The Internet of Things

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Feb 16, 2014 (3 years and 1 month ago)

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Technology & Communications

January 24, 2014


Industry Report

Tavis C. McCourt, CFA
,
(615) 665
-
3644,
Tavis.McCourt@RaymondJames.com

Simon Leopold,
(212) 856
-
5464, Simon.Leopold@RaymondJames.com

Frank G. Louthan IV,
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Frank.Louthan@RaymondJ
ames.com

Hans Mosesmann,

(212) 856
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5404,
Hans.Mosesmann@RaymondJames.com

J. Steven Smigie,

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4893, Steve.Smigie@RaymondJames.com

Terry Tillman,
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5825, Terry.Tillman@RaymondJames.com

Daniel Toomey, CFA,

Sr. Res. Assoc., (615) 665
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3864,
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el.Toomey@RaymondJames.com

Georgios Kyriakopoulos,

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Eric Lemus,
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Brian Peterson, CFA
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Alexander Sklar, CPA
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5804,
Alex.Sklar@RaymondJames.com




The Internet of Things


A Study in Hype, Reality, Disruption, and Growth



Communications Technology


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2014

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Contents



Introduction

................................
................................
...............................

1

The Internet of Things: History, Sum
mary, Perspective

...........................

2

The Internet of Things Value Chain

................................
...........................

5

A Study of the Diverse Vertical Market Solutions Enabled by IoT

............

6

Connected Devices Disrupting and

Creating Consumer Product Markets

................................
......................
31

Software and MVNO Opportunities Created by the IoT

.........................
34

Semicond
uctors: Sizing the IoT Opportunity

................................
...........
38

IoT, Networking Architecture, and Equipment Ramifications

................
47

What Does the IoT Mean for Wireless,

Cable
and

Data Center Service Providers?

................................
..............
50

Conclusion

................................
................................
...............................
52












Cover illustration

courtesy Jasper Wireless, Inc.

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1

Introduction

The confluence of efficient wireless protocols, improved sensors, cheaper processors, and a bevy of
startups and established companies developing the necessary management and application software has
finally made the concept of the Internet o
f Things (IoT) mainstream. The number of Internet
-
connected
devices surpassed the number of human beings on the planet in 2011, and by 2020, Internet
-
connected
devices are expected to number between 26 billion and 50 billion. For every Internet
-
connected

PC or
handset there will be 5
-
10 other types of devices sold with native Internet connectivity. These will include
all manner of consumer electronics, machine tools, industrial equipment, cars, appliances, and a number
of devices likely not yet invented.

In our view, the concept of the IoT will disrupt consumer and industrial
product markets generating hundreds of billions of dollars in annual revenues, serve as a meaningful
growth driver for semiconductor, networking equipment, and service provider end
markets globally, and
will create new application and product end markets that could generate billions of dollars annually. In
the following report, we explore the history of the IoT, some early applications that are already disrupting
existing markets, a
nd some interesting applications that have the potential to go mainstream in the next
several years. We also explain the value chain of companies that creates the IoT in various end markets
and attempt to quantify its impact on specific semiconductor, sof
tware, device, and service provider end
markets. Below are our summary findings.


A Series of Verticals Rather Than One Market

We do not believe an “S” curve of adoption for the
IoT

is likely, as the concept is broad and will have
differing growth curves
in different end markets. It is more helpful from an investment perspective to
think of the IoT as a series of vertical market solutions that may witness growth at various rates over the
next decade or more
, all of which aggregates to 15
-
30% or so annual
growth for the concept in totality.
The vertical markets that have the most opportunity for accelerated growth in the next
two to three

years
include home automation, connected car
,

and wearable devices.


Semiconductors: IoT a Bigger PAN Than WAN Driver;

Microcontroller/Sensor Growth Meaningful

The vast majority (80%+) of IoT connections will occur on unlicensed wireless frequencies due to cost and
battery life advantages. Whereas cellular IoT connections are expected to grow at a nearly 20% CAGR for
the

next several years, various
personal area network (
PAN
)

wireless connections (
Wi
-
Fi
, Bluetooth,
Zigbee) into M2M
(machine
-
to
-
machine)
end markets should grow closer to 30%. Aside from significant
growth in PAN
-
based chipsets, we view the microcontroller
and sensor opportunities as meaningfully
positive with industry forecasts of single
-
digit growth potentially being too pessimistic.


Product Disruption in Consumer and Industrial Markets

The addition of Internet connectivity to devices provides an opening
for disrupting previously sleepy end
markets dominated by sometimes slow moving consumer and industrial product companies. Nest

Labs’
entry into the thermostat and smoke alarm markets and subsequent $3.2 billion purchase by Google is a
high profile exampl
e, but we believe that this type of disruption is a potential in markets as diverse as
home appliances, audio equipment, agriculture equipment, machine tools, construction equipment,
clothing, and even toothbrushes, and Silicon Valley is gearing up to driv
e this disruption.


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Impact on Networking Equipment

We view the IoT as yet another driver of network demand, contributing to an expected 23% CAGR in
network traffic growth (2012
-
2017). The IoT will impact network architecture and help drive a modest
mix sh
ift from core to metro and access equipment spending, which has implications for pricing, margins
,

and competitive dynamics in the $125 billion service provider market for WAN equipment.


Impact on Wireless Service Providers

The IoT is already generating
~$16 billion in annual service revenues for wireless providers in 2013, and
this should double by 2017. However, even with this level of revenues, IoT
-
related revenue streams will
represent less than 5% of wireless service provider revenues, making it mor
e of an incremental than a
transformational driver.

However, we expect wireless providers to invest heavily to benefit from this
growth as the rest of their traditional handset
-
related service revenues will likely be very mature.

For a Select Few, the IoT

Defines Their Business

There are a number of software, service
,

and product companies whose primary product or service
revolves around connecting devices beyond cell phones.

Garmin, Trimble Navigation, Jasper Wireless,
Sierra Wireless, Digi Internationa
l, NETGEAR, Numerex, Kore Telematics, any number of fleet tracking
software vendors, Telit, Gemalto, Nest Labs, Control4, Savant, and Roku are clearly in this category. Most
are small today, but the successful ones will end up disrupting markets or creati
ng markets, and
generating meaningful shareholder returns along the way.



The Internet of Things
:

History, Summary, Perspective

The IoT is not new, and we would argue the Internet has always been an IoT. From its beginning, the
Internet was a network of

networks, connecting various government and academic computers together to
share data. What has changed increasingly over the past
two

decades is the ability to connect remote and
mobile “things” or “machines” or “assets” to the Internet or corporate Int
ranets through the use of
wireless communications and low
-
cost sensors/computing/storage. In a sense, the Internet is expanding
from a network of computers to a network of things. Or to reverse the order, almost every thing

/

asset/

object in the world i
s transitioning to become a computer that happens to be connected to a network
using the IP protocol.

