlights the relevance of vertical industries to the IoT. This study

also provides insights on the market drivers and use cases for IoT solutions.

SITUATION OVERVIEW

While many data points exist in the market in terms of how many devices can possibly be connected,

one thing is for certain — we've only just recently passed the starting line of this emerging market

opportunity. Add to this the increasingly recognized and valuable role that wireless connectivity,

platforms, analytics, and applications together have in this system, and we've only just begun to

identify the value of the entirety of the Internet of Things.

Adoption of highly branded and increasingly available Internet of Things use cases in the consumer

market are clearly taking off. As the leading use cases, such as that of the original Amazon Kindle,

continue to drive interest, the IoT value to consumers and businesses will amplify. Each has played a

pivotal role in familiarizing the market with the opportunity for "connected" consumer electronics. New

applications of IoT in the consumer space are being seen in personal fitness (i.e., Fitbit — a wireless

activity tracker device) and in connected cars.

B2B IoT adoption is clearly taking off as well. The nature of an enterprise's adoption of IoT is naturally

more methodical than consumers' adoption. As such, many industry verticals are on the cutting edge

of innovations with IoT — a tremendous opportunity for ecosystem partnerships and innovations.

However, most businesses are still early in understanding the benefits and the business innovations

and efficiencies that IoT presents. Applications in the IoT realm are seemingly endless. "Track and

trace" applications were an initial hotspot in the transportation vertical — however, that has morphed

into tracking not only location, but the tracking of high-value cargo/assets to ensure integrity of goods

in transit, such as food and biologics, and monitor tampering/security, for example. This application is

leading a transformation of this industry as new value-added services can be added to what was

traditionally a predominantly "track and trace" segment.

Other industry verticals at the forefront of the growth of the IoT market include retail, utilities,

transportation, healthcare, insurance, and manufacturing. These verticals are at varying stages of

sophistication when it comes to moving beyond the current capabilities of their IoT solution to collect

information via connected devices. Collectively, these verticals desire more and are on the cusp of

innovating and implementing IoT solutions that richly leverage analytics and social business tools to

create monetizable intelligent, automated solutions.

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Regardless of enterprise or consumer IoT solution, the double-edged sword remains for a foreseeable

future. The breadth and value of information that can be collected creates monetization opportunities

whereas privacy concerns will continue to play an important role in what is actually collected and the

level of detail retained. This will need to be addressed before infinite data collection and IoT's ultimate

value creation can occur.

What is clear is that driving IoT proliferation and its value expansion is the increasing ability to

systematically and synergistically leverage the cloud, location based services, connectivity, and social

networks. The opportunity for innovation in both the consumer and enterprise segments is only just

emerging. Connectivity services will enable the extension of information so that every thing has the

opportunity to capture data from other things and its surrounding environment. Things will be

essentially part of or managed by intelligent systems in the vast majority of cases. These intelligent

systems will connect further throughout the five submarkets of the Internet of Things. This is precisely

the multifaceted IoT opportunity that we strive to define in this taxonomy as IDC initiates, sizes, and

forecasts this nascent but growing market.

Supply or Demand Driven?

It is without a doubt that business and consumer demand exists and will continue to expand for the

Internet of Things solutions. IDC expects that current IoT use cases are just the tip of the iceberg.

However, the majority of momentum in the market to date has been generated from the supply side.

The ecosystem of vendors and service providers have been actively looking for ways to expand their

product portfolios and find new ways to generate ancillary revenue — and IoT fits the bill. Almost any

enterprise-focused systems integrator, software vendor, professional services firm, or mobile operator

has a story around what IoT and M2M can do to help businesses become more productive, efficient,

customer friendly, and agile, to name a few.

It is up to these vendors and service providers to help enterprises define and understand business

models, and where connected, autonomously communicating devices or things leveraging platforms,

analytics, and applications can benefit their businesses. Systems integrators and professional services

firms (and to varying extents, mobile operators) can play a pivotal role in shaping use cases and

revealing the benefits from investing in an IoT solution. IDC sees deep industry vertical expertise

brought by these ecosystem players as a critical success factor in many IoT cases. These IoT players

will have to forge strong partnerships with other vendors to provide end-to-end solutions that satisfy

their customers' needs.

