The Internet of things is not paying the rent

Purportedly, the market opportunity for the Internet of things is gargantuan -- but development in the space clearly isn't paying off yet

The Internet of things is not paying the rent

The Internet of things may be hot, hot, hot, according to the Valley, but it’s not paying the bills. In fact, less than 10 percent of IoT developers are making enough to support a reasonably sized team.

That’s one key takeaway from the latest VisionMobile Developer Economics report, released this week. It’s a sobering thought for the companies jumping into IoT as they chase IoT’s purported $11 trillion jackpot.

As with every other business, the only way companies will realize this value in terms of revenue will be to attack the IoT market with a clear idea of what they’re selling and to whom.

A big market, but underserved

In its “Unlocking the potential of the Internet of Things” report, McKinsey & Co. highlights nine areas where IoT will unlock value:

Internet of things market opportunity McKinsey & Co.

Unfortunately, much of that value never gets realized, both because a dearth of IoT standards has logjammed its potential and because most IoT data simply isn’t used.

As the McKinsey report concludes, “Currently, most IoT data are not used. For example, on an oil rig that has 30,000 sensors, only 1 percent of the data are examined. That’s because this information is used mostly to detect and control anomalies -- not for optimization and prediction, which provide the greatest value.”

In other words, that oil rig may derive value from its current use of IoT data, but the vast majority of potential value remains unexplored.

This may not be the IoT customer’s fault. As the Developer Economics survey data suggests, it could be that IoT vendors still aren’t sure of what they’re peddling -- or rather, to whom.

IoT sells, but who is buying?

A full 59 percent of IoT-focused developers can’t scrape together $500 per month, putting them below the “poverty line” established by VisionMobile. If we set the bar at $5,000 per month, 79 percent of IoT developers fall short.

Indeed, of the four areas tracked by the Developer Economics survey, which tracks revenue and other things for 13,000 developers, IoT comes in dead last in terms of current market opportunity:

Internet of things developers Developer Economics

Part of the problem is that these IoT developers don’t know who they're developing for. According to the report, “more than a quarter are still not sure who their eventual customer will be.” Another third is focused on consumers, but may find itself grasping for other straws as consumers prove a difficult market to crack.

IoT developers, in other words, are guessing.

They probably need to do more guessing about enterprise applications of IoT. McKinsey posits that 70 percent of IoT value will be found in business-to-business scenarios -- and that may be low. While a horde of developers is gravitating to wearables (like these Indiegogo wannabes), “boring” applications like tractor sensors will drive far more value, not to mention developer revenue.

Developers, and the companies that employ them, would do well to follow the advice of Mike Olson, chief strategy officer and co-founder of Cloudera. As Olson told me in an interview:

It's important when you start thinking about IoT to think about why it matters. What are the business problems you want to solve, what are the optimizations you want to make? And then design your systems to address these problems.
[We can get caught up in] the "shiny object syndrome" of engineers who want to play with new technology. But those projects generally fail because they don't have clear success criteria.

For far too many companies, IoT remains a science project. This reveals itself in how they’re funding their IoT initiatives and what they’re building. For example, many developers are taking to crowdfunding sites like Indiegogo to bankroll the next big wearable, not taking into account the difficulty of subsisting on low margins at almost universally low volumes.

Others are trying to sell IoT-related software but, as VisionMobile notes, “The market is not yet mature and too many people are building generic solutions to device connectivity and management problems.”

But to tap IoT's $11 trillion potential, developers need to get real about what they’re selling and to whom. That probably involves a “dull” enterprise-facing business -- not to mention a lot more planning than we’re currently seeing.

Copyright © 2015 IDG Communications, Inc.