A couple of days ago I had a very interesting and thought-stimulating Open Innovation workshop with one of the largest world’s largest software vendors.

The topic was about the “Internet Of Things” (IOT), the consequences for established firms and software vendors and potential business model innovators that it will enable.

The IOT will be one of the next big waves in the computing industry. It means that the existing Internet infrastructure (ERP systems, Web applications, current Internet devices and existing Internet connection infrastructure) will be extended to countless semi-intelligent everyday objects. In other words, the nerve ends of the global digital nervous systems will be far more stretched out than they are today.

When this wave hits, our every day’s life and any business’ every day operations will be profoundly transformed: For instance the chances of a company running out of stock will be minimized as all involved parties will know what products are consumed at any given point in time, which goods in which channels are reaching the end of their consumption period and which orders have to be placed within the supply chain partner to keep it flowing. Another, more trivial example: You will never lose any item again since the location of any item would be known at all times.

Although the IOT rests on the same building blocks as the Internet as we know it (i.e. Domain Name System and TCP/IP protocol) it will be distinctively different from the current Internet. ETH Zurich has worked out five key differences:

1. Simple hardware: Currently, the nerve ends are full-blown computers or mobile phones. In the IOT these will be very small – potentially invisible objects that in most cases will not communicate directly with humans.
2. Trillions of nodes: In the IOT, the number of nerve ends will increase by orders of magnitude
3. Thin last mile: When talking about the last mile in the ordinary Internet, one thinks about broadband, UMTS or WiMax. In the IOT, the bandwidth needed for the “last mile” is smaller by orders of magnitude since the nerve end communicates only in the kBit/s range.
4. Machine-centric: In the ordinary Internet, most services are designed for humans. In the IOT machines will talk to other machines.
5. Sensing, not communication: The Internet up to Web 2.0 was about connecting people and establish communication between them. The IOT is about sensing the physical world.

A first harbinger of the IOT was the proliferation of RFID. It can be observed that this is taking place much slower thank expected. On of the key reasons is interestingly that the IT systems of the key hubs (such as WalMart) are yet not prepared to allow for dissemination of the whole information generated in RFID-supported supply chains.

Our discussion centered around the assumption that the shape of the IOT to come will be driven by consumers and not by technology. For mass adoption, four key requirements have to be met: Ease-of-use, a flexible and extensible platform ecosystem, attractive user markets (being built on global megatrends) and attractive user-interfaces when humans are assessing the IOT.

With this in mind we worked out four potential areas for IOT killer applications:

• Smart offices – Office buildings capable of regulating their own power production (think solar cells in windows or window frames) and power consumption
• Smart homes – Homes that support leisure time (e.g. pre-recording TV shows or firing up the temperature when you leave the office) or the life of an ageing population that prefers to live at home
• Smart logistics – Seamless and consistent management and tracking of production / consumption related information between all relevant organizations (including counterfeit tracking, consumption period tracking etc.)
• Smart cities – Urban management platforms supporting municipal administrations and individuals with real-time interpretation of data coming from a huge variety of sensors (think traffic conditions, water / sewage management, micro-climate etc.)

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