Chapter 10

THE
INTERNET
OF THINGS
 What Drives the Growth of IoT?

• According to Gartner, the Internet of Things will explode by

2020, with more than 26 billion connected devices. Other
reports suggest that there will be 34 billion connected
devices by 2020, of which 24 billion will be IoT devices, and
10 billion will be smartphones, tablets, and other traditional
computing services.
• Businesses have been the first to adopt the IoT,
implementing it to lower their perating costs and improve
their productivity. This has enabled them to expand into
new markets or develop new product lines. Simultaneously,
consumers are adopting IoT technologies to improve their
quality of life, and governments are increasingly using the
IoT to reduce spending. Below, we cover the drivers of
growth for the IoT.
Urbanisation
• Urbanisation is a key driver of IoT growth. As cities become more
populated, consumer spending increases. For example, in Southeast
Asia alone, there are 26 cities with over one million residents, and an
estimated 49.7% of the region’s total population is expected to be living
in urban areas by 2025.
• The world’s most densely populated cities can be found in this region
such as Tokyo-Yokohama (37.8m), Jakarta (31.3m), Delhi (27.8m), and
Seoul (23.6m). Regarding population distribution by continent, Asia
leads with 56.6%, followed by North America, 12.9%, Africa, 10.7% and
Europe, 10.2%, with South
• America accounting for 8.1% and Oceania 1.4%. The growth of cities
requires the development of efficiencies and strategies for them to
remain viable. The IoT can make cities more sustainable and adaptable.
• Placing devices on objects can help public security and safety
departments, transportation departments, and can be a valuable aid in
managing infrastructure.
• The IoT can become very handy when managing scarce resources,
mainly water, power, natural gas, food, and healthcare. By using models
that optimise the utilisation of these resources, a city can improve its
quality of life.
Smartphone Penetration Growth
• By 2020, smartphone penetration is expected to reach 2.87 billion users,
an increase of 54.3% from 1.86 billion users in 2015. The highest
smartphone penetration is in South Korea, where it is 88% of a total
population of 49 million, and in Australia, with 77% of a total population
of 23 million. It is also high in the United Arab Emirates, with 75% of a
total population of 6 million, and in Israel, where it is 74% of a total
population of 23 million.
• The United States ranks 5th with 72% smartphone penetration out of a
total population of 325 million. Arguably, the IoT has an even higher
potential for growth in smaller hubs, i.e. fast-developing countries,
which are leaders in smartphone penetration and teledensity.
• Smartphone growth drives the Internet of Things. These devices have
three-axis accelerometers, gyroscopes, magnetometers, compasses, and
barometers embedded. Investment in smartphones ensures that the
quality of these components improves with every release, and the IoT
benefits from this. Also, the smartphone is the logical remote control for
all connected devices, storing data from fitness trackers, managing
intelligent homes, as well as other uses.
Rising Demand for Connected Devices

• Connected devices are being invented at a very fast pace, and this drives
consumer demand. An estimated compound annual growth rate (CAGR) of more
than 24% until 2021 is expected as a result of increasing smartphone and
Internet use, industrial IoT adoption and smart city projects across the world.
• Government IoT initiatives and the growing number of connected devices that
generate and exchange a greater amount of data also explain much of the
estimated growth. Internet penetration of 70.6% is expected by 2022.
Increasing Need for Inventory Management