What About M2M?

Machine to machine is an older, but sometimes still used, industry term that became popular to

describe a network facilitating communications between — either wired or wireless — devices. Its origins

can be placed somewhere around the time that computer networking automation took place. Early

applications were in telemetry and industrial automation.

IDC in this taxonomy characterizes M2M as a precursor to, and now a subset of, the Internet of Things.

It is now unduly narrow to think of M2M as reflective of the burgeoning, full opportunity. Some reasons

for this perspective are:

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Billions of things are increasingly managed by intelligent systems, transmitting exabytes, zettabytes, and yottabytes of data. Without intelligent systems' management and connectivity

throughout value-adding platforms (device, network, and application enabled), data analytics systems, and applications, M2M as an insular solution would present a constrained revenue opportunity for the ecosystem in the long run.

Innovation is being driven by ecosystem players outside of the device and connectivity

vendors as much as, if not more, in some cases, than within the more narrowly defined M2M ecosystem.

Feedback continues to be shared that underscores the value of enterprise solutions being holistic solutions. The full value of an IoT customer, therefore, is most fully and accurately

measured across all of the piece parts that communicate to return the end users' IoT benefits.

Contextualizing IoT in the Real World

As a start to contextualizing and describing the Internet of Things, here are some examples of how the

IoT can be realized:

Connected cars — can include emergency call systems with embedded SIMs as well as

diagnostic monitoring, telematics, and in-car entertainment systems

Remote healthcare monitoring — can perform continuous and real-time readings of vitals such as blood pressure, heart rate or sugar levels to notify caregivers and/or medical personnel in

the event of elevated readings

Personal fitness — with wearable fitness devices (i.e., Fitbit, Nike+ Fuelband), users can track

steps taken, calories burned, and hours slept for example and monitor results on their smartphone or personal computer, as well as link to (or create) social networks

Public transit — local/municipal governments can use IoT solutions to run, operate, and monitor

public transit systems for fuel optimization, fleet, and fleet content tracking, as well as positive train control — a system for monitoring and controlling train movement as a means to improve railway safety (i.e., train separation or collision avoidance)

Transportation — use ubiquitous connectivity to leverage telematics and RFID devices to

monitor and control shipping equipment and cargo on a worldwide basis (Increasingly, producers are able to monitor and analyze asset safety and quality across the supply chain. For example, transporting food from farm to fork is a sensitive process to ensure that foods do

not spoil while in transit.)

Smart utilities — use connectivity to monitor energy consumption by automatically measuring

and monitoring home energy usage

Discrete manufacturing — use robotics to further automate production of automobiles and other equipment

Home security/monitoring — provides protection against home intrusion but also is capable of

monitoring and controlling home environments (i.e., lighting and temperature)

With these examples and others, the IoT market will provide solutions that bring different levels of

value to the ecosystem players. Connected value is often inversely proportional with volume of

connected device, as depicted in Figure 1. Figure 1 contextualizes a sampling of industry vertical

solutions on two axes — value and volumes.

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FIGURE 1

Impactful Vertical Solutions

Source: IDC, 2013

In addition to looking at where industry vertical use cases fall in terms of value to the ecosystem by

volume of connected devices, it's also important to contrast the significance of the frequency of

connectivity and the revenue impact to the ecosystem. To fall within IDC's definition of IoT, an

endpoint, or thing, must connect to the Internet at some point in its life cycle. This can happen seldom,

occasionally, frequently, or constantly. Figure 2 examines this concept of the communications

frequency versus revenue impact.

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FIGURE 2

Holistic View of Communications Frequency Versus Revenue Impact

Source: IDC, 2013

FUTURE OUTLOOK

Internet of Things Taxonomy

As the mobile market continues to evolve and innovate, new constructs begin to emerge. The Internet

of Things, formerly and more narrowly thought of as M2M, as a concept and synergistic set of products

and services is one of these new and evolving constructs. IDC's IoT taxonomy provides the

classifications and definition for the major components that comprise the IoT market and therefore are

covered within IDC's IoT research. All definitions and terminology are current as of September 2013.