The confluence of efficient wireless protocols, improved sensors, cheaper processors
,

and a number of
startups and established companies developing the

necessary management and application software has
finally made the concept of the Internet of Things mainstream.


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3


Drivers of “Internet of Things” Growth


Why Now?


Source: Raymond James
r
esearch.


Based on data from Ericsson,
i
n 2003, there were 6.3 b
illion humans on the face of the earth and about
500 million devices connected to the Internet (mostly P
Cs and a few smartphones.) By
2011 there were
approximately 7 billion human beings on the face of the earth, and 12.5 billion devices connected to the
Internet including nearly every PC in the world and well over a billion smartphones. This equates to
nearly 2 connected devices for every human on the face of the earth. By 2020, Ericsson expects the
human population to grow to 7.6 billion with 50 billio
n devices connected to the Internet.

Although this forecast appears aggressive (Gartner estimates 26 billion), when one looks around a typical
U
.
S
.

household of
four

today with
two

laptops,
four

smartphones, a gaming console, a
Wi
-
Fi

router, a
connected
stereo system,
two

iPads, and an Apple TV or other media player, it becomes easy to
understand how the ratio of connected devices to human beings (3:1 ratio in the example above) will
increase to ~7:1 by 2020. The added connectivity will not only come fro
m consumer devices, but all kinds
of industrial or company
-
owned assets as well, with connectivity becoming an expected feature on just
about every physical asset in the world, much like it is becoming on consumer electronics devices today.
To put this in

perspective, today there are 80 “things” connecting for the first time to the Internet every
second, and by 2020 this will expand to 250 every second.


Human Beings vs, Internet Connected Devices (millions)


Source: Cisco Systems, LM Ericsson, Raymond Ja
mes
r
esearch.


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The driver of all this connectivity is essentially the desire to “add value” to products or services. From a
corporate perspective, this added value can come from increased revenues (e.g., a $100 handset turns
into a $600 smartphone with t
he right connectivity and application software) or decreased costs (e.g.,
connecting one’s trucking fleet can save on productivity, gas, mainte
nance, etc.
). Cisco published a
fascinating white paper outlining what it calls the Internet of Everything (I
oE
) index. It calculates that
businesses are already generating $613 billion of additional profits annually due to the connection of
devices to the Internet (mostly the impact of connecting computers/mobile devices). Cisco calculates that
this represents o
nly 50% of the potential of the Internet to drive profits, with $14.4 trillion of net profit
likely to be generated by corporations over the next decade if the Internet of Things is embraced. In
essence, it has taken 15 years or so for companies to harnes
s about 50% of the productivity potential of
the Internet, and the next 50% of productivity gains likely requires connecting things.

These additional profits from connecting everything to the Internet are roughly equally distributed
between increased ass
et utilization, increased employee productivity, better logistics management,
better customer experiences, and increased R&D productivity.

Cisco highlights future gains in
manufacturing through the use of intelligent robots, asset tracking within faciliti
es, shipment tracking,
energy management, and employee collaboration. Cisco highlights similar gains to be had by retailers and
utility companies, and although it is unclear if Cisco’s numbers are conservative or aggressive, it is clear
that all of a sudd
en something has changed to make connecting various devices or assets or things an
increasing investment priority.

At its beginning, connecting remote/mobile assets was expensive and largely based on connectivity through
satellite
-
based systems, and as one

would expect, with expensive inputs, use cases focused on high value
assets where ROI was quick


Omnitracs fleet tracking through satellite and GPS tracking of commercial
aircraft
, for instance.
The advent of digital cellular in the late 1990s allowed
wireless air time

to become
cheaper, enabled lower value use cases like wireless security alarm systems, cellular controlled door locks,
and telematics applications for automobiles, all of which have flourished over the past 10 years.

The third wave of I
oT is being enabled by essentially “free”/unlicensed wireless spectrum, lower cost
sensors and microcontrollers, and a bevy of software applications and devices designed for specific,
vertically
-
focused use cases.
The applications that appear to be prime
for IoT disruption include home
automation, appliances of all types, wearable computing devices, home health care, retail and
warehousing inventory management, connected farms/ag
riculture

equipment, and likely many more that
have not yet been invented.

I
n
ternet of
T
hings

Timeline


Source: Raymond James
r
esearch.

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5

The IoT

expansion has already lasted 20+

years, and has been painfully slow due to the necessity of multiple
inputs to come down meaningfully in price, and the need for companies and application v
endors to create
vertically
-
specific applications that make use of all these new connected devices. Having things connected is
useless unless one can use the information gathered
for a
meaningful

purpose, and this takes time.

As far as we can tell, ther
e is no magical horizontal software app that allows every industry to attach a
cellular or
Wi
-
Fi

module to all of its assets and get immediate ROI (or if there is, please let us know as we’d
like to invest).

Every industry and company has specific use cas
es that take time to perfect and “productize”
into a usable software application or device format. This has happened most successfully in fleet tracking,
but then again fleet tracking is a technology that is over 20 years old and still is less than 5% pen
etrated
globally.


Our expectation is that there is no “S” curve of adoption of I
o
T
;

it will happen at varying paces
across different industries, and the inexorable march of connecting things will continue for many decades.

As we move deeper into this r
eport, we will often use the term M2M (machine
-
to
-
machine) as
synonymous with IoT (Internet of Things). The concepts are similar, but generally, the industry reserves
the M2M moniker for more industrial type applications where there is little human involv
ement, and
includes most consumer applications under the broader umbrella term of The Internet of Things. The
Internet of Things is a concept that will create opportunities and threats in just about every industry we
can think of. The beneficiaries will
include semiconductor companies, device and product companies,
infrastructure software companies, application software companies, consulting companies, and telecom
service providers. For some companies, everything they do will revolve around the IOT conce
pt (, but for
most it will be an incremental driver of their business
.

In aggregate, the IoT will create
ten
s of billions of
dollars of new revenues annually for telecom service providers, semiconductor vendors, software
application vendors
,

and
product v
endors
, and potentially create substantial market share shakeups,
especially in end markets not used to the pace of technology
-
based competition
. In the following report
we attempt to quantify the opportunity created by the Internet of Things within vario
us segments of
technology, point out a few interesting vertically
-
focused use cases in practice today, and highlight how
companies within our research universe are benefitting from I
o
T.



The Internet o
f Things Value Chain

From an investment perspective, t
he IoT
can be confusing because it can

be heard in presentations from
semiconductor companies, software com
panies, product companies, etc.
Additionally, in many vertical
markets there are companies that provide many parts of the value chain rather than ju
st software or just
devices. The reason for this is a
general

lack of standardization within many areas of connected devices
and very little commonality between application software and solutions between different verticals or
end markets. This has force
d many of the successful early players in the IoT to vertically integrate in order
to develop a full solution of hardware, software
,

and services designed for a speci
fic vertical market.