• Inventory management is important for businesses as it allows them to

control their ordering and storage costs and their use of products. The
real-time tracking of inventory using radio-frequency identification
(RFID), which uses the IoT, is the next big thing in inventory
management.
• In fact, applications can help businesses track their products in real-time
by recognising the barcode label of the product and using the
embedded GPS location. Therefore, organisations can instantly check
their product location and inventory levels and forecast demand.
• An estimated $13.2 billion RFID tags are expected to exist by 2020
Cloud-based
Platform Growth
• Increasingly more businesses, governments, and
consumers are becoming connected, or expect
things to be connected. In this context, cloud-
based platforms gain a competitive edge. An
estimated total spending of $173 billion on public
cloud infrastructure is expected by 2026, up 355%
from $38 billion in2016.
• Additionally, Amazon Web Services (AWS)
reported a 59.3% YoY growth in Q3 2016, from
$2.08 billion to $3.23 billion[203], whereas
Microsoft’s cloud-based products such as CRM,
Azure, and Office365 are expected to generate
$30 billion by 2018, accounting for 11% of the
company’s revenues.
The Impact of IoT on Businesses

• Firms are producing smarter and more

technologically advanced products. This
impacts IoT on businesses in several ways.
Perhaps the most visible effect is the
business landscape itself, as many industries
are adjusting or have already adjusted to
the new norms. The IoT comes with
mainstream technology and, from this point
of view, some industries may not be able to
keep up with the new developments, while
others may simply follow the lead of others.
• The logistics industry is one of the first
areas expected to face a lower demand for
their services due to the IoT automation.
The growth of the Internet of Things and
the proliferation of social networks, mobile
operators, and “smart” devices have
changed business models.
Real-time Data

• Digitisation of information as well

as instant exchanging and
reporting of data between
interconnected devices facilitates
control and optimises processes.
• Companies are now able to check
their inventory levels and report
inefficiencies and will know if
there is a shortage or a surplus of
a product. In fact, the IoT shifts
waste management to a new
level by introducing real-time
control, thereby lowering
companies’ costs dramatically.
Remote Access

• As the IoT becomes increasingly popular

and a growing number of businesses
start capitalising on the vast network,
cloud-based software will make it easier
to manage a production line or an entire
business remotely, leading to faster
processing. For example, a gas company
needing to perform regular checks on its
tanks and spending enormous amounts
of money on travel and wasting hours
sitting in traffic can save on commuting
and effectively control business costs.
• Ultimately, this could mean higher profits
due to lower operating costs and
improved return on assets (ROA).
Increased Productivity

The IoT allows a business to be run

remotely and more productively. In
this context, real-time data, remote
access, and faster processing are
likely to increase the productivity of
businesses using the IoT. Although
there is a cost for shifting from the
tangible to intangible, mostly
related to the upgrade of the
usiness’ devices, eventually, the shift
will pay off with more efficiently
produced products and services.
 The IoT in Categories
• The wearable category captures any device that is attached to the body, and these
are mostly fitness trackers and smartwatches, although it includes smart clothes and
infant trackers such as smart socks.
• The connected home category is about digitalising the home and covers lights, sound
systems, heating, opening doors, and even smart doorbells.
• The infrastructure category looks at providing the right networks and sensors so that
devices can work properly.
• The healthcare category deals with medical instruments such as sugar level trackers,
pacemakers, and thermometers.
• The utilities category deals with technology to track the use of electricity, gas, and
water to optimise its usage.
• The industrial category looks at uses for the IoT in industries where expensive assets
are required, such as mining or agriculture.
• The retail category focuses on creating more interactive shopping experiences, using
connected sensors and mobile apps.
• The drone category aims at using drones to become more autonomous and helps to
capture data for construction and other projects.
• The automobile category uses IoT to transform the car insurance market and
improve driving habits.
 Combining IoT and Blockchain

