December 7, 2017
by Devin Yaung
What you need to know about the IoT.
The internet of things (IoT) is a rapidly maturing technology category that has serious implications for almost every industry. We asked IoT Director Devin Yaung to break it down for busy executives.
What exactly are the “things” in the IoT?
Analysts predict the number of “things” connected to the internet will range from 25 billion to 80 billion devices by 2020. These predictions represent significant growth from the 6 billion devices in 2016, and the growth means that most everyone will be impacted by the IoT. A majority of CEOs surveyed in PwC’s 20th annual CEO survey stated that technology would have a significant impact (33 percent of respondents) or completely reshape (27 percent of respondents) their industry.
So, what are these “things”?
The term internet of things was coined by Kevin Ashton at Procter & Gamble in 1999 to be a catch-all that described a variety of otherwise everyday devices that connect to the internet. The IoT has been called telemetry and machine to machine (M2M). The IoT is nothing new; the French used telemetry in the 1840s to remotely measure the snow depth at Mont Blanc. However, the combination of decreasing costs (hardware and connectivity), along with the proliferation of devices, more venture capital (VC) investments, the advent of big data, and the convergence of IT and operational technology (OT) has been the catalyst for the recent rapid growth in the IoT.
An IoT or connected device consists of four elements:
- A sensor and/or actuator (such as temperature, light levels, vibration, location)
- Computing (such as Raspberry Pi, Arduino, ARM processors)
- Connectivity (such as Wi-Fi, Zigbee, Bluetooth, cellular, LPWAN)
- A user interface (optional, but think of the control panel on a Nest thermostat)
You probably already own several IoT devices: your home security system (cameras, door sensors, window sensors, connected smoke detectors, and so forth), a connected thermostat, a connected car, a fitness tracker. More things will continue to become connected as costs decline and the enabling technologies increase. Use cases such as chair sensors to notify a building manager that a chair is occupied will become affordable and plausible.
What are the value propositions of the IoT?
Data is the currency of the digital economy. Like money, data is valuable only if you can use it. The things in the IoT allow you to be data rich. Just having the data is not enough—the data must be actionable. Actionable data falls into four categories or value propositions:
- Innovation: The IoT enables new business models and service offerings. You may have heard the term “x as a service.” The trend is toward a shared or leased economy, and the IoT will enable it. How? Rather than buying an air compressor, for example, an industrial customer might choose to buy “pressure as a service.” The IoT will constantly measure the equipment to ensure that service level agreements (SLAs) are met. Imagine paying only by the wash instead of buying a new washing machine, or for the wear and tear on your car rather than a flat rate for a 10,000 mile or annual lease. All enabled by the IoT.
- Customer engagement: Sensors and actuators can create greater insights and a better experience for the end user. For example, a copy machine manufacturer received sensor feedback that a certain model of copier was repeatedly jamming. The manufacturer traced the problem to a defect in the way a tray was made. The company quickly fixed the defect in the tooling and improved the customer experience with the product.
- Productivity: Lower costs and optimized operations provide the clearest business cases for the IoT. For example, PwC helped a large oil and gas provider by analyzing sensor data on pumps and developing algorithms to predict approximately 70 percent of downtime events. This information allowed the client to schedule maintenance and avoid disruptions in operations.
- Trust: The IoT can enable a greater sense of trust and security for customers. For example, a hotel operator ensures the safety and health of its patrons by using a water quality sensor to measure chlorine and contaminant levels in a pool, along with air quality sensors to ensure proper ventilation in an indoor pool area.
What are the components of an IoT solution?
An IoT solution consists of more than the things. The things are just one ingredient. Like a meal, there needs to be a chef who can assemble all the right ingredients to create a solution that works. This function is usually performed by system integrators who artfully pull together the following pieces:
- Data source or physical layer: The sensor, actuator, or hardware makes up the data source or physical layer. Sensors collect data from the environment (such as location, vibration, temperature, humidity, light levels, moisture levels, chemical composition, angle, force). Actuators produce a change in the environment (adjust temperature, move objects, adjust light, or adjust sound, for example).