One can view the various layers of the I
o
T value chain in at least
ni
ne

distinct product or service categories.
Radios/communications chips provide the underlying connectivity, sensors provide much of the data
gathering, microcontrollers provide the processing of that dat
a
, modules combine the radio, sensor and
microcontro
ller, combine it with storage
,

and make it “insertable” into a device. Platform software provides
the underlying management and billing capabilities of an IoT network, while application software presents
all the information gathered in a usab
le and analyz
able format for
end users. Finally, the underlying telecom
infrastructure (usually wireless spectrum) provides the means of transporting the data while a services
infrastructure needs to be created for the tasks of designing, installing, monitoring and se
rvicing the IoT
deployment. Some companies will compete at
one

layer of this value chain, while many will create solutions
from multiple layers and functionally compete in a more vertically integrated fashion.

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Product

Description

Radios

Chips that provid
e connectivity based on various radio protocols

Sensors

Chips that can measure various environmental/electrical variables

Microcontrollers

P
rocessors/
S
torage that allow low
-
cost intelligence on a chip

Modules

Combine radios, sensors, microcontrollers in

a single package

Platform Software

Software that activates, monitors, analyzes device network

Application Software

Presents information in usable/analyzable format for end user

Device

Integrates modules with app software into a usable form factor

Airt
ime

Use of licensed or unlicensed spectrum for communications

Service

Deploying/Managing/Supporting IoT solution

Source: Raymond James
r
esearch
.



A Study
of the
Diverse Vertical Market Solutions Enabled
by
IoT

In the following section of the report, we

highlight a few of the vertical market solutions that have been
created through connecting devices to the Internet.


Fleet Tracking

Tracking commercial trucking fleets in order to save on f
uel, downtime, maintenance, etc.,

is a 20+ year
old industry that

can probably fairly be thought of as one of the first IoT applications, although in its first
iteration it did not use the IP protocol.


In the 1980s this started out as a satellite
-
based solution, and has
transitioned
over the past decade
to primarily a
solution utilizing cellular networks.

Additionally, fleet tracking has expanded in terms of its application set over the years.
W
hat started out
as really just tracking the location of a truck has expanded greatly through the use of added sensors and
anal
ytics to measure driver behavior, route optimization, eng
ine diagnostic, tire pressure, etc.
A great
example of an extreme deployment is UPS, which measures over 200 variables on each truck through the
use of sensors and wireless connectivity.


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Fleets
Vehicles
Drivers
Collect

Location

Vehicle Metrics

Driver Behavior

Hours & Miles Driven
Key
Attributes
Transmit
Secure data
centers
Process
Web and mobile device
accessible reports &
analytics
Information

Source
: Raymond James
r
esearch.



In all fleet tracking deployments, a truck or van is equipped with a device that manages the input from all
the sensors on the truck and
typically
sends this data through the cellular or GPS network.


Data is then
kept in a sec
ure database and analyzed in real time and presented in application software for the fleet
manager/dispatcher. Through analytics the system can typically optimize routes, alert the system to sub
-
par driver performance/behavior, and optimize maintenance sc
hedules.



Fleet Tracking


Source: Raymond James
r
esearch.


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As in most vertical applications in the IoT, the value chain is a little messy.

There are chipset vendors,
module vendors, device vendors
,

and software vendors
,

and in some cases these are all
one in the same.

The
table

below highlights the value chain of technology companies that need to come together to make
a solution for a commercial fleet operator, and gives only a small subset of each player in specific areas of
the value chain.


Fleet Tr
acking Value Chain





Airtime Providers

AT&T, Verizon
, Kore Telematics, O
RBCOMM


Software Applications

Trimble, Omnitracs, MiX Telematics, TomTom


Device Vendors

Digi International, Trimble, TomTom


Cellular Module Vendors

Sierra Wireless, Gemalto, Telit


Cellular Radio Vendor

QUALCOMM
, ST Ericsson, Intel


Source: Raymond James
r
esearch.


Although the industry is over 20 years old and generates roughly $5 billion in annual recurring revenues
for application software vendors, it is less than 5% penetrated o
f the commercial vehicle fleet globally,
and we believe
it
should grow at a 25% CAGR for the next
five

years and still be just over 10% penetration.



Estimated Global Fleet Management Telematics Revenue Opportunity

(Assumes fleet vehicles under managemen
t economics based on $30/month subscription)


$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
2012
2013
2014
2015
2016
2017
~$5 bil oppty:
assumes 13 mil
commercial vehicles
~$6 bil oppty:
assumes 16 mil
commercial vehicles
~$7 bil oppty:
assumes 20 mil
commercial vehicles
~$9 bil oppty:
assumes 26 mil
commercial vehicles
~$12 bil oppty:
assumes 32 mil
commercial vehicles
~$14 bil oppty:
assumes 40 mil
commercial vehicles
Estimated Global Fleet Management Telematics Revenue Opportunity
(Assumes fleet vehicles under mgmt. Economics based on $30/month subscription)
Source: ABI Research, Raymond James estimates.

Source: Company reports reflecting ABI Research data, Raymond James
r
esearch
.


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9

Home Automation

Home automation, or the smart home, is the concept of being able to monitor, manage, control
,

and
automate just

about every piece of electronics in your home
,

such as your TV, music system, lighting,
thermostat, appliances, vide
o surveillance, door locks, etc
.

Like fleet tracking, home automation has been
around for decades, but
it
is

transitioning from custom/hig
h
-
cost solutions to more mainstream price
points
, driven by the use of lower
-
cost wir
eless networking standards and low
-
cost processing, storage
,

and sensing technologies. Also like fleet tracking, home automation is still relatively nascent
,

with less
th
an 2% of U
.
S
.

households having any form of automation inside their homes.


Home Automation System Shipments Forecast by Type

(Units in Thousands)



Source
:

ABI Research, Raymond James
r
esearch.


Based on data from ABI, there will be about 5 million home

automation systems shipped this year globally, and this should
grow to nearly 20 million by 2017. The mainstream home
automation market

(
which excludes the high
-
end luxury
market
)
, the DIY market where consumers buy at retail
,

and
the market for service
provider offerings alone generated over
$500 million in product revenue in 2012, growing to $2.6
billion in 2017 according to ABI, nearly a 40% CAGR, with most
of the growth coming from managed service offerings of
various telecom, cable
,

and security serv
ice providers.

If one includes revenues from installation services, DIY
products
,

and service provider offerings, the home automation
market is already generating $8 billion annually in revenues,
growing 10
-
15% annually.


Mainstream Automation

Market Re
venue Growth


Source
:

ABI Research, Raymond James
r
esearch.