• IoT is often associated with Blockchain. Blockchain is a distributed ledger

covered in detail in another chapter, but in essence, it is an immutable database
that is hosted through the Internet. Blockchain can expand the use of
cryptographic data in the IoT space, making customer information more secure
and transactions faster. Businesses can also capitalise on the digitalisation of IoT
to manage complexity and lower costs using Blockchain, which has a proven
record of virtual, cost-effective, decentralised networks. In doing so, they are
more likely to build trust in customer relationships, eliminate potential points of
failure, and ensure more flexible and secure transactions.
• One concrete application for combining these technologies is tracking a history
of unique devices and the interaction with others, which could help for auditing
and insurance purposes. Another is empowering smart devices to become
independent agents that perform their own transactions. A typical example is a
vending machine managing its stock and reordering, or a smart car that can
identify when it needs maintenance, schedule it, drive to the garage, pay for it,
and record its MOT. Commonwealth Bank of Australia, Wells Fargo, and
Brighann Cotton have made the first global trade transactions combining the IoT
and blockchain technology. In the sharing economy of the future, the
integration of IoT and blockchain may enable the full automation of day-to-day
operations.
The IoT in Financial Services

• The Internet of Things will transform the

financial industry in an unprecedented way.
Today’s chief financial officers (CFOs) are
faced with non-financial responsibilities,
especially technology-related, including IoT.
A survey by McKinsey showed that less than
33% of CFOs questioned believe that there
is a growing need to digitise their
businesses and be more competitive.
• Simultaneously, data analysts expect an
added economic value of up to $15 trillion
by 2020. As the financial services industry
becomes more active in the IoT, the benefits
derived from it will increase. Remotely-
accessed, comprehensive data embedded
into connected devices is used in insurance,
peerto-peer lending, and real estate,
providing great examples of an industry that
is being renewed.
 Insurance
• Insurance companies are adopting the IoT to integrate policies,
premiums, and customers into a comprehensive, readily accessible
database, which can lower coverage costs. For instance, in auto
insurance, the IoT is employed in the calculation of the actual mileage
covered and the driving behaviour of the policyholder through a
tracking device. In home insurance, smart embedded devices can detect
fire, water leaks, or high levels of carbon monoxide, thereby lowering
insurance premiums as the risk undertaken by the insurer will be lower.
• In healthcare, large companies like Apple or Samsung are tracking the
health of individuals through sophisticated monitoring devices, and
Vitality offers rewards based on the level of activity done by the
policyholders. The integration of IoT in the insurance sector and the
increasing number of fintech startups is expected to further drive the
growth in this sector, in new areas including agriculture insurance, car
insurance and health insurance.
Insurance
 Real Estate
• Fintech startups are employing the Internet of Things to create new opportunities in
commercial real estate. With IoT technology, startups collect data about repair,
maintenance, and energy use, thereby being able to better assess the value of a
property.
• Also, through occupancy sensors, energy costs can be regulated, and building
maintenance can be lowered up to 30%, especially in industrial zone areas. Should this
data go public, it could create a trading market, providing investors with higher
transparency and accuracy when bidding. This means the involvement of IoT in real
estate could also revolutionise real-time bidding markets.
Real Estate
 O2O and IoT in FinTech
• Ecommerce giants such as Alibaba and Amazon worked really hard to disrupt the
retail industry. However, after a while, they realised that operating only online is not
feasible for long-term dominance. Amazon has started opening 2000 Amazon Fresh
stores, and Alibaba is investing more than $300 million in a discount supermarket in
China.
• Online-to-offline (O2O) commerce is a commonly used business strategy seeking to
shift prospective customers from online stores to brick-and-mortar businesses. With
the correct software and by operating in the IoT network, O2O identifies prospective
customers online through Internet advertising and email marketing campaigns and
shifts them to the offline business. Hence, customers, who are more enticed in
viewing the actual product, visit the online store, select the product they want and
are directed to the brick-and-mortar store, where they make the actual purchase.
Companies with both an online and offline presence employ the O2O business
strategy as a means to cross-sell.
• In the fintech industry, O2O is becoming increasingly popular. As identified, the IoT
related statistics are mostly favourable for Southeast Asia due to large populations,
swift urbanisation, and high smartphone penetration growth. China, Indonesia,
Singapore, and Seoul have become fintech hubs. In actual figures, fintech growth in
Asia reached $4.5 billion in investments in 2015 and is expected to attract more
investment with a focus on new technologies like the Internet of Things.
 O2O and IoT in FinTech
• China is a leader in O2O due to its large population and the openness to using
technology. Unlike the UK and the US markets that are mostly focused on
clickand- collect services, the O2O market in China includes on-demand
services, daily deal sites, and click-and-collect services. Chinese consumers can
use Kuaidi’s Zhuan Che taxi app and get a 60% discount on their taxi ride or use
58 Daiojia’s home services to earn a rebate. Hence, the O2O market in China has
gone beyond online grocery shopping, including travel, transportation, laundry
services, or food delivery.
• Therefore, although it is hard to accurately assess the size and growth of China’s
O2O market, statistics show an increase of 35% in O2O sales and services in
2015 with a projected growth of 28% in 2016 and over 20% by 2018.
Challenges Faced by the IoT -
High-Frequency Trading

