Semicon west monetizing the internet of things

Monetizing The Internet Of Things: A Convenient How Not To Guide Paul R Brody Prepared for Semicon West July 2015

The future is already here, it’s just not evenly distributed. William Gibson

© 2015 Ernst & Young LLP Things have kept getting smarter, but we don’t seem to be very happy with how they’re turning out. 5 ➡ Lots of smart appliances now available ➡ Very few stand-out success stories

© 2015 Ernst & Young LLP Three substantial problems have delayed the arrival of a more useful Internet of Things 6 Failing the jobs to be done test No meaningful ROI No credible level of security or privacy

© 2015 Ernst & Young LLP The biggest failure in the Internet has been the failure to focus and improve upon the “job to be done” by the device 7 Features of a new $1,700 “Smart” Washing Machine: •Start, stop, and check status remotely •Notification when laundry cycle is complete •Assign tasks to other family members •Remind you to do the washing

© 2015 Ernst & Young LLP ROI is important, and costs are too high while returns are far too low to justify replacing existing capital equipment 8 Case Examples: ROI on Smart Sensor Use Cases $0 $75 $150 $225 $300 Maintenance Energy Tag Cost Return Maintenance • 5% annual chance of mechanical problem • Average truck roll costs $100, 1.5 per repair • Smart systems eliminate some repairs and reduce average truck rolls total to 1.0/repair • $25 tag cost on BOM, 10% annual ROI Energy • $250 for a smart thermostat at home • Average of $141/year in savings reported for Nest thermostat users • 56% annual ROI on average

© 2015 Ernst & Young LLP As for security and privacy: it’s a disaster and there are no participants left who have any credibility in this space 9 •Security is an after- thought in most smart product design today •The foundations of many of these designs are dated to begin with •Feature bloat adds bugs and security risks.

Show me the money. Jerry McGuire

© 2015 Ernst & Young LLP Two technological revolutions are emerging that will reshape how we design and build smart devices 11 The Block Chain (underlying technology for BitCoin): Cheap system-on-chip computers designed for Android Phones:

© 2015 Ernst & Young LLP It’s now cheaper to make things smart than it is to make them stupid. 13 Powerful System on Chip costs are dropping so quickly, they are converging with traditional embedded chip costs: Non-Recurring Engineering Cost for Customized Embedded Chips Shift to SOC with software customization here Illustrative: As SOCs drop in price, customization will shift to software, not hardware Time + + + + Embedded Unit Cost Average Embedded Cost Average SOC Cost At higher end of the market, this shift has already started: These high powered SOC chips can run the full Block-Chain stack including doing transaction processing (mining). Apple Lightning HDMI Adapter • Full ARM SoC with over 256MB of RAM • Boots OS X Core when plugged in • Conducts software conversion of MPEG to HDMI in real time

© 2015 Ernst & Young LLP By 2020, billions of ordinary devices will in fact have far more computing power on them than is actually necessary 14 Global Installed Base of Computing Devices  Millions of Units in 2015 1 10 100 1,000 10,000 AWS Servers PCs SmartPhones 2,222 890 5.6 Global Installed Base of Computing Storage  Estimated Petabytes in 2014-5 1 100 10,000 1,000,000 Dropbox Facebook Microsoft AWS PC Storage 890,000 900 300300 40 Installed base and company data center sizes are estimates based on limited public information. PC & Smartphone shipments from statistia.com. Storage data estimated assuming 1TB per PC.

© 2015 Ernst & Young LLP The core functionality of BitCoin, known as the BlockChain is now being re-purposed into all kinds of applications. 19 Application Development Environments Marketplace Infrastructure Systems of Record Distributed Social Networks

© 2015 Ernst & Young LLP Modern Era At the intersection of these two trends is a new world order. 20 Expensive Computing Post-Modern Era Free Computing High Trust Environment Centralized Internet Low Trust Environment Distributed Internet

© 2015 Ernst & Young LLP There are two key take-aways from the intersection of these technologies 21 1 No business case is required to make devices smart 2 The Cloud applications required to integrate & manage these devices are, if properly architected, free

© 2015 Ernst & Young LLP Smart devices will connect assets to marketplaces and help us make better use of what we’ve already got. 22 Typical Productive Asset Utilization Levels 0% 25% 50% 75% 100% Law nm ow er D ishw asher C ar O ffice Taxi Airplane 60% 50% 20% 4%4%1% In commercial real estate alone, the opportunity is enormous: 50% Properties used IoT systems to allocate and manage space instead of long term leases. Average lease prices based on time & location would plunge.-42% In savings for consumers and businesses leasing real estate space. $128 Billion Case study data from the IBM Institute for Business Value, “Economy of Things” report.

Slowly going forward ‘cause we can’t ﬁnd reverse. The Firm

© 2015 Ernst & Young LLP As with each new wave of technology, we should expect a 10X increase in device volume 24 $0 $125,000 $250,000 $375,000 $500,000 Mainframe Mini PC Phone Thing $50$500$5,000$50,000 $500,000 >> Thousands >> Tens of Thousands >> Hundreds of Millions >> Billions

© 2015 Ernst & Young LLP The rise of IoT will very likely upset the balance in the semiconductor industry 25 Era of embedded computing is over. The new data center is everywhere. Security through transparency. Entirely new customer base. Life cycles are going to get longer.

@pbrody linkedin.com/in/pbrody paul.brody@ey.com 26

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