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The home automation market, like fleet tracking, is a relatively complex market, with a number of
competitors with varying degrees of vertical integration and business models. At the high end

of the
market there are full home automation systems from the likes of Control4, Savant, Crestron, AMX, and
others that sell
for thousands of dollars and can control
just
about every electronic device in your home.
Then there are point solutions from app
liance vendors such as Nest Labs with its thermostat and smoke
detector offerings, Logitech’s Harmony remote controls, N
ETGEAR
’s video surveillance products, Lutron
lighting products, Sonos music streaming systems, Kwikset’s remote locks, etc
.

Finally
,

th
ere are service
providers such as AT&T, Comcast, ADT, and others that use cloud
-
based control software from vendors
such as iControl and alarm.com to offer home automation of security, lighting
,

and thermostats for a
monthly fee.

Additionally, each applian
ce connects to a control system or the Internet in its own unique way. For
extreme low power needs
,

Zigbee modules are generally used, while for higher bandwidth applications
Wi
-
Fi

tends to be used, and HDMI and various audio I
nput
/O
utput

(
I/O
)

networking

standards are used for
connecting TVs and audio systems. This means that there are a number of chip types and vendors that
sell into the home automation market.


Home Automation Value Chain


Source: Raymond James
r
esearch.


As shown above
, i
n the servic
e provider channel, large telecom, cable
,

and security service providers have
entered the home automation market utilizing control/automation software
,

typically from either
alarm.com or iControl, and devices from a number of vendors to develop a service w
ith a recurring
monthly fee attached. At retail, companies like Roku, Sonos, NETGEAR
,

and others have developed point
product solutions that include a product and an application to remotely monitor and control that one
product. In the dealer channel, ful
l home automation vendors such as Control4, Savant
,

and Crestron
provide complex full home automation solutions that integrate the control of just about everything
electrical in your house through a single application sold primarily as a one
-
time sale.


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11

Ho
me Automation



Source: Raymond James
r
esearch.



Some of the more high
-
profile technology vendors in the home automation space (although by no means
an exhaustive list) include the following.

Control4

Control4 helped disrupt the home automation market ov
er the last decade with a materially less
expensive controller, interoperability with existing appliances, and easy, GUI
-
based programming tools
that allow consumers get started with home automation for a few thousand dollars rather than the few
hundreds o
f thousands of dollars historically. In the full home automation market, we estimate
that
the
company is the market leader in terms of units
,

and we expect
it
will generate a

bit
more than

$150
million in revenues in 2014.

Savant

Similar to Control4, Sa
vant boasts a controller
-
based, full home automation system that is materially less
expensive and easier to program than legacy systems from vendors such as Crestron and AMX. Its point
of differentiation is a heavy emphasis on Apple products (its con
troll
er hardware is a Mac Mini)

and a
software user interface design that is quite Apple
-
esque. Savant sells into the commercial market as well,
which is also a ripe opportunity for automation.

Nest Labs

Nest Labs reinvented the thermostat market with the Nest

Thermostat and more recently added a
smoke/carbon monoxide detector to its product portfolio. Nest not only makes connected devices that
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allow users to control and monitor them remotely, but
it
also creates the products with an ability to learn
from thei
r surroundings through sophisticated sensors, taking automation essentially one step further
into the realm of artificial intelligence.

The company announced in early January that it would be
acquired by Google for $3.2 billion.

NETGEAR

NETGEAR makes a se
ries of home automation
-
related products sold at retail and through service
providers. First and foremost
,

the company is the market leader in
Wi
-
Fi

routers and extenders, which
form the connectivity foundation for most connected devices in the home. Add
itionally, the company’s
VueZone line of video surveillance cameras feature wireless connectivity and use standard batteries, and
are sold online and at big box retailers. The company also makes panels and other connected devices for
service providers. W
e expect NETGEAR to expand further into this category in the future
,

potentially
into
lighting, thermostats, etc.

to round out their home automation product portfolio.

Belkin

Belkin is a consumer electronics manufacturer that has launched a complete range
of connected home
appliances under the brand WeMo.

Its product line includes light switches, motion detectors, baby
monitors
,

and surveillance cameras.


The company also has developed an ecosystem of appliance
manufacturers whose devices, such as
slow coo
kers,
coffee machines, etc.

can be controlled remotely
through the WeMo application.

Q
UALCOMM

AllJoyn

AllJoyn is an application development framework developed by Q
UALCOMM

to make it easier for
products to connect in a standards
-
based way.

DropCam

DropCam
revolutionized the consumer video surveillance market with an affordable and easy to install
remotely monitored camera through an app on your smartphone. The company also offers a cloud
storage s
olution for the video from $10
-
30/month.

SmartThings

SmartTh
ings sells a hub that wirelessly connects to a number of connected devices in your home, and
allows you to control and automate these devices with a single app on your smartphone.


The company
offers motion sensors,
moisture sensors, lighting solutions, HV
AC control
,

and many other solutions on a
“do
-
it
-
yourself” basis.

AT&T, Verizon, Comcast, ADT

A number of service providers have entered the home automation space using a combination of in
-
house
software platforms (AT&T) and outsourced management platforms

from the likes of iControl, Alarm.com
,

and Arris. Generally, these services wrap home automation around a home security monitoring service and
allow remote monitoring of video cameras, lighting, thermostats
,

and a growing list of other appliances.

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Sonos

Sonos makes a broad line of Internet
-
connected speakers that can be installed around your house and can
stream music from the Internet, existing audio system
,

or your computer to any room in your house, even
allowing one to stream different music simultan
eously to different rooms. All of this is controlled through
an app on your smartphone or tablet.

Lutron

Lutron makes automated and controllable shades and lighting that can be controlled through a home
automation platform or an application on your smart
p
hone or tablet.

Revolv

Revolv makes a controller sold directly to consumers that automatically recognizes certain connected
devices (Nest t
hermostats, Kwikset door locks)

and allows consumers to automate these disparate devices
through a single applicat
ion interface.

Garage
Doors

LiftMaster makes an Internet gateway that allows customers to control their garage door remotely
through an app on their smartphone, while companies like Chamberlain make a product called MyQ
Garage
,

which allows consumers to In
ternet
-
enable just about any existing garage door.

Door
Locks

Any number of manufacturers of door locks now enable them to be remotely activated through one’s
smartphone.



Connected Car

One could argue that the connected car has been around since the 1980
s when many original analog cell
phones were sold as embedded devices within automobiles. This advanced in the late 1990s and early
2000s with the advent of various telematics applications such as
On
Star’s suite of services including
automatic

crash notif
ication
, stolen vehicle assistance, diagnostics
,

and turn
-
by
-
turn directions
.
T
he

automobile industry appears to be making a quantum leap forward as increasingly new models will be
sold with embedded LTE connectivity and much higher end infotainment syste
ms that will basically serve
as a computing hub for the car. New applications include remote downloading of mapping/traffic
information and streaming digital music and video. Over a
five
-

to ten
-
year time frame, LTE connectivity
enables driverless car co
ncepts either fully or partially, although with fully automated driving scenarios
requiring 50GB of data every hour
,

based on data from Infonetics, we doubt whether this will be a mass
market application near term.


