The financial impact of the Internet of Things on the global economy will be significantly affected by interoperability. A 2015 McKinsey Global Institute report indicated that, "[on] average, interoperability is necessary to create 40 percent of the potential value that can be generated by the IoT in various settings [...] Interoperability is required to unlock more than $4 trillion per year in potential economic impact for IoT use in 2025, out of a total impact of $11.1 trillion across the nine settings that McKinsey analyzed."1

However, at present, there is a lack of consensus between standards organizations and industry stakeholders as to even the most basic technical standards and protocols that apply to how devices communicate. Characterized as a "standards war" between technology groups, companies have competing incentives. While all vendors share an interest in aligned standards that promote IoT development and interoperability, individually some companies seek the perceived competitive and economic advantages of building proprietary systems based on proprietary standards and protocols (or so-called "walled-gardens").

The lack of a uniform standard that applies across devices and networks means that we lack any universally adopted set of semantics. As a result, without clear definition, opportunities for misunderstandings abound. We start then with the definition of two key concepts: the definition of the Internet of Things or "IoT," and the definition of interoperability as applied to the Internet of Things.

INTERNET OF THINGS

The term "Internet of Things" is arguably a misnomer in today's rapidly changing technical environment. The term has two components, both of which are somewhat misleading: "Internet" and "things."

The reference to the Internet is misleading because the Internet is not the only networking protocol over which devices communicate. While the Internet is a powerful enabler of the broad adoption of connected devices, the networks and communications protocols that support our connected world are far more diverse and continue to proliferate.

The term "things," while not limiting in and of itself, is vague at best. In this article, when we refer to "things," we intend to encompass all of the types of objects that have the ability to connect and communicate, whether those objects be sensors, computers or everyday things. The ability to connect with other objects and communicate data makes the object "smart."

INTEROPERABILITY

Interoperability is another term that is often articulated as being central to the growth and success of the products and services that leverage the IoT. While interoperability is widely believed to be essential, defining what is meant by interoperability is difficult, since interoperability can mean something different when applied to the different parts of the technology stack that comprises the IoT, than when applied to the data itself that is communicated and processed through that technology stack.

The European Research Cluster on the Internet of Things has proposed the following definition of interoperability:

"the ability of two or more systems or components to exchange data and use information." 2

The following definition of interoperability fleshes out some of the concepts that follow in this article.

The ability of objects or devices, whether they be sensors, computers or other everyday things, to connect with each other and communicate data in a form and format that can be understood and processed by other persons or entities and is agnostic as to the hardware or software on which the data is to be further processed and stored.

These definitions are not bulletproof. Rather, they provide fodder for discussion and debate about the extent to which interoperability is desirable within the context of the IoT.

One area of potential confusion in regard to interoperability is distinguishing between the technology and systems required to exchange data from the technology and systems required for the use of that same data. Communications protocols and standards can be leveraged to ensure interoperability across heterogeneous hardware and software systems and platforms. This sort of technical interoperability, however, will not ensure that the data itself that is carried through networked layers of the technology stack are in a form and format that allows for transmission across systems. To support this sort of interoperability, agreed frameworks for syntax and the encoding of data (sometimes referred to as "syntactical interoperability") is needed. Finally, optimally systems will be designed over time that support the ability of users to obtain a common understanding of the information communicated across networked solutions that span diverse geographic and cultural boundaries. This sort of interoperability is referred to as "semantic interoperability." For organizations that use different technology across different cultures in different parts of the world, all three of the above types of interoperability may be desired.

BENEFITS OF INDUSTRY STANDARDS

Standards can offer a number of benefits. Standards can provide assurance to their members that if they implement the standards, their products and services will continue to operate within specified parameters with each other. Technical interoperability is often a goal of industry standards. The broader the set of specified hardware, software and communications protocols a standard supports, the broader the interoperability it may enable.

Choosing to develop in accordance with an industry technical standard can also provide a level of certainty with respect to intellectual property ("IP") infringement, albeit not blanket protection. This protection arises because most standards bodies require that participants who contribute to the standard agree to license certain of their IP on pre-defined terms. The scope of the IP rights captured and the terms on which that IP is licensed, however, vary from standard to standard and are based on the participant's level of involvement and contribution. High-level descriptions of the type of license that applies to some of the most well-known IoT standards is included below, to the extent information about the terms is publicly available.

When there is a proliferation of competing standards that cover the same or similar subject matter, however, the standards have the potential to overlap or conflict. Without coordination as to what options or services products or components that comply with the standard will implement, lack of interoperability will result. This has led some industry observers to suggest that broader collaboration between standard-setting organizations, or even consolidation of various IoT standards, could be beneficial in the longer term.

