- Davos 2016 - The Internet of Things Is Here
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My name is Robert Smith. This session has been sold out for weeks. It is interesting - we came to understand the internet of things - and the first couple of days we were hijacked by the markets. Now we get back to the reason we are here - to understand the technological revolution we are now calling the fourth industrial revolution. Panel introduction
Let me give a level set. What is this IoT? It is the connectivity of devices and sensors that will use software, analytics and technologies to give us the ability to understand our world better. It is an industry was first estimated at 6 trillion dollars, and then 11 trillion. I heard a recent estimate by a very credible source in the industry saying 1 trillion devices by 2025. I met an executive who builds housing in Amsterdam who said they have 60000 devices in one building. Mike: Tell us what your customers are requesting and how do you ensure they put the right resources for embracing the opportunity?Everybody has understood that it has become an application economy. The way we have built the applications is usually with a waterfall method which takes too long, but we need to move much faster now. Just about everybody has adopted the agile methodology. It is a big cultural change. Mike: What challenges do your customers have in order to be effective to compete?We have 10 different industries where we have over billion dollars revenue. We probably have 50 different customers in each one. We get this huge perspective both inside and across the industries of the new developments.
The world has become more complex, more distributed.It is creating a very fast environment. It is challenging companies about how they get their products to market faster. To be successful, you need not only the sensors in the field, you also need content and applications and analytics and new business models. You need a go to market strategy which is a little different.
To be successful in this economy you have to find partners you can co-collaborate with in order to get the speed and effectiveness you need. You are talking about trust and how that is shifting. Andreas, what your mindset was starting your business and what challenges did you face?Matternet is a startup in Silicon Valley and we build drones to transport lightweight tools between places over local areas. The driver to start was two key realizations: close to 1 billions people don't have access to roads. On the other end of the spectrum, half of world's populations already lives in cities and megacities. But the transportation infrastructure is dysfunctional. They call it the internet of flying things.
We looked at the tools available for vehicles to self navigate. When you connect the sensors, it becomes even more interesting. We can move all the traffic off the roads and help people move around more reliably in the city. I think it is a much more natural way to solve the problem.
I see tremendous opportunities not just for us but for everybody who is adopting the mindset of lets build something with the new tools. TK: you have a global business. Tell us about what you are encountering, what are the established CEOs facing?People have fallen in love with the word IoT without understanding how it is fundamentally shaking up everything from design to after-market value. 10 years ago, you did market research and figured out what customers wanted. You built the product over 1-2 years and shipped it out. You were able to get premium pricing initially, and then it went into a commoditization cycle. The value you created out of design vanished fairly soon. You then sold after sales service.
With IoT, you have smart materials combined with smart communication. All the stuff about upgrading and adding features in the product is now driven by software. On the after market side, the biggest opportunity is creating a network of allies who have a symbiotic relationship with you. The iPhone is a classic example. Very few companies in the world are actually
thinking this way.They still believe IoT is about connectivity, about solving logistics networks. If companies don't design and rewire their engineering to believe in this, we will have a connectivity revolution, but we won't see Metcalfe's law actually taking effect. Mike: Talk about some of your customers and what you have been able to achieve in that contextMost of them are trying to build software - e.g. GE. GE said they want to be one of the top 10 software companies by 2020. They are a complete agile shop. We are going to see more companies do this - use the software to change the business model. This is a new way of thinking. Part of that speed is through partners. Tell us how those partnerships evolve and how that trust has become more fundamental in the relationship.Today software is so competitive. You have to be continuously improving your own product. Customers want to get more out of the products we make for them. Mike: How has the design cycle has changed?What TK described is a diffferent kind of system. We call it the intelligence of things. The disruptive business model takes the existing model to the next level - benchmarking the data collected by sensors and making recommendations etc. The trust with companies has to change - the value is now in the software. When people think about competing in this world, there is more technology at unbelievably low cost which enables those disruptions - the smartphones, the cloud etc. You have to have a partnership community to help monetize your data assets. The incumbents have the channel and the know-how to do all this, they have to pivot and be more inclusive in this digital era. We are moving from a component based thought process to a systemic thought process. One challenge is cybersecurity. Andreas: I worry about your product in that respect. How do you think about this? How does the regulatory framework is shaping your thinking about protecting us from devices?I was in a security workshop. The question: is there such a thing as a secure system, and the answer is no. We have to go through these learnings in a way that is safe. How do we make sure that they cannot be easily hijacked?We have seen that happen in computing, so we have something to work from. How far away are we?