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Connected Car


Source: Raymond James
r
e
search.


The automobile industry’s term for the onboard computer that provides the interface for users to interact
with applications is the

infotainment console.


Historically, these infotainment consoles replaced knobs
and buttons with a touch screen fe
aturing navigation and audio apps as well as Bluetooth connectivity to
speak on your cell phone through the speakers in the car. Leading Infotainment vendor Harman
estimates that the in
-
car infotainment market, or essentially the market for computers insi
de the car, is
about $10 billion annually today, and growing ~8% annually as price points come down and attach rates
increase.

Current attach rates in the western world for infotainment are about 20%
,

with ASPs ranging
from $1,000

to
$2,000 wholesale ($2,
000+ as an add
-
on at retail), but the industry expects the
applications driven

by always
-
connected infotainment systems to
propel

much higher adoption in the
future. Since infotainment vendors are largely sourcing all the hardware components and much of t
he
embedded software, gross margins and operating margins in the business tend to be

relatively low (~20%
gross, ~5
-
10% operating).

I
t will be likely that connecting the car will happen even without infotainment systems in some cases as
well. The Europe
an Commission is expected to have an eCall service, its nomenclature for automatic
crash notification, throughout the EU by 2015, with the potential to require cellular connectivity in cars to
enable such initiative.

In terms of the value chain and playe
rs involved in the connected car market, one has to start with the
automobile companies themselves. They typically outsource
infotainment solutions to third
-
party
suppliers such as Harman, Denso, Continental
, Microsoft
,

and others, most of whom sell a bro
ad range of
auto parts. In most cases the infotainment suppliers source the underlying components (hard drives,
processors, voice recognition
, etc.
) and write their own applications such as turn
-
by
-
turn directions, music
apps, etc
.


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However, increasingly
we have seen a number of car companies turn to the more traditional mobile app
developers to
create applications

for these infotainment players. Garmin recently won a contract with
Mercedes to provide its branded turn
-
by
-
turn directions on Mercedes cars,
while 12 different auto
manufacturers intend to launch vehicles next year with Apple’s iOS embedded in the infotainment system
so that consumers interface with iOS apps such as mapping, mail, m
usic, etc.

Renault’s R
-
Link
infotainment operating system is b
ased on Android OS.
T
raditional navigation/mapping application
vendors TomTom and Garmin are attempting to build their own infotainment systems for auto
manufacturers as well, although success so far has been fleeting.
Companies such as OnStar are provid
ing
numerous automated and call center
-
based services that leverage cellular connectivity in the car.

Another interesting quirk of the infotainment market is that many of the infotainment systems are built
on an operating system kernel owned by Black
B
erry
called QNX, most of the underlying maps are
supplied by Nokia’s Here business unit, and most of the speech recognition interfaces/technology are
provided by Nuance.


Connected Car Value Chain

Apps Vendors

Apple, Nokia, Garmin, Nuance, Microsoft
, Google

In
fotainment
Systems Vendors

Harman, Continental, Denso, TomTom, Garmin

Automobile OEMs

Toyota, Ford, BMW, Audi, Honda

Chips

Texas Instruments, NXP, Sierra Wireless,

Gemalto, Q
UALCOMM
, Broadcom

Source: Raymond James
r
esearch.


Application development for

automobiles could be one of the more exciting developments over the next
decade for the connected car, and ultimately “killer apps” will need to be developed to get consumers to
pay for the extra costs needed to build in connectivity.

Initially, many of
the apps currently available on
infotainment systems usually revolve around audio (HD Radio enabled by Ibiquity Digital

or Sirius satellite
radio
), navigation (turn
-
by
-
turn directions), or communications (Bluetooth enabling cell phones to speak
through the

speaker system). However, connectivity, and especially LTE connectivity
,

allows the
streaming of Internet radio apps like Pandora and iRadio, and potentially video as well for entertainment
systems in the back seat. Additionally, turn
-
by
-
turn directions

can be enhanced through the addition of
real time traffic information and points of interest. About the most futuristic use of cellular connectivity
for cars is the concept of the self
-
driving car, which requires a constant connection to the Internet to
manage real time information gathering.

The auto industry has always been a large end market for many chip players in the analog space, but the
increasing

complexity of adding connected computers in each car is only going to increase the semi
content per

vehicle. Most noteworthy will be the baseband modem opportunity
,

as we suspect within a
few years nearly every vehicle manufactured in the U
.
S
.

and Western Europe will have an embedded
modem for LTE or 3G connectivity. These modems will likely be sold b
y

the same modem providers
supporting the handset industry (Q
UALCOMM
, Intel, Broadcom, ST Ericsson, etc
.
), but served up in
module form typically by Sierra Wireless, Gemalto
,

or Telit. Below is the cellular module forecast for the
automobile end market fr
om Infonetics.

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C
ellular modules shipped into auto
-
mobiles are expected to climb from
fewer than 15 million in 2013 to more
than 25 million in 2017 (19% CAGR). In
aggregate, approxi
mately 30 million
automobile s are expected to be sold
across North Amer
ica and Europe by
the end of the forecast period, with
two
-
thirds of the cellular modules
being sold for these end markets. This
would equate to an adop
tion rate of
well over 50% of all cars sold in North
America and Europe by 2017.

Global Cellular Mod
ules Shipped Into Autos


Source: Infonetics.


Health Care

A number of connected devices have been developed to improve health care delivery. Over the past 10
-
15 years, health care providers have increasingly become connected through the use of mobile
c
omputers, iPads, iPhones, Wi
-
Fi phones, and communications badges. A number of companies are now
working on developing further connectivity to improve not only communications between health care
givers and patients, but real time monitoring of patient hea
lth as well. Below is an illustration of a
solution allowing for remote monitoring of bedside diagnostics, which is just one application for the
Internet of Things within the health care environment.



Source: Digi.com.

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For a more holistic view, the i
llustration below from Sierra Wireless describes how a health care provider
could theoretically use real time data collected from hospitals, wearable devices, home health monitoring
devices
,

and elsewhere to provide better service.



Source:
S
ierra
W
ireles
s.com
.


Philips

Philips has a number of telehealth initiatives that it sells to health care prov
iders globally. The company’s
TeleStation transmits vital sign data from the patient at home to the health care provider. It also offers a
number of wireless
monitoring devices, enabling the transmission of a number of vital data
,

such as
weight, blood pressure, pulse, ECG data, blood glucose, etc.,
to health care provider
s.