A BUSINESS CASE FOR INTEROPERABILITY

Despite these early movements, whether and the extent to which the various standards bodies will coordinate or consolidate is an open point. Some question whether such consolidation is necessary or even feasible, because interoperability takes place at different layers within the communications protocol stack among IoT systems and devices. Others emphasize that true interoperability requires any IoT device to be able to speak the same language, and connect and share information with other devices and systems, irrespective of platform or operating system ("OS"), and that this requires one de facto protocol.

The time and investment required by industry stakeholders to participate in a range of standardization efforts is significant, but there is likely to be overlap and even conflicts between some of the standardization protocols. The lack of a collaborative effort to produce a uniform standard could produce conflicting protocols, delay product development and prompt fragmentation across IoT products and services. 3 Such a fragmented array of proprietary IoT technical standards will impede value for users and industry.

Central challenges raised by the proliferation of IoT interoperability standards include the following:

  • Device manufacturers perceive a market advantage in establishing a proprietary ecosystem of compatible IoT products that limit interoperability to those devices within the manufacturer's product line. By maintaining the proprietary nature of these systems, developers exert more control over the user experience. These "walled gardens" are opposed by interoperability supporters as impediments to user choice because they arguably deter users from changing to alternative products. Some also argue that they create impediments to innovation and competition, limiting competitors' ability to develop new products compatible with the standardized infrastructure.
  • One of IoT's primary attractions is the ability of connected devices to transmit and receive data to and from cloud services, which in turn may perform powerful analytic functions. The lack of a consistent, platform and OS-agnostic standard governing the collection, processing and sharing of such data may inhibit the ability of users to access the originating data, move to other service providers or perform their own analyses.
  • The lack of an existing and proven standard that IoT device manufacturers may use to assess technical design risks in the development process increases development costs.
  • In the absence of standardization, developers face the behemoth task of developing integrations with legacy systems, and end users will be faced with the challenge of configuring multiple individual devices across a range of standards. In addition, product developers may be dissuaded from developing new products due to uncertainty as to compliance with future standards.
  • End users may be discouraged from purchasing products where there is integration inflexibility, configuration complexity or concern over vendor lock-in, or where they fear products may be obsolete due to changing standards. The complications posed by a lack of uniform connectivity standards for product development and industry growth are evident in the competing, incompatible standards for devices with a low-range and medium-to-low data rate (i.e., ZigBee, Bluetooth and LTE Category 0).
  • Lack of reference and architectural models that take into account the various needs for interoperability and standardization may also have adverse consequences for the networks with which IoT devices connect, since poorly designed sensor networks may use disproportionate bandwidth, and be greedy consumers of available power.

In contrast, well-defined device interoperability standards may encourage innovation as disruptive technologies emerge, provide efficiencies for IoT device manufacturers and generate economic value as "things" become cheaper, smarter and easier to use. Barriers to entry may be lowered. Moreover, interoperability facilitates the ability of users to select the devices best suited to the user's needs in an environment where different devices can share and communicate data between each other. Nevertheless, such arguments remain counterbalanced by companies' perceived competitive and economic advantages of building proprietary systems for market domination in the IoT.

THE IOT STANDARDS SMORGASBOARD

IoT standards, including those that adopt protocols that specify communication details for IoT devices, are central to the interoperability discussion for the IoT. A number of standards bodies, consortiums and alliances are currently working on IoT standards issues. Below is a non-exhaustive list of some of the current major players in the development of standards, the covered products and services, and the licensing approaches that apply to the IP that is used by products and services that implement these standards.

Standards that offer limited protection from infringement of the IP rights of their contributors can lead to legal and business uncertainty. Legal uncertainty can arise because of the lawsuits for infringement that may be brought by contributors who have promoted the adoption of features or works into the standard that if used without a license, would infringe their patents or copyrights. There may be business uncertainty because companies lack predictability regarding what the ultimate cost of implementation of the standard may be should contributors charge for licenses to IP required to implement the standard.

Central to this debate is what the appropriate licensing terms should be for contributors to a particular standard. As seen in the telecommunications industry, standardized licensing terms can affect the way an industry evolves: licensing terms that are overly aggressive or demand too much of a participant will be eschewed in favor of more acceptable models. This alert examines the fragmented environment of IoT technical standards and analyzes the differences between the proposed licensing models, exemplifying how various standard bodies are attempting to reconcile the issue.

Footnotes

1. Manyika, James, et al., The Internet of Things: Mapping the Value beyond the Hype. McKinsey Global Institute, June 2015. p. 2. http://www.mckinsey.com/insights/business_technology/the_internet_of_things_the_value_of_digitizing_the_physical_world.

2. IERC European Research Cluster on the Internet of Things, Internet of Things IoT Semantic Interoperability: Research Challenges, Best Practices, Recommendations and Next Steps (March, 2015).

3. Karen Rose, et al., The Internet of Things: An Overview – Understanding the Issues and Challenges of a More Connected World, October 2015, p. 33, http://www.internetsociety.org/iot. 

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