by David Kirkpatrick

The Connected Age at Warp Speed

Is your company ready to do business in an era when easy chairs or belts can sense heart attacks? What will it mean to run a hospital when sensors around and inside people monitor health and even dispatch an ambulance because they predict a patient will soon need one? How will a cement company transform itself for an era of smart roads? What sort of insurance will people need to buy when cars talk to each other, to the road, possibly to the police, and of course to the insurance company? What will cars tell houses? How will the network improve how people interact with them both? And what sorts of products will that make possible?

Every company in every industry needs to ask such questions as we move to the next phase of our networked age. The network of devices that communicate with the Internet and each other is now becoming way more than a system for human communication. It is extending into all the things and systems that surround us.

Eventually the hospital, the police, the insurance company, the road, the home, the belt, and the belly will all become part of one interconnected system. This environment, which is already in its earliest days, is typically what we call the “Internet of Things.”

This system will become steadily more sophisticated through the deployment of software and tools for analysis and control. As it does, it can yield extraordinary insights, efficiencies, and opportunities for people all over the world.

You’re going to have a lot more interaction with the world. It’s going to be a more social world, says CEO Mike McNamara.

It will likely lead to a new interrelationship between human and machine action, as all the information generated by smarter “things” enables vastly more efficient software-driven decision-making. How we get from here to there will depend on how companies innovate and evolve in response to this new environment. The opportunities for business will be extraordinary, but challenging. The new era will be as much about the creation and management of a growing intelligent network composed of sophisticated software and services as it is about intelligent things, even as it requires a thorough rethinking and remaking of the objects, goods, and products that surround us. Simona K. Jankowski, an analyst of emerging technology at Goldman Sachs, recently said, “Companies’ abilities to adapt and thrive in this new era, beginning with the Internet of Things, is very likely to determine who the next set of winners and laggards will be.”

No trend is getting more buzz. The giant January Las Vegas technology show International CES included an unprecedented 900 companies that showed innovations for connecting consumer devices into the network.

“The Internet of Things is the hottest topic in tech right now,” said Karen Chupka, senior vice president at International CES. That’s appropriate for a gadget-focused show. But the real story is that once the gadgets proliferate, the software and systems that surround them will be able to employ the resulting knowledge in new ways, enabling people, companies, and governments to better utilize resources and time.

The scale of the transformation may be dazzling.

Engineers Christian Biederman (left) and Tuyen Nguyen (right) in Flextronics’s failure analysis lab

Engineers Christian Biederman (left) and Tuyen Nguyen (right) in Flex’s failure analysis lab. Photos: Patrick Molnar

Mike McNamara (top), CEO of Flex, says he believes as much as 20% of the global economy will be affected by the products and services of what he says add up to an “Intelligence of Things®.” He predicts “a more efficient life” and “a more optimized life,” adding “you’re going to have a lot more interaction with the world. It’s going to be a more social world.”

As we move into the future, McNamara believes the devices that surround us, many of which Flex manufactures for customers, will increasingly gain what he calls “intuition” about our needs and wants. The more of them there are, and the more sophisticated the software that surrounds them, the more astonishing will be the resulting economic landscape. The augmented environment will in many cases make decisions for itself, from which humans will benefit.

Chipmaker Intel predicts that the total number of connected devices globally will surge from about 10 billion today to 50 billion by 2020. The new devices that comprise this network of capability will at least initially fall into four broad classes, all of which are poised for explosive growth and pose enormous possibilities for innovation: wearables, home, automotive, and technology for cities and infrastructure.

Wearable technology for personal measurement, fitness, and health already amounted to about $4 billion in revenues worldwide in 2014, with wristband and watchmaker Fitbit leading the market.

But Goldman Sachs predicts the market will reach $20 billion by 2017, and McNamara believes it could be as much as $50 billion by 2020. Flex makes many products for Fitbit and others in this sector.

The resulting efficiencies may be stunning. McKinsey Global Institute projects that by 2025 the total global cost of treating chronic diseases will drop by as much as 20% because of such electronic capabilities.

The connected home is another thriving category. While sales of security, environmental control, and lighting devices were only about $2 billion in 2012, the research group Berg Insight predicts they will rise to $12 billion by 2017.

In early 2014 Google showed its enthusiasm for this sector with its $3.2 billion purchase of Nest, which makes smart thermostats and smoke detectors. High-end German home appliance maker Bosch now says it will not launch any new home products—whether a coffee grinder or a freezer—that do not include the capacity for connectivity.

At Home Depot stores in the United States, connected LED light bulbs are already on sale near checkout counters, albeit at prices dramatically higher than conventional bulbs. And cable television companies, such as U.S. giant Comcast, see major new opportunities in offering home security and monitoring services through their pre-existing connections to millions of homes.