IDC describes the Internet of Things as a network connecting — either wired or wireless — devices, or

things, that is characterized by autonomous provisioning, management, and monitoring. The IoT is

innately analytical and integrated.

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Mobility-enabled, or wireless, IoT is included in what IDC refers to as the 3rd Platform — the next

technology platform for growth and innovation, built on mobile devices and applications, cloud

services, mobile broadband networks, Big Data analytics, and social technologies.

This taxonomy provides a deep dive of the following:

Components of IoT:

Devices (i.e., sensors, RFID-enabled things) managed by intelligent systems

Connectivity, including service enablement

Platforms (device, network, and application enabled)

Analytics/social business

Applications and vertical industry use cases

Other considerations in IoT (e.g., quality of service [QoS], reliability, security, and professional

services)

Components of the Internet of Things

IDC has divided the Internet of Things market into five categories in each of which there is a significant

opportunity for vendors and service providers. Each of these components is discussed in Figure 3.

FIGURE 3

Components in the Internet of Things

Source: IDC, 2013

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Intelligent Systems/Devices

Devices in the IoT context are one of sensors, RFID tags, or other such wired or wirelessly enabled

devices. Devices or things in the IoT are managed by intelligent systems. Intelligent systems are

defined as securely managed electronic systems that run a high-level operating system (HLOS) and

autonomously connect to the Internet, execute native or cloud-based applications, and analyst data

collected. Intelligent systems possess greater programmability and performance, integral connectivity,

and the potential to capture, analyze, and forward data to/from other systems.

Among the systems within the IoT, and between disparate devices in the IoT, intelligent systems are

the main drivers of value across the Internet and the dominant electronic systems on the IoT road map.

Naturally, then, intelligent systems operate as clients in the datacenter and in infrastructure systems.

Sensors

Sensors use semiconductor technology such as computing and embedded microprocessors and

microcontrollers and communication chipsets-baseband process, RF, and PAs to enable the

intelligence and autonomous communication between electronic machines and sensors. Hardware

relies on MPUs, MCUs, DSPs, FPGAs, SoCs, and sensors for their native intelligence and

communication.

It is important to note that there are a seemingly endless number of sensors at work today in every

electronic device or thing. However, while all these sensors are all capturing data and sharing it in

various ways and frequencies (from on-demand to batch to real time), not all these sensors have a role

in driving the aggregate size of the IoT market. If the sensor does not communicate with an "intelligent

system," IDC will not include it as part of our core IoT research. For example, an automobile has 200+

sensors to monitor performance; only the number of sensors that are directly connecting with the

intelligent system are counted under IoT. Some sensors are just communicating with each other but

not at a level which would be counted in the IoT. An accelerometer inside a mobile phone would not be

counted, for example, either. Simply, if the device, thing, or sensor has an IP address and is connected

at some point in its life, it will be counted in the IDC IoT.

Devices, sensors, or things that communicate with intelligent systems without human intervention,

automatically sending and receiving data to/from/within the intelligent system, are counted in the IDC

IoT market. This means, for example, that smartphones requiring a user to enter data to be sent to an

intelligent system as context to other events that are automatically passed on between a device and

the intelligent system, are not counted in IDC's IoT.

Connectivity and Service Enablement

Mobile networks and the associated traditional services (i.e., voice messaging, text messaging) have

been the foundation on which operators have built their businesses, applications, games, and video

services, which in turn inspire customers to transition from feature phones to smartphones, driving

revenue mix changes in the operator's business. Voice service is becoming increasingly

commoditized, SMS volumes appear to be plateauing, or even falling, and strong competition is

limiting operators' ability to grow data revenue. Operators are at a crossroads in terms of taking the

next step to drive revenue and subscriber growth over the next several years. IoT represents an

opportunity not only for the operator to find a new source of revenue and play a pivotal role in a new

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service value chain, but also to leverage their legacy networks for low bandwidth connectivity — for

which IoT is ideal.

The connections segment of the IoT market can involve any of the following connection types:

Cellular leverages 2G (GSM, GPRS, EDGE, 1xRTT), 3G (HSPA, HSPA+, EVDO, EVDO Rev

A), or 4G (LTE, WiMAX) wide area networks for connectivity.

