As IoT productsstart rolling out, two different businessmodels have emerged: One is vertical, theother horizontal. It's anyone's guess as towhich will thrive or if hybrids will arise.
In the vertical business model, the IoTdevice, the gateway (if used), and thecloud-based service are all provided andcontrolled by the same company. This approachhas the advantage for the end-user that thereare no compatibility issues to deal with amongthe various elements, and a single point ofcontact to deal with if anything goes wrong.The disadvantages are that the end-user isentirely dependent on the vendor forimprovements, enhancements, or upgrades to theoffering.
An IoT home-security system that monitors anempty house for intruders, for instance, hasthe same hardware as one that monitors anelderly person's activity so that it cansummon aide if the person falls or losesconsciousness. But if someone wants a systemthat will do both, they are dependent on thesystem vendor to offer those features whendealing with a vertically defined business.
Vertical business models can also result inusers needing several different systems toachieve a spectrum of tasks, each with its owngateway and cloud operations. In a smart home,for instance, it is easy to end up withseparate providers for security, HVAC, andappliance systems. This complicates systemmanagement for the end-user.
Most of the first IoT offerings to come tomarket follow this vertical model. That's notsurprising, given that there is as yet littleinfrastructure in place to support ahorizontal business. But that is changing.
The motivation behind a horizontal model isto foster rapid growth and innovation in theindustry by allowing multiple providers towork with a common framework. The idea is thatby making the gateway and cloud resourcessomething that can be assumed to be in placeand have known and open functionality,innovators can concentrate their efforts oncreating devices and services.
Further, byworking on a common framework, those devicesand services can more easily share informationand resources. So, motion detectors andcameras could serve multiple applicationsinstead of only one.
To foster this horizontal model, manycompanies are starting to roll out cloudplatforms and gateway hardware that allowmultiple users. The Freescale One Boxdiscussed in another blog is an exampleof such a gateway. Another comes from Eurotech, which also offerscloud services for developers to link to.EnOcean has recently released an accessory thatturns the Raspberry Pi into a gateway for homeautomation devices. And STMicroelectronics hascreated its SmartHome platform andgateway for IoT developers to leverage.
This has set up a race for domination of theIoT market. By offering complete solutions,the vertical businesses have something theycan sell today. It is a one-stop purchase,simple for users to acquire and apply. Themajor drawbacks to the vertical approach willonly have an effect over time, as users seekto update or enhance their systems. Butlimitations in how quickly a vertical businessmodel can embrace new opportunities may alsolimit how quickly the IoT market grows as awhole.
The horizontal approach makes innovationeasier and allows rapid proliferation of newapplications and businesses, but it needs togain considerable traction before it can payoff on its promises. There need to be a lot ofopen gateways in place before third-partydevelopers can count on having an adequatemarket to serve.
My own guess is that the vertical model willbe dominant for the next few years as thehorizontal business models build the installedbase they will need. But I expect that beforethe end of the decade, the open gateway andthird-party cloud services will dominate thevertical 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.