Determining the value of the internet of things

Cisco’s 50 billion connected devices by 2020 figure is now part of the habitual parlance tech entrepreneurs and analysts employ to describe the momentum driving the growth of the internet of things (Not to be outdone, Morgan Stanley thinks the number may be closer to 75 billion). But when you move beyond the obvious utility of connecting phones, tablets, even automobiles, one reasonable question is how much value to a business or consumer will there be in getting to that 50 billion figure by connecting everything from door locks to blenders.

With this question on my mind, I caught up recently with David Friedman, the CEO of Ayla Networks, to discuss where he sees the future of the Internet of Things. Ayla just raised a $14.5 million B-round from mostly Chinese investors and Cisco.

Ayla builds a cloud based IoT platform for device and data management, which is important for device makers, particularly on the less expensive end where a company doesn’t have a development and engineering team to build its own software platform. Additionally Ayla layers on analytics as an additional service beyond the single fee it collects per device produced that uses its platform.

When discussing drivers of IoT, Friedman pointed to how cheap it’s become to connect a device. He says within 18 months it’ll cost $5 dollars, including both hardware and future software services, to connect.

Ayla is itself initially fairly focused on the home control market and indicated it has relationships with three thermostat makers. Thermostats remain the low hanging fruit in the home because the ROI is clear. The HVAC unit is the biggest power hog in the home and even a 15 percent improvement in efficiency makes a difference on a power bill.

But what about other consumer devices where there isn’t an energy return or even a cost savings from connecting the device? Friedman believes the business case is as compelling as the consumer case.

“The ones [companies] who are going to be able to adapt and leverage the data, and then build it into the feedback loop of ‘I launched it. Here’s what my customers think about it. Here’s what my customers are using. Here’s what they’re not using. I’m going to launch a new product but I’m going to incorporate all that learning into it.’ Companies that do that will blow away, completely beat companies that have not figured out how to be data centric.”

In terms of connecting the home, Ayla is optimistic about a few markets. Security and locks is one, whereby access could be controlled from a smartphone, or even programmed to change over time, if for example a door needed to be unlocked for a child between certain hours. Connected lighting as well as irrigation/sprinkler systems are other market focuses. On the commercial end, connected appliances in restaurants, fire and safety, vending machines as well as quantified self applications in health care are other markets with potential for Ayla.

Friedman noted that when Ayla launched a few years ago, he had to explain to investors and prospective customers what the internet of things was, and why it was going to matter. He says those days are over. Now the task is different: it’s about establishing Ayla as a trusted source for manufacturers looking to connect their products.