The Economics of IoT


The high-tech of today is cheaper than the low-tech of yesterday. 

There is a simple truth to technology that might not be obvious: The high-tech of today is cheaper than the low-tech of yesterday. It's counter intuitive because we expect technology to become cheaper the more mature it is. Cars, TVs, phones and how appliances like fridges and dishwashers all became cheaper and more accessible to the point where they are now ubiquitous. Over time each of those technologies has had its own technology leaps and re-inventions: From the big cathode ray TVs to LCDs and OLEDs—from phones to mobile phones to smartphones to wearables. Usually a technology leap within a category makes the old approach obsolete.

Have you tried buying a printer lately?

In the "good old days" printers did just print, first with needles, later with ink, eventually with light. They had one or two buttons to turn them on and maybe reset and that was it, really. Today you can buy printers that have a color control screen, probably even a touch screen. They will print, fax and copy, be accessible via network, USB and Wi-Fi and have an army of other neat little features. The of thing is that this will be the cheapest printer you can buy today. Buying a printer that leaves out all these new features and returns to "just print" is more expensive. So with technology getting less is actually more expensive.

Everything that can be digital will be.
— Razorfish

The reason is that everything is produced to scale. To achieve maximum scale, technology components are used not only in one product category, but are shared between them. That means electronic parts from your smartphone might end up in your TV, car, fridge and other home appliances. The more scale you can achieve as a producer, the cheaper each of the components and thus the end product will get. That's why you have technology giants like Samsung offering such a wide array of devices. If a component becomes obsolete in one product category, it will be replaced in all to again achieve maximum scalability. That's why your printer will be more expensive if it just prints. And recently a product category spawned that drives miniaturization and integration of capabilities on scale to the next level and hyper charged the product lifecycle: Smartphones.

An endless array of smart things.

And as a result even our fridges are now able to surf the web and send us notification to our phones. Our ovens start doing that as well and every now and then another quirky home appliance joins the ranks. Everything that can be digital will be. Everything that's digital gets more digital. This will continue to the point where everything is a digitally connected smart thing, hence the name "Internet of Things".

At this point you could argue that nobody needs a smart fridge, smart chair, smart coffee mug, smart razor blade, smart tissue paper or smart toothbrush. But this discussion would be moot, as all those devices (and much more) will become reality because of the rule of scale. As smartphones and inherently digital devices will set the pace, mundane things will follow in their wake, bound by the necessity to use the same components.

It's a smart new world.

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