• Algorithmic and high-frequency trading

(HFT) can be further automated with the
use of the IoT. By eliminating human
involvement and allowing the more
comprehensive use of real-time algorithmic
data, high-frequency trading can be swifter
and more accurate. However, although the
entire system will become more efficient,
HFT can push the markets up technically
based on the momentum that global
economic and political events create.
• Hence, although algorithms do not account
for real-world events, they follow the noise
generated by these events, creating an
unprecedented barrage of trades, which,
combined with the IoT, can be impossible to
catch up with. Ultimately, IoT data, if not
handled properly, may create a bubble.
Challenges Faced by the IoT -
Data Management

Another major challenge that any

business will face is the management
of the enormous amount of IoT-
generated data. Failing data
management, especially in the
financial sector, which requires
integrity and careful processing, may
cause disruption of the stream of
information. Also, the validity of data
is at stake, considering that the
financial sector is highly regulated and,
as such, each case requires a careful
approach. Distributed ledgers and big
data might help to tackle this
challenge.
Successful IoT Use Cases in the
Financial Sector
Ingenico Group, a global leader in
seamless payments, and Intel Technology
joined forces in April 2016 to bring secure
payments for the IoT. The collaboration
required the joint development of a
mobile tablet that will support EuroPay,
MasterCard, and Visa (EMV1) payments as
well as NFC (Near Field Communication)
payments, thereby preventing credit card
fraud.
Groceries by MasterCard

• Groceries by MasterCard is an app that

enables consumers to do their grocery
shopping using IoT. The application
connects consumers to leading grocery
stores through the Wi-Fi-enabled touch
screen of the Samsung Family Hub
Refrigerator, allowing them to manage
their grocery shopping and select their
favourite brands.
• The app is developed by MasterCard in
cooperation with Samsung and
commerce platforms FreshDirect or
ShopRite. The app is expected to
evolutionise grocery shopping, allowing
for better control of household finances.
MasterCard Start Path

Start Path Global brings together

startups from all over the world,
allowing them to gain access to
MasterCard’s network and enter
new markets. The program requires
physical and virtual engagement,
and it looks for startups in several
sectors, including banking, logistics,
wearables, and more.
Visa Mobile Location
Confirmation is an IoT
app

• Visa Mobile Location

Confirmation is an IoT app
developed by Visa, which
instantly records credit card
transactions and compares them
with the real location of the
cardholder.
• The app eliminates the risk of
credit card fraud and reduces the
possibility of cards being declined
whilst travelling. The IoT app uses
mobile geolocation data in real
time in collaboration with
Finsphere Corporation, a leading
company in geospatial analysis.
Alfa Activity
Alfa Activity is an IoT app launched by Alfa Bank, a
leading Russian bank in cooperation with 42 Agency,
a marketing consultancy and advertising agency in
Moscow. The app allows customers of Alfa Bank’s
retail branches to connect their online accounts to
tracker devices. The bank rewards customers who
work out with higher interest rates on their savings
accounts. The app runs through Fitbit, Jawbone Up,
and RunKeeper platforms.
Sri Lanka