WiFi leverages a wireless local area network using unlicensed spectrum on WiFi standards 802.11 a, b, g, or n bands.

Bluetooth leverages open wireless technology standards for exchanging data over short

distances.

Zigbee leverages low-power, low-cost connectivity that is primarily beneficial in short-range

monitoring or controlling applications.

Wireline leverages existing wired infrastructure to monitor devices/endpoints.

6LoWPAN (IPv6 over low-power wireless personal area network) leverages a new standard for IPv6 to be utilized for low-power, low-rate devices such as embedded sensors.

Message Queue Telemetry Transport (MQTT) leverages an extremely lightweight

publish/subscribe messaging transport. It is useful in connections with remote locations where a small code footprint is required and/or network bandwidth is at a premium.

The role of the mobile operator in IoT can be broken down into three primary roles:

Connectivity-centric solutions

User/application-centric solutions — allows CSPs to enhance value with policy and network

capabilities (e.g., location and presence)

Business process–centric solutions — branded, end-to-end solutions (e.g., energy management

and security monitoring)

Within and around the connectivity layer of IoT, an operator's business and operational support

systems (BSS/OSS), and service delivery platforms (SDPs) all play a critical role. Operational support

systems (OSS) refers to the service fulfillment and service assurance systems used by

communications service providers (CSPs) to operate, administer, plan, and maintain their

infrastructures. They form the operational systems and process workflows of day-to-day and strategic

CSP operations. Service fulfillment and service assurance systems are classified as OSS. In detail:

Service fulfillment is the function of creating and/or turning up network or other service

offerings that fulfill a customer's order or replace a portion of existing infrastructure. In the IoTarena, it is the operator's service fulfillment systems that would be involved in provisioning

devices and decommissioning faulty or rogue devices. This component is sometimes referred to as an IoT device-enablement platform (described in the Platforms section). It can be offered by the mobile operator or a standalone provider.

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Service assurance is managing existing infrastructure to be operational and perform on a day-

to-day basis as well as on a strategic level. Multiple technologies for fault and performance management are employed at element, network, service, and business levels to ensure availability, response times, and throughput requirements. In the IoT value chain, service

assurance systems would be responsible for device and module monitoring, maintenance, and diagnostic management which may include performing firmware-over-the-air (FOTA) updates, fault detection, prevention and recovery and especially service continuity, performance, and

security. In addition, service assurance systems can provide customer care and support and perform device/system troubleshooting.

Billing and revenue management systems support billing and revenue management functions for the communications service provider and its customers as well as the related customer-

facing activities involving these functional areas. For M2M, fully automated revenue capture is essential and many billing and revenue management systems are involved and play a critical role in ensuring that each transaction and billable event is captured, recorded, and accurately

rated and billed.

Additionally, application integration between the network and devices is vital in ensuring

interoperability and enforcement of policy and charging rules and other applicable policies. This component is sometimes referred to as an IoT application-enablement platform

(described in the Platforms section). It can be offered by the mobile operator or a standalone provider.

For mobile operators, the introduction of IoT implies a significant change in how their networks must

perform to keep pace. In short, while the focus has traditionally been on maintaining "the pipe" to keep

pace with voice, and now data and demand, M2M imposes additional requirements. IoT requires

"transactional" networks that can keep pace with millions, if not billions, more individual transactions.

While these transactions may have minimal impact in terms of data load, the requirement to handle an

exponential increase in back-and-forth traffic requires operators to introduce much more automation

into network and service management processes, and implement solutions to address the dramatic

increase in signaling traffic that will accompany the IoT revolution. Investment in next-gen OSS, billing,

and policy control and charging systems to ensure that all parties in the IoT ecosystem are paid in an

accurate and timely manner is crucial to operators' ability to foster a robust ecosystem.

Platforms

Within the platform layer, IDC identifies three distinct types that offer value to an IoT solution: device

enablement, network enablement, and application enablement. Each type offers functionality to

support an endpoint; however, they are not interchangeable yet they are interdependent. Many

platform providers deliver services across the layers offering comprehensive end-to-end solutions (see

Figure 4). Each of the platform types' layers are outlined in detail in the sections that follow.

