IoT Reality Check Projects ‘Trough of Disillusionment’
In an attempt to rise above the hype and examine the hard economic and technical data about the Internet of Things (IoT), a new study released by a venture capital firm finds that "grassroots entrepreneurial activity still appears moderately healthy" despite signs of a slowdown while the industrial IoT continues to forge ahead.
The IoT State of the Union 2016 study released by Wing Venture Capital likens the current state of IoT investment and deployment to electricity in the early 1900s. "We can see the potential of this new wave, but only a small fraction of things are currently connected to the Internet and the pace of change has been slower than many would like," the report's authors note. "That’s reflected in recent negative media headlines, which echo a view that the IoT has been overhyped and has under-delivered."
The study confirms earlier assessments that the industrial IoT accounts for the largest number of funding deals over the past several years. While other areas are fraught with technology and security issues, investments in industrial networks of sensors and backend cloud computing and storage is heralding the arrival of a "Factory 4.0 era," the study found.
Industrial and enterprise IoT startups have demonstrated swift "return on investment in IoT" to customers leveraging predictive analytics for application such as minimizing downtime and maximizing capacity utilization on the factory floor.
Whether the embrace of IoT on the factory floor extends to other technology sectors remains to be seen. The study noted that GitHub code repositories using "IoT" as a keyword is on track to more than double this year. Meanwhile, IoT-related projects on funding sites such as Kickstarter continue to grow in 2016, but the rate of growth was found to be slowing.
Meanwhile, the startup accelerator Techstars reported a two-fold increase in IoT applications between 2014 and 2016. "It will be interesting to see if signs of an overall slowdown in grassroots activity become more pronounced in 2017," the study authors noted.
Meanwhile, mergers and acquisition totaling more than $200 million were on a pace to increase again this year. In February, for example, Cisco Systems (NASDAQ: CSCO) acquired Jasper Technologies Inc., an IoT connectivity management, specialist, for $1.4 billion in cash. In August, Xylem Inc. (NYSE: XYL) bought smart meter developer Sensus in a $1.7 billion cash deal. Sensus provides smart meters, network technologies and data analytics services for the water, electric and gas industries.
Overall, the authors of the IoT study said the sector has likely passed through the "peak of inflated expectations" in 2015 and is currently on the downside "trough of disillusionment." That skepticism has been fueled by IoT security concerns in the aftermath of an October denial-of-service attack on unsecured IoT devices.
Along with ongoing security concerns, other cited the need for IoT interoperability before the technology can reach what the Wing study calls "plateau of productivity."