The business world was stunned earlier this year when internet leviathan Google snapped up for $3.2 billion a little-known maker of smart thermostats and smoke and carbon-monoxide detectors. The transaction caused a furore on two levels: first, because of the left-field nature of the devices made by Nest. And second, because of the eye-watering amount of money that was needed to seal the deal.
But Google is nobody’s fool, having spotted that Nest was emerging as a central player in home automation, offering smart products that could be controlled from afar. Nest’s expertise links neatly into the wider technology of the Internet of Things, which promises a world where myriad physical objects are connected together and accessed through the web.
Such intelligent devices, which can sense and communicate, will be capable of producing valuable data, which can then be used in meaningful ways – both at home and in industry settings, where improved efficiency, safety and security is the holy grail.
Google’s prescience is supported by some of the leading business consultancies. Gartner, the international technology research and advisory company, released a document last month that predicted that by 2020 the installed base of the Internet of Things would exceed an astonishing 26 billion units worldwide.
Gartner thinks that this will have ramifications for all businesses, whatever sector they operate in. “Between 2014 and 2020, the number of connected objects will grow explosively, and few organisations will escape the need to deliver applications that link smart objects and equipment to their IT systems,” it says.
McKinsey Global Institute thinks the market for the Internet of Things could be worth up to an almost incomprehensible $6.25 trillion by 2025. McKinsey says that between 80% and 100% of all manufactured products could be using Internet of Things applications by then, leading to potential economic impact of $900 billion to
$2.3 trillion, largely from productivity gains.
For example, with increasingly sophisticated technologies becoming available, companies will be able to track the flow of products or keep tabs on physical assets, and also manage the performance of individual machines and systems.
With such mind-boggling numbers predicted, both in terms of connected devices and financial worth, it is no surprise to find that the Internet of Things is exciting other big companies, which are keen to ensure that they are not left on the sidelines. One such interested party is technology provider PTC, which recently acquired ThingWorx, a relatively small firm that has developed a platform for building and running applications for the Internet of Things. The price tag, once again, highlights the potential of the sector: $112 million, for a company founded just five years ago.
For PTC, the deal is timely and makes strategic sense. It believes that all industries, but especially manufacturing, will be transformed by the Internet of Things. The hope is that ThingWorx will help its customers to leverage this by providing a reliable connection to their products, as well as a platform to develop new applications for maintaining and operating them remotely.
Thomas Svensson, ThingWorx senior vice-president for Europe, the Middle East and Africa, explains the rationale for the deal: “ThingWorx has built the first application development platform for the Internet of Things,” he says. “What companies do today is to define or develop the application from standard tools such as HTML or Java. But these tools are not designed to take big data from what could be millions of devices. Also they are not quick in development and they are not easy to change.
“What ThingWorx has done is create a pro-development application for these platforms, enabling companies to quickly go to market with their products. It is 10 times faster than the standard tools. And it is also very simple to update and change.
“The ThingWorx platform can be connected to other business systems such as enterprise resource planning. By combining the data from the sensors in the field with other intelligent data streams, customers will be able to make real value out of the Internet of Things. When all this data is combined together, it becomes really very valuable.”
Svensson suggests that the biggest deployment of the technology will be in two areas: medical and manufacturing. For medical, the biggest advance will come in the form of remote patient monitoring – where devices with embedded functionality will be able to deliver vital information back to care teams. And in manufacturing it will come with the emergence of ‘servitisation,’ where manufacturers expand from their traditional role as a provider of products to that of offering a service.
Svensson explains: “Let’s use an elevator company as an example. Today it would sell an elevator for a new building and there would be a lot of third-party companies fighting for the service contract for what it has supplied.
“But what if that elevator could connect with the manufacturer, sending back signals on how frequently it was being used and how it was performing?
“That would be a huge benefit for the OEM. It could start to offer a lot of other different services to the building owner. Eventually, the OEM might not sell the elevator itself – instead it would sell, say, the number of moves that it completes, up and down. It promises a complete change in business model, going from cap-ex to op-ex. It offers manufacturers so many opportunities.”
But surely Rolls-Royce has done this for years – offering its aeroengines on a ‘power by the hour’ basis rather than as products in themselves? “That’s right,” says Svensson. “But that was very complex and very hard to set up. Such capability is going to be much more mainstream now.
“The protocols, the devices and the data streams needed to support such activities will be much simpler and therefore much broader.”
Looking ahead, Svensson is convinced that the Internet of Things is going be hugely disruptive. While PTC only acquired ThingWorx a few months ago, it is already talking to big customers about how they might use the platform it provides to transform their businesses.
He gives an anecdotal example of a maker of industrial heating products that is hatching plans to broaden the scope of what it does. “This company could expand to offer complete systems – heating, fire alarms, ventilation,” he says. “There are companies planning transformations of their business. And ThingWorx technology will help them to do so.”
Another big European customer has created a connected products group, and already has five million devices linked to the internet. The company plans to double that number by the end of the year. “You would never think that company would see so much potential. But this is truly disruptive, and it wants to be early,” says Svensson.
As for Google, it is tight-lipped about how Nest might be developed. At present, only relatively few people with an interest in home automation own a Nest product. There is huge scope for further market penetration, in domestic and commercial environments. And, as the Internet of Things gathers pace, a host of other connected devices is likely to come to the fore.