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FIGURE 4

Platform Offers Supporting the IoT Market

Source: IDC, 2013

Device-Enablement Platforms

Device enablement is a combination of services offered by vendors and service providers to their

IoT/M2M customers such as device provisioning and enablement. At its most basic level, it is about

device management and providing software that ensures the flow of data to and from the end device.

Key components include:

Activation

Certification

Diagnostics

Enablement

Provisioning

One key issue facing vendors offering device enablement solutions is that standardization of chips and

devices is a significant gating factor. As an example, the Open Mobile Alliance (OMA), which develops

standards for smartphones, is working on bringing handheldlike standards to M2M device

management. However, the issue of standardization is further complicated by other standards bodies

such as oneM2M (announced in July 2012), which brings together 271 partner and member

organizations to provide commentary on technical specifications for IoT/M2M devices.

Another organization — the Global M2M Alliance — was also formed in July 2012 and is a joint initiative

between several mobile operators including KPN, NTT, DOCOMO, Rogers, SingTel, Telefónica,

Telstra, and VimpelCom. The goal of this organization is to provide technological cooperation to create

a global seamless solution for IoT/M2M solutions to multinational customers requiring device

connectivity. This group will leverage Jasper Wireless' Control Center to provide a consistent Web

interface and centralized management of status and usage of IoT/M2M devices globally.

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Network Enablement

Network enablement allows a service provider to connect with IoT/M2M devices to gather and analyze

connection-related information. Providers offer customers an opportunity to control and manage their

rate plans and billing arrangements through the functionality of this platform type. Cost management

and subscription management are also optimized through IoT/M2M-focused OSS and BSS solutions.

This layer provides customers with SLAs focused on quality and protection assurance of solutions. Key

components of this layer include:

Connectivity, including access network as well as core GGSN functionality (GGSN bridges the

cellular data network with the Internet, including authentication, charging, and record keeping)

OSS/BSS capabilities, including home location register (HLR), a repository of subscriber information including account status, user preferences, services subscribed to (e.g., data), and

user location or address; and authentication, authorization, and accounting (AAA) related to data services

Rate plan optimization

International roaming capabilities and management

Subscription management

Security management

This component of IoT platforms is challenged by two specific issues — roaming/international support

and network support across multiple network types (e.g., 2G, 3G, and 4G).

In 2012, there has been a lot of activity focused on the need for truly global SIMs. Operators such as

AT&T and Vodafone have been at the forefront of global connectivity and the Global M2M Alliance has

also made it a priority in its work.

The second issue related to network technologies and the decision of which to deploy in a module.

With the move to LTE, previous network generations are deemed out of date — yet using an earlier

network technology may suffice in terms of the connectivity required for more basic IoT/M2M functions

(i.e., remote monitoring, smart meters). Moreover, at this juncture, while the price disparity is

improving, 3G modules are still substantially cheaper than 4G LTE modules.

Application Enablement

Application enablement focuses on the horizontal integration of enterprise applications and specific IoT

applications to fit the use case for a connected endpoint. It also focuses on the burgeoning area of

analytics and the capability to build analytical tools for businesses to make real-time decisions about

data collected. Key components of this platform solution include:

API support

Vertically focused applications

Analytics

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Within IoT/M2M application enablement, the most popular use case is fleet management and the many

applications that have existed for years to support the transportation vertical. The business model

supporting IoT/M2M in fleet management is well understood but the challenge for vendors in the IoT

ecosystem is finding other use cases and business models supporting the development of applications

in a host of additional vertical segments. Because many use cases are very vertically focused, it will

require innovative vendors to fine-tune their offerings to fit within specific verticals and develop

applications that address the business process challenges that exist within that use case.

Another challenge is for vendors to build analytics into applications so that business processes can be

improved. Analytics have been an afterthought to date in the IoT industry. But with devices able to

capture critical operational information, it is paramount for analytics to rise to the forefront and become

a standard feature in any M2M application.