Another way that
Phillips is adding value to solutions through connectivity is its eIC
U suite of solutions, which allows a
centralized staffed center of doctors and nurses to monitor in real time remote intensive care units to
help solve a chronic shortage of health care givers in ICU
environments
.

Verizon

Verizon offers a solution dubbed C
onverged Health Management, which remotely monitors patients’
glucose levels, weight, heart rate
,

and blood pressure at their homes, and sends the real time biometric
information to health care givers onto PCs, tablets
,

and smartphones.

The solution lever
ages wirelessly
connected glucometers, scales, heart rate monitors
,

and blood pressure monitors.

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Q
UALCOMM

Q
UALCOMM

has developed a cloud
-
based platform dubbed the 2net Platform, which enables the wireless
transfer, storage
,

and display of medical device d
ata, and is natively interoperable with a number of
existing medical devices and applications, and
is
HIPAA compliant. Interesting product developments
based on the 2net
P
latform include wireless ultrasound monitoring
and remote

vital sign monitoring from

hospital rooms.

Fitness Bands

As outlined in the consumer application section above, a number of companies including Jawbone,
Garmin,
Nike, and Fitbit have been selling connected
fitness bands

that aggr
egate varying degrees of
health
-
related information f
rom your body throughout the day and then wirelessly make this assessable
on your tablet or smartphone. Although fitness bands are largely viewed as a consumer device today,
ultimately they could be deployed by companies to lower their health insurance ra
tes or by health care
providers to improve monitoring of patients.

Wearable Devices

A number of health care systems are adopting the deployment of wearable wireless devices for “at risk”
patients to wear at home.
A

simple push of the button gives them ins
tant access to experts and
emergency response if needed. Ideally, this cuts down on emergency room visits materially, and unlike
many retail/commercial
-
based solutions, instead of automatically calling for emergency services, these
more intelligent wearab
le devices allow a user to speak with an expert to assess the situation and give
advice first.


Telehealth


Source: Raymond James
r
esearch.

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Embedding Video i
n Health Care Devices

As more and more devices and machines get connected to the Internet, video
communications can be
added to differentiate products, improve service, or both. A great example of a company driving this
concept is Vidyo, a traditional competitor in the video conferencing end market that is now providing
APIs into its video network ar
chitecture to device manufacturers and software vendors in numerous
end markets.

For instance, Vidyo’s technology is currently being embedded into major medical device manufacturers,
who are outfitting hospital beds with video for doctors and other healt
h givers to monitor
patients and

bedside electronics in real time
.



Every
-
day Devices
Mobile, tablet, PC
Every
-
day Networks
Internet,
WiFi
, 4G
Protects Investments
Support existing devices
Software Infrastructure
Affordable scalability
Recording
Billing & electronic records
Encrypted Privacy
HTTPS, AES128
Workflow Integration
Carts, devices, applications
Simple Self
-
Service
Familiar, intuitive web UI
Natural Multi
-
point
Low latency, high quality

Source: Vidyo, Inc.


Source: Vidyo, Inc.


As shown in the schematic above, Vidyo is actively marketing a concept to build in video to remote
examination rooms or clinics, home offices, ambulances, at
-
home p
atient care, etc
.

We note other
traditional video

conferencing vendors such as Cisc
o, Polycom
,

and Lifesize are also
targeting remote
health opportunities connecting care givers to patients in remote locations.


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Agriculture
:
The Connected Farm

In the wo
rld’s second oldest profession
,

connectivity to the Internet has
brought
meaningful
enhancements to productivity over the last several years. Trimble Navigation has been the technology
leader in this vertical market, expanding its portfolio from GPS
-
conne
cted tractors that improve yields to a
full range of applications that measure a variety of factors that can improve agricultural productivity.

Precipitation Monitoring

Trimble sells what is in effect a high tech rain gauge, with more accurate measurements

of rainfall
. T
he
RainWave solution sends the data to the Internet and illustrates the data in easy
-
to
-
read and informative
charts available to the farmer.

Irrigation Monitoring

Through its subsidiary, IQ irrigation, Trimble effectively wireless connects
irrigation systems, and allows
farmers to control these systems remotely over the Internet or
,

through an algorithm
,

recommends the
correct irrigation amounts based on crop, terrain, etc
.

Field Monitoring

Trimble allows farmers to visualize real
-
time yield
s and field activity (fertilizing, seeding, etc
.
) to an online
dashboard.

Office to Field Data Exchange

Trimble allows farmers to wirelessly change guidance lines, drainage designs
,

and other data from the
farmer’s office computer to devices in the field
.

Fleet
T
racking for Tractors

Just as it sounds, Trimble offers farmers the ability to track their fleet in real time and provides useful
metrics such as fuel usage, battery voltage, movement, etc
.

Connected Tractors

Trimble has offered a range of peripher
als to make tractors connected to the GPS satellite system for over
a decade, and not surprisingly its products have met with substantial market reception. At its most basic
level, these solutions allow for a form of “auto
-
pilot” for tractors based on pre
-
set conditions that
maximize yields and minimize fertilizer and other costs.

The Connected Cow

Trimble and other technology vendors sell technology that allows farmers to track and monitor their
livestock. This includes RFID tags and sensors on the lives
tock as well as software to be able to make
sense of the data.

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Connected Farm


Source: Raymond James
r
esearch.



The Connected Construction Site

Construction is another industry that is being radically altered by the Internet of Things, and also happens
t
o be another vertical market where Trimble has pushed the
boundaries

of connectivity and productivity
technology solutions. Starting with a dominant position in optical and laser
-
based surveying instruments,
Trimble and others have moved into connecting e
verything within a construction site.

Machine Control

I
n its simplest form, Trimble connects bulldozers, compactors, pi
ling systems, paving machines,
and other
machines to a wireless network, allowing for more efficient and accurate use of the asset. Trim
ble
estimates that connected machines save as much as 43% of fuel costs.

Machine Monitoring

S
ensors inside machines can monitor payload and diagnose maintenance issues, and wirelessly send this
data to the construction office, allowing more efficient asset

utilization.

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Fleet
T
racking for Construction

C
onstruction sites have their own fleet tracking issues, and much like in the long
-
haul or short
-
haul
trucking market, niche fleets such as cement mixers can generate a high ROI by connecting and
monitoring the
ir fleets.

Connected Tools

C
onnecting just about any tool on a worksite
,

combined with geofencing
,

can warn managers when tools
leave the construction site and allow a better understanding of hours of operation and requisite
maintenance needs.


Connected

Construction Site


Source: Raymond James
r
esearch.


Industr
ial/Utility/Energy End Markets

Connectivity, and especially wireless connectivity, is a growing part of the business processes in a number
of applications within the broa
d industrial sector, inc
luding
the utility and energy markets.