Another area that excites researchers at Goldman Sachs is connected cars.

A tiny on-off switch that, when arranged in a series, can form the basis of intelligent things.

A tiny on-off switch that, when arranged in a series, can form the basis of intelligent things.

They predict sales of such vehicles will exceed 60 million by 2020, well over half of all cars sold worldwide. These cars will likely communicate with other cars and jointly make decisions with them to optimize travel patterns even as other connected devices measure the health of passengers, and convey useful information to drivers, both about the road and about destinations.

“A connected car is about more than just telling you where the next Dunkin’ Donuts is,” says Mike Dennison, president of the Consumer Technologies Group at Flex. “You already see seat belts vibrating if your heart rate drops too much because you’re falling asleep, or if CO2 levels reach a certain point inside the car.”

In cities, combining an existing infrastructure, like light poles, with a connected infrastructure, like cameras, or sensors that detect the sounds of bullets, or traffic monitoring devices, can create new value and efficiency.

The potential to turn cities into gigantic networks that serve citizens better excites mayors and other leaders globally. And with cities able to develop and implement new policies more quickly than many national governments, innovation is already happening.

Los Angeles synchronized 4,500 traffic lights and its transportation department says it was able to improve travel time on major corridors by as much as 12%. Smart meters to measure water, gas, and electricity are already being rapidly deployed by consumers, governments, and utilities. Goldman Sachs predicts that about 1.5 billion such meters will be installed in the next few years.

All of these things connect to a smartphone, which everybody has. When you get that kind of connection, you can start to get intelligence. And that becomes a rich environment for innovation, McNamara says.

Another area where efficiencies will be dramatic is in agriculture, where McKinsey projects a 10-20% increase in yields because of better fertilizer and irrigation made possible by connected devices by 2025.

Underlying all these opportunities are fundamental technology trends that any company needs to understand and take advantage of. The cost of essential computation, or processing, is one-sixtieth what it was a decade ago, calculates Goldman Sachs, and bandwidth is about one-fortieth as expensive.

“The price of transistors and actuators and microscopic components—all of which go into smart connected devices—will continue coming down,” says Michael Mendenhall, Flex's chief marketing and communications officer. “Many of these will be as smart as your phone but become throwaway. They could be, for example, in a pair of diapers to notify a mom, who then just tosses them out.”

And CEO McNamara points to another critical factor that alters the evolving landscape.

“All of these things connect to a smartphone, which everybody has. When you get that kind of connection, you can start to get intelligence. And that becomes a rich environment for innovation.”

The business winners will be those that can demonstrate the value of products to consumers, and design them and integrate them into intelligent systems in ways that are compellingly better than the alternatives. Google’s Nest products are a great example. You want your fire alarm to text you when there’s a problem, so the value proposition in bringing connectivity to that product was obvious.

The company’s products are designed with a panache that was previously absent from home automation. And while the way such systems will dovetail with its other services remains unclear, nobody has better software capability than Google.

One big challenge for companies in many industries that aim to take advantage of this trend is that the knowledge they traditionally prized is no longer all they need to know to create intelligent and useful systems.

“You now have to have expertise in multiple industries,” says Mendenhall. “For example, if you’re in a smart car driving to the airport, the car may pre-check you into your flight. But that means that if you’re in the airline industry you now need to understand something about the car business. Now every company needs to understand something about adjacent industries.”

McNamara talks about the need to “cross-pollinate” learning from industrial industries into consumer ones, and vice versa.

Some companies that already operate in multiple industries have advantages. Bosch, for example, has learned from the growing trend of connectivity in the automotive parts industry, where it has long been a major player, and applied lessons to its other big business, consumer appliances.

One gigantic question mark that remains over this entire field is the issue of privacy and trust. Will consumers come to believe that the obvious benefits of these trends outweigh the risks that embarrassing or even dangerous information about their lives will escape their control?

The companies that answer the question are the ones positioned to become the systems and software network coordinators for all the free-flowing data. From an operating system point of view, Microsoft’s Windows, Google’s Android, and Apple’s iOS are clearly the ones developers are most likely to build applications on top of.

But whether those same companies end up operating the systems to which consumers and companies entrust data is another matter. Along with those three, Facebook, Amazon, and Chinese giants like Alibaba, Baidu, and Tencent also aspire to such a role. And Fitbit’s dominance in the wearables category suggests the potential to gain more broad influence.

But whether the payoff is in software, services, or hardware products, the potential growth, profit, and social influence will be gigantic for companies that take the emerging intelligent network of things to heart. Says McNamara: “There has never before been an opportunity for companies to invent and create, at scale and at low cost, like there is today.”