The focus of things we build is to make sure we don't endanger other airplanes etc right now. We have some stuff already - we only fly in the lower part of the airspace. We participate with people like Google, Amazon for this.
On the other side, how do we make sure they are not hijacked? We watch that device every second. If something wrong is happening, we know immediately. We deploy a parachute etc. Mechanical redundancy helps de-risk. TK: You work across consumer, government and business markets. Where are governments doing it right, where are they failing, what are the challenges for them? What are the shortfalls in the infrastructure today?Broadly, the biggest area of focus right now is the business market - that is where the opportunity is. People are trying to get platform thinking inculcated in that market. You think about standardized hardware, and think about how do I differentiate with software?Getting the ecosystem on to the platform is where it is getting lost today. Choice of partner is very critical.
We don't get uniformity of data in logistics. The second big constraint - we have to help companies with partnerships today.
In the consumer market, we see wonderful solutions around energy, security, lighting etc. All this combined together, we are going to see new kinds of businesses - adjacencies we never thought possible. The possibility of massive productivity gains is clear. Tell us about any examples of governments' understanding of thisI will talk about a recent one - 12 CEOs were invited to the Pentagon to compare notes on security. The next morning Russia bombs Syria. The Secretary of State was still continuing the meeting with us because the government really wanted to learn about this.
In the UK, same thing. Budget is going down. But they want to find ways to do this better. TK, anything you like to add?I have seen some governments which are way ahead of everybody else. Classic example is Singapore. For example, traffic information is published.
In other governments, at the high level there is a lot of interest. The challenge is the government procurement process has to bring in people to do experiments without compromising their intellectual capital. Having said that - no government can stop change. In order to figure out what will be successful in this environment, there will be a lot of experiments. The best way to conduct those experiments is to have a vibrant entrepreneurial ecosystem. The governments which get this are the governments which are going to win. Andreas: how do you convince investors and team that you are on a worthy pursuit?It starts from a place of passion where we really want to contribute something. The DNA of the company should be built around that. We started in 2011, and people thought we were completely crazy. Two years into the project, Amazon and Google announced their own projects. This validated the ecosystem. All major logistics companies are thinking about this. Companies that are disrupting mobility are thinking about this. Its a very exciting time. Mike: One of the aspects is communicating the changes to the labor force. Tell us about companies who have that well.We talked about trust with government, partners. There are multiple constituencies here, but the first one is our own company. We have to build a culture of agility. We need to be able to recognize change and pivot. General Motors did an investment in Lyft. TK, do you have a pickup on that?How do you convince the middle manager? In large organizations, you see enormous congruence at the top and the bottom.The layer in the middle, how do you handle that? Great question, but that is the challenge. You start with culture. It is the bridge. At Flex, we have tried to build that into our company from the very beginning. Lot of times, if the middle management doesn't recognize that change is needed, they won't get it. People have to feel the need to change, and that comes with leadership and communication. Audience questionsWe are looking forward to Internet enabled devices. Should we dwell for a moment about the principles they use? Telemetry, who owns the data, interoperability, Faraday mode? How much would you be willing to subscribing to a Bill of Rights which we can call you out on?Interesting set of questions. What is our design point? A big question for our security business is identity management. If you are using data in untrusted way, we wouldn't be OK with it. You are trading your identity for a service. The biggest thing giving up pause is healthcare. We are all learning this. The consumer runs the digital economy, not the enterprise. As the consumer becomes more educated, the consumer will vote real quick (and switch) if we don't communicate what data we are collecting and how we use it. The demographics will determine what privacy should look like. Kids don't care about privacy, they look for instant value. People who buy high value stuff, for us privacy is critical. We deal with this every day in policy around data and privacy etc. I see very thoughtful leaders now taking the lead and saying regulation by definition comes in behind. We have to write policies now.I have not heard about education. What kind of education are you doing inside the companies, what do you expect universities to teach students?Couple of years ago, we used to train people who came out of college. Every person today has to have algorithmic knowledge and database skills. Educational institutions do not produce these kinds of people, we usually need to retrain them. Follow up on interoperability standardsWe will screw it up initially. The people who build software, we have to manage our egos. What about today? Use APIs. We choose not to solve it. Product called Wink, is a hub for different devices like Nest, DropCam, Echo etc. There are no standards for the hub, so it has six radios in it. Andreas: Give us your thoughts on standards in your industry as it evolvesWe already are trying to figure out how to do this interoperability, it is very encouraging. Video outline created using VideoJots