Monitoring of Railcars/Toxic Materials

There are numerous applications for connecting rail cars and rail networks
,

from remotely managing
switches, collection of fares through handheld devices and kiosks, and monitor
ing engine performance.
One interesting solution is for monitoring trains carrying Toxic Inhalation Hazard (TIH) chemicals. Through
the use of a security camera and sensors, the solution can track the exact location of the toxic asset
,

and
in the case of

a leak, derailment
,

or any kind of impact, can stream visual evidence in real time to the rail
car operator.

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Source: Digi.com
.



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Waste Water Management

OmniSite makes an M2M solution for waste w
ater
management at landfills.
The solution al
lows
manage
rs to receive alarms

wirelessly whenever
an anomaly occurs at a facility,
and
allows for
control
ling waste water pumps and the ability to
turn them off and on in real time. It also provides
the ability to analyze a number of inputs from
sensors throughou
t the landfill, gi
ving

the
manager a real time holistic view of the landfill.
At right

is an illustration from Digi International,
which offers a solution for managing water levels
for numerous end markets.


Source: Digi.com.


Traffic Safety Signs

All T
raffic Solutions provides traffic safety signs
around the world that are preconfigured with
wireless connectivity. Municipalities use the data
captured from these signs in real time to
understand traffic patterns across their
geographic are
a

and to improv
e road safety.


Source: Digi.com.


Automated Teller Machines

ATMs have been wirelessly enabled for many
years now, and especially in the case of portability
this
brings

big benefits to ATM providers and their
bank customers. Wirelessly
-
enabled ATMs can
now easily be brought in during conventions or
festivals when a population is likely to swell
materially, and information on remaining cash can
make t
he

restocking of ATMs more efficient.


Source: Digi.com.

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Refrigerated Transport

Locus Traxx provides a
wireless system that monitors and tracks temperature and status of refrigerated
trucks, providing instant alerts based on pre
-
set conditions, and allowing for temperature anomalies to be
changed in real time, limiting the
spoilage

of perishable goods.



S
ource: Digi.com
.



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Intelligent Parking Lots

Parking lots can be monitored actively with occupancy sensors to measure how many available parking
spots exist
,

and where,
and
ventilation

system sensors to measure air quality.



Source: Digi.com
.



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Industri
al Tank Monitoring

Digi International sells an M2M solution to monitor industrial
tanks that

can be filled with any liquid, solid
,

or gas. This solution allows for the monitoring of material levels, temperature
,

and other data from
remote storage tanks in

the oil/gas, agriculture, and environmental services industries, and for this data
to be sent wirelessly to a centralized application for real time monitoring.
T
he illustration below shows
the example of a brewery utilizing remote monitoring.



Source:
Digi.com.



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Demand Response f
or Utilities

The dream of demand response for electric utilities is made more real through M2M solutions. Either
through the use of a smart meter from the likes of Silver Spring
N
etworks that is deployed with native
wireless
connectivity, or various solutions that network
-
enable existing meters, a number of software and
hardware providers are attempting to disrupt the utility market using wireless connectivity.



Source: Digi.com.



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29

Monitoring Energy Infrastructure

Aside fro
m enabling demand response systems for consumers of energy, M2M connectivity is being
deployed to better manage and monitor the infrastructure of energy utilities as well. As shown below in
an illustration from Sierra Wireless, wireless
connectivity

can b
e used to monitor not only meters
themselves, but substations, charging stations
,

and power generation stations of all types.



Source: Sierra
W
ireless.com
.



Oil/Gas Industry

A number of applications exist for monitoring and analyzing data from wells, pi
pelines, flow meters,
pumps, tanks compressors, etc
.

Most of these utilize wireless connectivity to transmit real time
information to a centralized location so that it can be analyzed with purpose
-
built application software.


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Source: Digi.com.


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31

Wareho
use Applications

The warehouse is a key ingredient to most companies’ supply chain, and
it
is becoming more and more
automated and efficient. Increasingly, pallets and packages are wireless tracked from the time they enter
the warehouse,
are
put into inve
ntory, and then “picked” for the appropriate order to be shipped out.
Historically, this was a very labor intensive process, which utilized bar codes and scanners with only modest
automation. Increasingly, RFID tags and readers combined with
Wi
-
Fi

with l
ocation awareness are being
adopted to limit the labor intensity of the warehouse and improve the efficiency of the picking process.



Connected Devices Disrupting
a
nd Creating Consumer Product Markets

Consumers are used to their smartphones, tablets
,

and
computers being connected to the Internet.
However, over the next decade we suspect just about every electrical device one buys will be expected to
have this connectivity. This has already started in devices such as connected audio and media streaming
(S
onos, Roku), thermostats (Nest), and to a small degree TVs (Samsung). However, the trend will become
ubiquitous with washers/dryers shipping with
Wi
-
Fi

chips to connect to the Internet, refrigerators
similarly, watches, lighting switches, security locks,
garage door
openers
, etc.

In most instances, the IoT will not create new markets for consumer electronics but lead to potential
disruption of markets as new players attempt to out
-
innovate existing manufacturers. This has happened
to a small degree with N
est Labs entering the sleepy thermostat market, and we expect more startups to
take a similar strategic tact.

However, the giants are not sleeping. Honeywell now has a consumer grade connected thermostat and
Whirlpool has indicated it will ship all its ap
pliances with embedded connectivity by 2015. Meanwhile LG
and Samsung have been making significant investments at embedding connectivity into their appliance
lineups for a number of years now.

The nice thing about the consumer market is that it is enormou
s, allowing for multiple winners during a
disruption phase.

For instance the market for household appliances alone is over $120 billion globally
;

add to this a ~$30 billion market for luxury watches, a ~$100 billion market for televisions, the
$13 billion

annual market for home audio, etc.

One gets the point
:

there are man
y markets that can be disrupted

and products that can become more useful and valuable to consumers (i.e., higher price points and
margins) as they become connected.

Below are a few inte
resting connected consumer devices in the market today.

Nike+ FuelBand

T
his device is worn as a bracelet and tracks steps taken and calories burned over the course of the day,
and awards its users “NikeFuel” as a way to measure one’s activity. It comes wi
th an app and synchs via
Bluetooth so that you can visualize your daily movements on your iPhone or Android screen.

Fitbit Force

T
his bracelet measures your steps/calories burned, monitors your sleep patterns, and comes with a clock as
well, and is of cour
se synched wirelessly so that you can visual
ize

all

of
this data on your iOS or Android
device.

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Jawbone Up

T
his bracelet similarly tracks your steps

and

calories burned
,

and
it
monitors your sleep. Additionally, the
app allows you to track your caloric in
take, thereby allowing one to track calories on the way in and on
the way out.