Big Data Analytics and the Role of Social Business

The analytics layer is critical to enabling an IoT implementation to drive true business value for a

company taking advantage of this connectivity and data capture. Leveraging the power of "Big Data"

and the capabilities that data vendors offer to enterprises can be extended to IoT applications. These

analytics can take data collected by the connection and endpoint and turn it into actionable insights

that business decision makers can use to affect change in business processes.

With social networks hugely popular, and the myriad of data these networks compile, it is expected

that the rise of IoT will also leverage the role of social. After a data transaction takes place, a social

element can be layered on top of the data collected to paint a richer picture of the customer or process

being monitored.

Applications and Vertical Industry Use Cases

IoT applications are the software and tools that either extrapolate analytics from the IoT or serve as an

input mechanism, that is the way for data from things to marry extraneous vertical industry data

collected and the Internet of Things to conduct a specific function.

IDC benefits from having a strong research team focusing on the evolving role of ICT within several

vertical industries. The IoT value chain is a complex one when looking at the ICT interdependencies.

Add to that, industry-specific needs for IoT/M2M and the need for domain expertise in these individual

industries. These vertical solutions will require many functional components that must interact in

precise ways to make the promise of IoT a winning value proposition for any industry.

Healthcare

IoT in the healthcare vertical already has made inroads with several connected solutions to address

healthcare challenges, such as decreased expenditures while caring for more and more patients. For

example, telemedicine is able to decrease the costs of expensive doctor visits by enabling remote

communication between physicians and patients. Some of the most common IoT/M2M healthcare

solutions are:

Remote patient monitoring

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Remote device diagnostics

Clinical trial monitoring

Home healthcare solutions

Telemedicine/telehealth

mHealth (i.e., medication reminders)

Asset management of healthcare providers' inventory

Medical imaging solutions

Retail

IoT is already impacting the retail industry, whether it's through product logistics, in-store customer

kiosks, remote monitoring and control, or business process automation. IoT can also provide

innovative communication channels, such as digital advertising spaces for reaching customers. IoT

solutions can optimize inventory, provide automatic updates on maintenance needs, or even handle

payment services. Some of the most common IoT/M2M retail solutions are:

Real-time inventory data

Customer in-store kiosks designed to make individual special offers

Digital signage

Telemetry for vending machines

Wireless payment solutions

Point-of-sale (POS) terminals

RFID tag-based warehousing

Utilities

IoT is poised to rapidly change the energy and utilities vertical through IoT/M2M solutions for intelligent

power networks, offering utilities efficient load sharing. Also on the consumer side, smart metering and

smart homes also promise new methods of creating efficiency. Some of the most common IoT/M2M

energy/utility solutions are:

Automated electric grids

Supervisory control and data acquisition (SCADA) systems in oil production

Home meters/smart meters

Detecting power network losses or theft

Pipeline monitoring

Home and Consumer

Perhaps the potentially largest IoT market lies with consumer and home applications of the enabling

technology. Consumer IoT solutions are aimed at providing direct benefit to the consumer and rely on

embedded intelligence. Some of the most common IoT/M2M consumer applications are:

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Use the Internet to control smart appliances at home or office

Remote monitoring and control of heating and lighting

Entertainment devices

eReaders

Improving appliance performance through automated error reports

Security systems, fire, and burglar alarm systems

Usage-based insurance/automobile

Transportation

IoT/M2M will help transportations and logistics companies to maximize capacity and improve

efficiencies of their infrastructure as well as to meet the increasing governmental regulation and

compliance demand via telematics and fleet management. With IoT/M2M solutions, transport and

logistics companies are able to monitor their workforce/asset itinerary conditions in real time, transport

the goods and people more safely and efficiently and in turn increase end-customer satisfaction. Some

of the most common IoT/M2M transportation solutions are:

Vehicle tracking

Freight monitoring

Logistic services to control shipment and warehouse traffic

Automated monitoring of air traffic

Connected fleets/asset management

Government/Public Safety

IoT/M2M will support various government processes for public utility payments, monitoring and

surveillance, and toll collection, among others. Many large IT vendors are already looking to enable

and tie together processes for local, city, regional, state, and federal with IT solutions to automate and

monitor important government functions. Some of the most common IoT/M2M government solutions

are:

