Why I don't like to talk about "Internet of Things"

During my trip to Taiwan, I found a constantly recurring theme during my conversations with investors and entrepreneurs. What's hovering over people's mind seems to be "Internet of Things" and I was forced to repeatedly strike that term down and get a fresher look in their brains.

The problem of "Internet of Things (IoT)" is that it suggests "standards". Standards are needed for every gadget and home appliance to be able to talk to each other. As of now, the lack of standards is also often cited as the main problem of the takeoff of IoT.

However, do we really want standards? Or put it this way, if you're a VC or an entrepreneur, do you want to invest your money or your talent into a standardized IoT world?

The answer is "no".

Standardization means improved device compatibility. But it also means reduced potential to differentiate a product or a startup. Standardization works great in scale economies by bringing the maximum benefit to the consumers, but not neccessarily the greatest success to the entrepreneurs and the VCs that back them.

I spent 13 years of my career in the most standardized part of the tech world: semiconductor. For everything we did there was a golden standard. For analog design simulation it was Hspice. For auto place-and-route it was Synopsis. For layout it was Cadence. For PC connectivity it was USB, DVI, WiFi, etc. For mobile connectivity it was 3G, 4G LTE, NFC, etc.

Once standardization is in place, it's almost always the case that flexible product differentiations go away and companies can only compete on prices and performances. And if you're a startup playing in this field, the chance of you beating the big players such as Samsung, Apple or even Sony is pretty slim.

In other words, there's nothing wrong with standardization for IoT. It would be in the best interest of the consumers. However, for startups it's something you really want to avoid, especially at this early stage of the IoT era.

I can understand how Taiwanese investors and entrepreneurs are counting on standardized IoT markets more than they should have – they think about the market sizes in the early stage. However, if a market size is so big that everyone sees it in an early stage, it also means tons of competition, both against existing giants and other uprising startups. I don't think either the entrepreneurs or the VCs would like to be in that place.

So if not "Internet of Things", what? Well, "Smart Objects" or "Connected Objects" are pretty good. They not only lift the curse of the standardization mindframe for entrepreneurs and VCs, but also delineate a much larger and flexible world where innovations could come in many different forms.

Oh and one last thing. The idea of IoT is not new at all. Early in my career effort on standards for connected home appliances was in full force already. The biggest push was DLNA (Digital Living Network Alliance) that came live in 2003. I remember for a couple of years CES was all about DLNA. Then of course it never materialized – or at least it never became the driving force for connected home appliances. This tells another lesson that if your success has to hinge on standardization, which is a highly potilical process, it's better you put your money and talent elsewhere.

Dawn of a new era: lean hardware startups

Asian trip journal: 2014/12/23