Posted By Simon Montford on Jan 14, 2015
It is estimated that by the year 2020, up to 100 billion devices will be connected to the web. In technological terms, five years is a blink of an eye, so OEMs need to adapt now or die later. Samsung's CEO, Boo Keun Yoon, recently appealed for more openness within the industry as he wants gadgets and appliances from different manufacturers to easily share data so that conflicting silos won't hamper adoption. He also said that within five years, all Samsung hardware will be IOT enabled. In my mind calling for openness is a euphemism for "if we don't gang up against Google & Apple, we're screwed".
You see, it sucks to be a pure-play hardware OEM like Samsung, because unlike Google, Apple and Microsoft, Samsung lacks its own ecosystem. You only have to look at how easy it was for Apple to win back customers from Samsung when it finally released a big screen phone, the iPhone 6. Also there are an increasing number of cheaper, and (in my view) sexier models being produced by a new breed of Chinese OEMs like OnePlusOne and Xiaomi, adding to Samsung's woes.
Competing only on price and design is a tough gig, because you can't lock in customers and you don't get a second "bite of the cherry" in the form of apps and other high-margin digital products. When IOT goes mainstream, the first bite will become more of a nibble while the second bite will become even bigger and juicier, as the IOT market ripens. This is because the hardware component won't be paid for upfront, or in some cases, not paid for at all.
Instead, connected devices will become things we use, not own. OEMs will switch to less traditional business models such as "ad supported/freemium", "pay-as-you-go", "subscription", and "affiliate" models, so the big money will be made from service, not the hardware itself.
As a consumer, I like what Samsung is preaching but let's get real. Samsung is run by smart people, and they want their share of the IOT cake, so are likely to emulate Nest and HomeKit. They know that people won't use multiple apps to operate the smart home, and hardware OEMs will build products optimized for no more than three proprietary standards. If Samsung wants to become one of those standards they must raise their game. Others worth keeping an eye on include Motorola's Hubble, GE’s Wink, Belkin’s WeMo, and Staples' Connect.
In Samsung's favour, they are starting to piece together various components in a very shrewd manner. The company already operates Samsung Smart Home, and recently acquired SmartThings. Also Tizen, an open operating system built from the ground up to address the needs of the mobile and connected device ecosystem, is taking shape. Samsung, recently announced a Tizen-powered "Android killer" called the "Z", so maybe they could give both Apple and Google a run for their money.
Speaking of money, how consumers decide to pay for smart products will depend on two factors, privacy and convenience. Those that are prepared to pay a premium for high-end products will retain more of their privacy. Those that want subsidised or free products will hand over the usual pound of flesh in the form of personal data. Make no mistake, contrary to what The Zuck and our friends at Google want us to believe, if the product is free or subsidised - we are the product, period.
The market leaders know there's a killing to be made from IOT (currently, a mere 4% of consumers own connected smart-home appliances, but 30% of consumers plan to purchase a smart home device within the next two years). The stakes are far too high to play nice, as the potential rewards are massive. OEMs will, therefore, fight hard to gain a share of the consumer IOT sector and will act aggressively to protect their precious ecosystems. The dream of a universal open standard is, in my view, very unlikely to happen. Those that can, will enter our homes, cars, workplaces, and will attempt to lock us in at the expense of their rivals.
Samsung is only preaching the gospel of openness because they have very little to lose right now. Their recent acquisition of SmartThings is a wise hedge, and could enable them to create a viable alternative to the Californian duo, especially if they can use it as a Trojan horse to build an ecosystem that they control. In addition to owning and controlling a platform, you also need to have one further component - Artificial Intelligence (A.I.). In fact, A.I. could become the deciding factor.
This is because their conduit to our connected worlds will be AI-powered personal assistants like EmoSpark, Cubic, Ubi, Jibo that we will all use to control smart objects via voice, touch, gesture and possibly even thought (yes there are already early-stage mind control gadgets out there like the Muse). This means that to be a contender, in addition to owning an ecosystem that is used by millions of people, and a platform that is supported by a large number of hardware OEMs, you must also possess machine learning as a core competence, and this raises some interesting issues...
Although Apple's iOS is used by hundreds of millions of people, giving the Cupertino colossus a huge footprint within the home, it's important to remember that a big part of Siri doesn't belong to Apple. The speech recognition component is in fact supplied by Nuance, and Samsung may be about to grab it from under Apple's nose. Apple could attempt to acquire Nuance, but it would cost billions, and most of Nuance is made up of business divisions that are of no interest to Apple.
Microsoft is the clear underdog, but that won't stop it from attempting to grab a slice of the action. Combine Cortana and the Xbox One with Kinect, and you have an ideal home hub (Kinect also takes voice commands in natural language). Also, bear in mind that Microsoft has now integrated Kinect with Windows 8 and has an R&D budget of $10bn, so Kinect has the capability of becoming a hub for voice, gesture and data. Don't rule this old dog out of the fight just yet!
Google acquired Nest for $3.2 billion. That's a high price for a smart gadget, but it has proven to be a very effective way to enter our homes, especially now that Nest has acquired Revolv. Members of the "Works with Nest" consortium include big names such as Mercedes-Benz, Whirlpool, Logitech, Pebble smartwatch, and Philips Hue. People have claimed that Google's acquisition of Nest was merely a ploy by the search giant to access personal information. Nest has assured everyone that this isn't the case, but in my opinion that is nonsense for the reasons previously stated. Regardless of your views on trading privacy for convenience, there is no doubt that Google has a strategy to dominate the consumer IOT sector, and they are very well positioned to do so. In addition to acquiring Nest, Google has also gobbled up a string of A.I. and robotics firms in the States, as well as the British firm Deepmind for £400m ($610m). This makes them the undisputed machine learning masters of the universe (let's leave IBM's Watson out of this battle as we're talking about consumer not enterprise IOT).
As previously mentioned, A.I. is important because every smart home will eventually contain a synthetic life form that will be programmed to take care of us and, you guessed it, sell us stuff. That's because most of us will continue to willingly trade our personal information for convenience. Our A.I. pals will know everything about us, and we will love it, because it will be incredibly useful. It will not only be able to identify everyone in the property immediately via facial recognition (so responses can be personalised), but it will also be able to track our moods. We will trust our virtual assistant with our personal information, our passwords and our lives. It will do things like wake us if it detects heat or toxins in our air in the event of a house fire, it will monitor the ingredients in our food and alert us if allergens or contaminants are detected. It will read bedtime stories to our kids, and it will order products we didn't even know we wanted or needed. It will even hunt for bargains while we sleep, and switch our energy supplier automatically, so we don't have to. In fact A.I. will become so useful we won't know how we survived without it. Meanwhile the organisations that mine and resell our data will make a fortune!
Speaking in purely commercial terms, everything in our home will become a bridge between us and millions of merchants. Artificial Intelligence is therefore, the holy grail of the consumer IOT sector, so don't be surprised when Samsung's call for openness is ignored, not just by its competitors but by Samsung itself! This is because like Apple and Google, Samsung wants as big a slice of the IOT cake as it can get, not just because cake tastes delicious, but because the IOT cake comes with a big juicy cherry on top, and when you get that cherry you can take as many bites as you like!
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