- Connectivity layer: The connectivity layer leverages communications protocols and network technology to communicate with the sensors and actuators. Communications protocols and network technologies are chosen according to the use case and operating conditions. Some considerations include security, battery life, transmission frequency (for example, once a month, every day, every second), and reliability. One key driver of IoT growth is the price: Connectivity is getting close to free. Most IoT devices do not need to transmit a lot of data. For example, a temperature reading and time stamp are just a few bytes. You do not need 3G, 4G, or even 5G for this data; low-power wide area networks (LPWAN) can connect your device for as little as $1 a year. This price is a game changer, as cellular plans can range from $10 to $60 per month for connected devices. Imagine what you would connect for $1 per year or even per month.
- Platform or analytics layer: The IoT is all about making data actionable, and that is the role of the platform or analytics layer. A sensor reading that indicates water is leaking in your basement is useless unless some sort of alert or action can take place. A platform enables an alert or action by performing three tasks: data aggregation, event processing, and analytics and presentation (visualization). Data aggregation is a challenge in the IoT, because the devices use different languages and the data must be framed in the context of business rules. Event processing turns the data into insights or action. This processing can be done at the edge or in the cloud, depending on the use case. A typical use case is predictive maintenance. For example, sensor readings (temperature, vibration, and so on) are collected on a pump. Algorithms are then used to determine when parts are wearing out and need to be replaced. And visualization displays the results.
- Interaction layer: Finally, the interaction layer creates the notification or action. For example, if a sensor shows that water is leaking from a burst pipe, the platform must alert the proper person (through a mobile dashboard, Short Message Service [SMS], or web console, for example) and provide business context (for example, what is the service level agreement to fix the issue), along with recommended actions (dispatch a technician immediately, for example).
Multiple platforms have emerged, and each has its strengths and weaknesses for different use cases. The importance of these software tools in the enterprise is likely to grow considerably in the coming years.
Many companies still are determining where in the ecosystem they want to participate and are identifying their ecosystem strategy for filling in the missing pieces of their end-to-end solution.
What is the industrial internet of things, or IIoT?
The difference between the consumer IoT and the industrial IoT (IIoT) is based on use case and, to some extent, sector.
Consumer IoT value propositions are experience led. Examples include controlling the mood lighting in a room, improving health, finding your car in a parking lot. Sectors that have a lot of consumer IoT applications are health, home and hospitality, and retail.
Industrial IoT value propositions are outcome based. These metrics could include reduced customer churn, revenue growth, or reduced operating expenses. Key industrial IoT verticals are manufacturing, natural resources, logistics and transportation, and utilities.
IIoT examples would include a factory that builds HVAC equipment. The factory could leverage sensors in automated drill presses and sheet metal forming tools to let a factory supervisor know if the unit is overheated or misaligned or if tooling is becoming dull and needs to be replaced. The finished HVAC equipment, when installed at a customer’s residence, might include sensors to report to the manufacturer whether the equipment is operating according to specifications. A primary goal of IIoT technology is to collect data that can be used to detect or predict a problem before a product fails, minimizing downtime by allowing repairs or replacements to be rolled out proactively.
The industrial IoT is expected to grow at a much faster pace than the consumer IoT. According to IDC, the manufacturing IoT alone is expected to be $306 billion by 2020, while the consumer IoT is expected to be $171 billion. PwC’s Digital Factories 2020 study found that 9 out of 10 companies are investing in digital factories, and production efficiency is the main reason for investment. Companies on average expect a 12 percent increase in efficiency and revenue gains.
The industrial IoT is a key enabler of the Fourth Industrial Revolution.
How does a company succeed in Industry 4.0?
Several similar terms are used today, but they have some fundamental differences:
- Industrie 4.0: This German government initiative focuses primarily on manufacturing. It is policy driven and centers on hardware to improve productivity or output.
- Industrial Internet: This term was coined by GE (with AT&T, Cisco, IBM, and Intel) and is embodied by the Industrial Internet Consortium (IIC). It focuses on a broader set of sectors (manufacturing, agriculture, energy, transportation, healthcare, and smart cities, for example) and centers on software to optimize assets.
- Industry 4.0: This term has been used interchangeably with Industrie 4.0 and the Industrial Internet. The Industry 4.0 movement comprises a large number of smart factory technologies, such as digital twin, decision support systems, automated decision making, and more.
