Monday, February 6, 2017

Monetising the Internet of Things

A lot has been written about the Internet of Things (IoT) with Gartner predicting that the number of connected devices will grow to 20.8 billion by the year 2020. This figure compares with 2.1 billion smartphone users in 2016 and 3.4 billion internet users. I believe the actual number will far exceed those estimates.

Because of the term "Internet of Things", most of the focus to date has been around the “things” that make up IoT. Clearly there is a huge potential market for suppliers of the devices that are connected, switches, networks, cloud storage, etc.

Aside from that tangible value in hardware, the real potential of the IoT is how the “things” interact. As they exchange information, value is being created in the data. This is a new development. Among lawyers, it is just beginning to open new questions. Historically, the laws around data protection, privacy and ownership assumed that a human was doing something with the data. The laws were designed to regulate how those humans would behave and did not envisage scenarios where humans might not be involved at all.

As an example, if elements of a network come up with a new idea, who owns the idea? Who should be paid? Where does the value reside? In a borderless world, what country’s GDP will benefit from the value? Can it be protected? How should it be taxed? Who should be held liable for damage caused by relying on the information?

And this is not trivial. When you go from 2.1 billion smartphones in 2016 to 20.8 billion devices in 2020, the complexity doesn’t just increase tenfold. In network theory, if each device is a “node”, the theoretical number of connections (also known as “edges”) is given by the following formula:

E=(N)(N-1)/2

Even if you take the conservative estimate of a tenfold increase in the number of nodes, the theoretical number of interconnections swells a hundredfold.

And it doesn’t stop there – greater data volumes


Not only are the connections increased, the amount of data potentially contributed by each device is also significantly higher. Data that is typed into a smartphone is limited by the speed of typing. The average typing speed of a PC user is 41 words per minute. Smartphone user are even slower typists. Even if you look at denser data such as video uploads of original material to a site like YouTube, it is normally in short bursts and rarely more than a few times per day for any user. Some devices will be simple sensors but other machines have the ability to collect, create and share data at massively higher rates and without stopping.

An emerging new asset class


With so much more data coming into existence, it will require special skills to find the value and make sense of it. There is a new dawn in the monetisation of the intangible assets that will be born in the IoT. It will require special skills to identify, classify and value these assets and establish mechanisms for trading them.

We are not starting from scratch. Monetisation of other intangible assets such as patents, trademarks and copyright has evolved tremendously over the last 2 decades. The ongoing shift in emphasis from physical assets to intangible value will continue to push the boundaries.

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