Vertical vs. horizontal: Which IoT model will thrive?As IoT products start rolling out, two different business models have emerged: One is vertical, the other horizontal. It's anyone's guess as to which will thrive or if hybrids will arise.
In the vertical business model, the IoT device, the gateway (if used), and the cloud-based service are all provided and controlled by the same company. This approach has the advantage for the end-user that there are no compatibility issues to deal with among the various elements, and a single point of contact to deal with if anything goes wrong. The disadvantages are that the end-user is entirely dependent on the vendor for improvements, enhancements, or upgrades to the offering.
An IoT home-security system that monitors an empty house for intruders, for instance, has the same hardware as one that monitors an elderly person's activity so that it can summon aide if the person falls or loses consciousness. But if someone wants a system that will do both, they are dependent on the system vendor to offer those features when dealing with a vertically defined business.
Vertical business models can also result in users needing several different systems to achieve a spectrum of tasks, each with its own gateway and cloud operations. In a smart home, for instance, it is easy to end up with separate providers for security, HVAC, and appliance systems. This complicates system management for the end-user.
Most of the first IoT offerings to come to market follow this vertical model. That's not surprising, given that there is as yet little infrastructure in place to support a horizontal business. But that is changing.
The motivation behind a horizontal model is to foster rapid growth and innovation in the industry by allowing multiple providers to work with a common framework. The idea is that by making the gateway and cloud resources something that can be assumed to be in place and have known and open functionality, innovators can concentrate their efforts on creating devices and services.
Further, by working on a common framework, those devices and services can more easily share information and resources. So, motion detectors and cameras could serve multiple applications instead of only one.
To foster this horizontal model, many companies are starting to roll out cloud platforms and gateway hardware that allow multiple users. The Freescale One Box discussed in another blog is an example of such a gateway. Another comes from Eurotech, which also offers cloud services for developers to link to. EnOcean has recently released an accessory that turns the Raspberry Pi into a gateway for home automation devices. And STMicroelectronics has created its SmartHome platform and gateway for IoT developers to leverage.
This has set up a race for domination of the IoT market. By offering complete solutions, the vertical businesses have something they can sell today. It is a one-stop purchase, simple for users to acquire and apply. The major drawbacks to the vertical approach will only have an effect over time, as users seek to update or enhance their systems. But limitations in how quickly a vertical business model can embrace new opportunities may also limit how quickly the IoT market grows as a whole.
The horizontal approach makes innovation easier and allows rapid proliferation of new applications and businesses, but it needs to gain considerable traction before it can pay off on its promises. There need to be a lot of open gateways in place before third-party developers can count on having an adequate market to serve.
My own guess is that the vertical model will be dominant for the next few years as the horizontal business models build the installed base they will need. But I expect that before the end of the decade, the open gateway and third-party cloud services will dominate the vertical business models.
What's your opinion?
Rich Quinnell has been covering electronics technology for more than 25 years, reporting on topics such as semiconductors, embedded systems, communications, and test for EDN, TMW, and many other publications. Prior to becoming a technical journalist he had spent more than a decade as an embedded systems designer and engineering project manager.. He has degrees in electrical engineering and applied physics, with additional graduate work in communications, computer design, and quantum electronics. This blog has also been published on IoT World.