Automating public transit

Emergency services

Public safety/surveillance

Public infrastructure asset management (bridges, roads, tunnels)

Water management and waste systems

Traffic and parking

School bus tracking

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Industrial Production

IoT/M2M has already been employed by many manufactures for both discrete and process

manufacturing. This trend will only accelerate as there is increased pressure to automate and drive out

inefficiency in the manufacturing process using more process automation coupled with remote sensors

and other devices. Some of the most common IoT/M2M government solutions are:

Robotics in both discrete and process manufacturing

Remote diagnostics

Bidirectional plant floor communications to programmable logic controllers (PLCs)

Process control for continuous manufacturing

Production asset management

Others

There are other applications of IoT/M2M, which are also starting to come online. Homes, offices, and

commercial spaces are undergoing a smart transformation by connecting and linking environmental

sensors, HVAC, and office and safety equipment with external inputs such as the smart grid and

weather. Overall, user-driven and autonomic business processes combining people, systems, and

devices can be implemented to maximize resource efficiency and costs. Some new IoT/M2M solutions

are:

Agriculture — such as remote irrigation systems and farm animal living condition monitoring

Environmental — such as river-level monitoring or well water–level monitoring

Fish farming

Archeological site security protection.

The applications of IoT/M2M will only be limited by the imagination and need of industry and consumer

needs. With that in mind, the future outlook and market opportunity for IoT seems limitless.

Other Consideration in the IoT Ecosystem

An IoT initiative can appear to be as simple as attaching a module or sensor to a widget — and

connecting that module — and transmitting data — and using that data to make business decisions.

However, in many applications, quality of service and reliability become paramount in that both of

these factors can determine the success or failure of an IoT initiative.

Successful vendors and service providers are coming to terms with the proposition that QoS and

reliability are critical pieces in several IoT deployments. Guaranteeing uptime and service reliability

becomes important, especially in applications such as security monitoring, remote asset tracking, and

healthcare monitoring. Vendors that can provide these types of guarantees in their contracts will see

success. Mobile operators will be able to provide more QoS and reliability for mission-critical

applications as 4G networks are deployed and 2G or 3G becoming viable backup options.

16 #243397 ©2013 IDC

Security and Professional Services

Security and professional services play a critical role in all aspects of M2M.

Security. Security plays an important role starting with the modules, which require physical

security to prevent unauthorized access to the module, particularly the SIM. In addition, security within the underlying applications, platform, and network is also required to ensure the efficacy of the overall connection and information exchange.

Professional services. Many service providers and systems integrators are offering

professional services to help enterprises develop their M2M strategies through to the deployment and implementation. For example, large network equipment vendors are eager to maintain their close customer relationships as these operators look to deploy M2M in the next

few years. As a result, most NEPs have established M2M platforms, though the degree of maturity of these platforms varies. Similarly, traditional software players are also building M2M platforms that focus on their strengths in software and systems integration as well as strong

relationships in key vertical segments.

ESSENTIAL GUIDANCE

The potential for IoT services, hardware, and software is vast and unrealized. Like other mobile

technologies, the IoT revolution will bring transformative change to advanced and emerging

economies as consumers and businesses begin to experience the power of having sensors, widgets,

and machines connected and collecting information via a wireless connection. However, to bring the

potential to fruition, IDC suggests that participants in the IoT ecosystem need to address the following:

Nomenclature. Even within IDC, there has been deep discussion of how to define the Internet of Things market. As the landscape shakes out, and true leaders arise, terminology will

confuse not only market participants but end customers as well. At the end of the day, IoT is about using connectivity to transform business process. The discussion with end customers must be how this technology can positively affect their business be it revenue capture, cost

containment, improved customer response time, or timely decision making, to name a few.

Standards. Existing IoT solutions are highly fragmented and typically dedicated to a single

application. Proprietary solutions and a myriad of standards have resulted in slower development of the global market. Standardization will play a critical role in faster adoption.