In short, Industry 4.0 describes a journey that industrial companies are taking toward a complete value chain transformation, and IIoT is a part of that. As described in PwC’s Industry 4.0 survey, the blueprint for success will be to (1) map out your strategy, (2) create initial pilots and learn from them, (3) plot your capability roadmap, (4) become a virtuoso in data analytics, (5) transform into a digital enterprise, and (6) develop your ecosystem.
How does AI fit in the IoT?
At its core, artificial intelligence (AI) is about simulating intelligent behavior in machines of all kinds—and since the IoT is about connecting those machines, there is a clear intersection between AI and the IoT.
If an IoT sensor detects a problem, then what happens? The amount of data generated by IoT sensors can be massive and complex—impossible for a human to analyze and understand. AI, however, can devise simulations and locate patterns in data. Humans can then use this information to make decisions, and the usefulness of the IoT becomes even greater.
Ultimately, AI and IoT technologies are converging in many respects, and together these technologies will become key components of many industrial endeavors.
Are there security concerns surrounding the IoT?
Much of the conversation about the IoT today revolves around security. Companies rushed many early IoT products out the door without considering security, and now the industry is playing catch-up to remediate the resulting problems. Meanwhile, IoT device hacks are making headlines: Everything from automobiles to teddy bears has been targeted, and hackers are finding these devices to be fertile ground for installing surreptitious and potentially dangerous software. In August 2017, nearly half a million pacemakers were recalled over fears that hackers could exploit them wirelessly and conceivably kill the person in whom they were implanted.
The situation is getting better, though. Lawmakers are looking into regulations that would mandate security and privacy protections and set penalties for companies that fail to comply. Leading vendors are also pursuing security enhancements of their own. However, as the number 0f installed IoT devices surges to over 11 billion worldwide by the end of 2018, securing the IoT is an uphill battle.
Who is investing in the IoT?
The IoT is becoming incredibly popular across almost every industry, but today the leading investors in the IoT are automotive, technology, media, and telecommunications companies, as well as public sector industries.
How are companies beginning to use IoT technology?
In PwC’s emerging tech labs, in our offices, and at client sites, we’re piloting a number of IoT projects that can save time and money through greater efficiency. One of PwC’s earliest experiments, the Smart Cooler, was designed for an international beverage company that wanted to capture more accurate compliance and activity metrics for its branded beverage coolers. We developed a prototype that uses embedded sensors to address key business issues. This IoT retail innovation demonstrates how a connected network of simple sensors can be deployed and how their outputs can be interpreted to derive valuable insights about internal and environmental conditions.
PwC has helped many clients with preventive and predictive maintenance projects that leverage sensors and analytics to determine wear and tear on industrial equipment (such as pumps), aircraft, and autos. Predictive maintenance not only helps clients to optimize resources spent on maintaining equipment but also reduces downtime and prolongs asset life.
More recently, PwC has provided end-to-end IoT solutions—from the sensors and connectivity through the reporting and analytics. PwC custom built a sensor to count money from bill readers in electronic gaming machines. This project involved all of PwC’s lines of services: Advisory provided the technology (hardware, integration, cloud, reporting, and analytics), tax provided the calculations for the tax bureau, and assurance provided spot audits to ensure the validity of the reports.
We also are helping our clients with innovations for energy management in buildings, as well as smart offices and smart buildings. In these solutions, multiple sensor deployments help to monitor temperature, humidity, and occupancy and to control lighting and HVAC systems. Door sensors send alerts to indicate how often an area is used or if a restricted area is entered after hours. Other sensors include soil moisture meters to optimize the watering of plants and lawns, leak detectors, garbage sensors to optimize trash pickup, and electronic pest traps that notify maintenance when a trap has sprung. The advantage comes from aggregating all of this various sensor data into one “data hub” that provides correlated information and insights, rather than the standard “point solution” that is available today.
Another interesting area leverages AI and cameras to perform facial recognition and adaptive analytics. PwC is developing solutions that use adaptive video analytics for intruder detection (alerting security of patrons on a “banned list”), for queue management, for counting crowds and watching people flow (which provides demographics, such as gender, age group, and ethnicity) and for identifying how long it takes to cater, fuel, clean, and load an airplane. It will be important for enterprises to know the data privacy rules and policies for collecting and using data. PwC has a security and privacy practice solely focused on data and biometric privacy rules and on helping clients understand the impacts of the European Union’s General Data Protection Regulation (GDPR) and other regulations.
For more on how companies are using IoT, download this guide.