Garmin Forerunner

Garmin’s Forerunner series of fitness watches


潶o爠愠rec慤攠潬a
now, and can likely claim the title as the world’s first smartwatch.
周敳T⁷慴 桥h敡 畲攠
one’s location, speed, altitude, heart
牡瑥Ⱐ癥牴r捡氠c獣楬污瑩潮
H

慮搠T慮a 潴桥爠o潶o浥湴猠摵物湧 愠牵測
扩步
H

潲⁳o業⸠.䥴⁴Ie渠慬a潷o 祯甠瑯y異汯l搠瑨楳⁤慴愠瑯⁴桥
条牭g湣o湮e捴⹣潭⁷敢獩瑥W潲⁡o瀠瑯⁡ 慬y穥z
祯畲

灥牦潲o慮a攮


Source:

Garmin, Inc.


G
armin Virb

Garmin has revolutionized the action camera market by adding
connectivity. Along with being able to video oneself while doing
something active, as made popular by the iconic GoPro Hero line of
action cameras, Garmin has added wireless connectiv
ity to Garmin
sensors to add heart rate, speed, altitude
,

and other measurements
to the video.


Source:

Garmin, Inc.


Garmin Approach

This line of watches for golfers adds GPS connectivity and an
exhaustive database of golf courses to give the golfer dis
tances
to just about any shot on a golf course
.


Source:

Garmin, Inc.


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33

Garmin Astra

Garmin manufactures a line of dog collars that allow dog owners to
track and train their dogs for either sporting or casual purposes.


Source: Garmin, Inc.


Razer

Raze
r is a leading vendo
r of high end keyboards, mice,
headphones, PCs
,

and tablets that

are purpose
-
built for the
hard
core gaming market. The company recently announced
the launch of a “smart band
,”

which effectively looks like one
of the many fitness bands
on the market, but with a use case
that integrates with video gaming.



Source: Razer.

GoPro

GoPro invented the concept of the action camera, and part of its innovation has been through connecting
the camera to your smart
phone to allow users to control
the camera and view video files through a
smartphone app, thereby allowing users to share video through various social media outlets.


Nest Protect/Thermostat

Nest Labs has launched
two

products, a thermostat and a smoke detector, both of which are remotel
y
manageable and monitorable through being wirelessly connected to the Internet. A great example of
how connectivity can add value, Nest sells its thermostat for $2
49 vs. price points in the $20
-
50 range for
unconnected thermostats for the home.


Connecte
d TVs

Connected TVs

are becoming mainstream now
,

with
50
% of
the TV market now shipping with an Internet connection
(typically
Wi
-
Fi
). Additionally, tens of millions of media
players have shipped, mostly

from Apple (Apple TV) and
Roku
, to Internet
-
enable
traditional TVs, while service
providers such as cable companies will likely to start offering
Internet
-
related content in conjunction with their current
programs through platforms from companies like aiotv.


Source:

Roku, Inc.

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Connected Cameras

C
amera v
endors such as Sony now create cameras with wireless connectivity to instantly share photos on
social networks, and to control the camera through a smartphone app.

Connected Coffee Machines

Nespresso ships a coffee maker that comes with wireless connecti
vity to allow the company to know how
many Nespresso
-
branded coffee “pods” are being consumed.

Connected Clothing

As one may have already guessed, consumers can expect a range of clothes decked out with sensors and
connectivity. Athos, a startup in Waterl
oo, Canada, is expected to launch a line of exercise clothing that
measures your muscle usag
e, heart rate, breathing, etc
. Under Armour, a leading brand in fitness clothing
and shoes, purchased app vendor MapMyFitness in 2013, and we suspect that likely i
s the precursor of
making similarly connected clothing. The BBC
even reported in December that
Micros
oft is developing a
“smart bra”

that would monitor heart rate and skin activity to indicate mood levels in order to prevent
over
-
eating due to stress.

Con
nected Appliances

LG has introduced an app concept called “homechat” that allows consumers to control appliances
remotely using speech recognition. LG appliances with the capability can text a user when a load of
laundry is done, ovens can suggest and rea
d aloud recipes for users, and users can control
appliances

from the homechat app.

There are numerous products and even categories of consumer products that we don’t mention above,
but one gets the point. Connectivity is coming to everything imaginable, a
nd for consumer product
companies this is likely to bring disruption and opportunity, while for semiconductor vendors it should
serve as an incremental growth catalyst in their consumer businesses, which up until now have
typically
been dominated by PCs an
d mobile handsets.



Software
a
nd MVNO Opportunities Created
b
y
t
he IoT

As devices connected to the network grow exponentially into the 10s of billions globally, telecom carriers
and enterprises run into some issues with scaling that create interesting new

end markets purpose
-
built
for

IoT management software. Additionally, enterprises that are geographically diverse likely have to
interoperate with multiple carriers/networks, which has spawned the creation of MVNOs (mobile virtual
network operators) who a
ggregate bandwidth across multiple networks, and simplify purchasing, billing,
activation
,

and management for the software vendor or end customer.


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Device Cloud Software


Source: Raymond James
r
esearch.


Wireless providers around the world have a relative
ly labor
-
intensive activation or on
-
boarding process
for subscribers, which includes contracts, credit cards, cross selling
,

and other functions, which can create
a $30 or more cost to activating a phone on a network. When that smart
phone generates $100
in
monthly ARPU ($2,400 over 24
-
month contract), th
e

activation cost is very
manageable
. However, in the
world of the Internet of Things, device
s may generate less than $5
/month in ARPU, so traditionally
moribund back
-
end systems around activation, onboar
ding
,

and billing have to be massively streamlined
to supports potentially billions of devices at very low incremental costs in order for the IoT to be
profitable to telecom carriers. Additionally, large enterprises will likely end up managing potentially

millions of remote assets across multiple carrier networks, and will run into the same issues as carriers in
terms of their need to streamline onboarding and management functions in order to realize an ROI.


IoT Software Value Chain

Carrier Network

AT&T

Verizon

Sprint

T
-
Mobile

MVNO

KORE Telematics, Wyless, Aeris, RACO Wireless

Mobile

Application
Platforms

Jasper, Axeda, Digi/Etherios, Sierra Wireless,
Telular

End Market
Applications

Security

Energy
Management

Consumer
Products

Fleet
Tracking

Source:
Raymond James
r
esearch.


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Although many companies in the management layer of the IoT classify themselves differently, broadly
they can be separated into
two

distinct entities, MVNOs and mobile application platforms.


MVNOs

MVNOs that specialize in M2M or Io
T essentially aggregate bandwidth across multiple wireless carriers
and satellite providers,
offer

billing services, and generally
add

a management software layer to manage
and control end devices. Imagine you are provisioning wireless alarm systems acros
s the globe.


You will
likely need to interoperate with dozens of wireless companies. Instead of directly purchasing bandwidth
from each, these MVNOs aggregate bandwidth from all of them, thus