Rationalization of air interface technology. Today, the relationship between mobile operator

and module OEMs is contentious. In more detail:

For their part, module OEMs indicate that demand for 2G modules is strong and although

they are producing 3G modules, the use case is still weak and the price point is higher than for 2G devices. Current M2M customers will likely utilize their 2G technology for at

least 5–10 years. Debate also exists on whether it is prudent to skip 3G altogether and look for next-gen M2M applications that leverage the 4G network as it is in its infancy but promises to exist for the long term — or for the lifetime of a module.

Mobile operators are in need of new spectrum and would prefer to shut down legacy 2G

networks in favor of reforming that spectrum.

©2013 IDC #243397 17

Revenue models. A major measure of success in the mobility market has been average revenue per user. As we move to a world where "things" are connected as opposed to people,

or end users, the ARPU model may not be the best measure. Service providers and other ecosystem players are creating new and unique business models around M2M applications. As such, the success indicators may have to reside in terms of overall revenue as opposed to

measuring revenue on a per-unit, or per-widget, basis.

For those businesses looking to make an investment in an IoT solution:

Immediate and well-defined business processes that would benefit from IoT/process automation to start their IoT journey

Soliciting RFIs from vendors that help define the scope of IoT need as well as possible breadth

of IoT solutions (IoT will be an ongoing and expanding IT initiative, and businesses will need vendors with a large set of options and most likely a large set of partners.)

Corporations will have the opportunity to pull from disparate data sources to extract a more complete and accurate story of its stakeholders, from customers to supply chain. IoT will help

enable the potential around real-time intelligence and use of analytics that will turn Internet-enabled devices into real business opportunity.

All vertical industries and lines of business will want to remember security and compliance issues that may impact their particular business or processes they are looking to automate.

Data security and industry-specific compliance issues will need to be addressed on a case-by-case basis as IoT plans to move forward.

IT vendors and service providers should focus on:

Partnerships will be key for vendors to have the ability to offer end-to-end IoT solutions (i.e.,

devices, connectivity, software, and support) and therefore penetrate several vertical markets in the IoT/M2M market.

The convergence of cloud and Big Data/analytics will also be a driver for IoT as the intelligent integration of data will be required to manage and exploit the device-driven IoT landscape. The

IoT market will want to see these capabilities to realize value.

Systems integrators will have great opportunity through their efforts to "wire" M2M and IoT

communities together with vertical market solutions.

Mobile operators are still in an enviable position to partner with disparate IT vendors to attack the IoT market from the connectivity and communications perspective. This generates new

markets for communications providers and puts them in an initial lead role to package IoT/M2M solutions (using IT partners) to current customers.

LEARN MORE

Related Research

Worldwide Internet of Things (IoT) 2013–2020 Forecast: Billions of Things, Trillions of Dollars(IDC #243661, October 2013)

18 #243397 ©2013 IDC

Worldwide Intelligent Systems 2013–2017 Forecast: The Rise of Intelligent Systems (IDC #241359, July 2013)

M2M in the Real World: Separating Myth from Reality (IDC #DR2013_LSIS3_CM, March

2013)

Machine-to-Machine Platforms: The Layers for Successful Implementation (IDC #238780,

December 2012)

IDC's Worldwide Machine-to-Machine (M2M) Taxonomy, 2012 (IDC #236136, August 2012)

M2M Market Evolution (IDC #233989, March 2012)

Synopsis

This IDC study outlines the current taxonomy for the Internet of Things (IoT) market.

"The Internet of Things market is a burgeoning market that will lead to all things being connected and

capturing data to transform business processes and consumer behavior," says Carrie MacGillivray,

program vice president of Mobile Services, IoT, and Service Provider Infrastructure at IDC. "As the

ecosystem of vendors, integrators, and service providers continue to develop innovative solutions, and

the demand side of enterprises and consumers look for ways to stay increasingly connected, the

Internet of Things will be realized."

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory

services, and events for the information technology, telecommunications and consumer technology

markets. IDC helps IT professionals, business executives, and the investment community make fact-

based decisions on technology purchases and business strategy. More than 1000 IDC analysts

provide global, regional, and local expertise on technology and industry opportunities and trends in

over 110 countries worldwide. For more than 48 years, IDC has provided strategic insights to help our

clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading

technology media, research, and events company.

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