The Prisoner’s Dilemma of the IoT Standard Wars

Time and again, you hear calls for a unified Internet of Things standard. The argument is essentially this: the value of the Internet of Things does not lie in the individual products themselves, but in the connections they can make, the network they can tap into. Without a universal standard, these products will live in “walled gardens”, restricting the network size, and following Metcalfe’s law, will restrict the total value of the network, as the number of connections between nodes is handicapped.

While this argument is sensible, it doesn’t incorporate the pathways on how we might end up at such a universal standard. After all, there are now a multitude of competing standards organizations that lay claim to being exactly that. The W3C has compiled a neat overview that currently counts 32 different consortia.

This puts developers of applications and devices for the Internet of Things in an impossible position that ultimately ensures suboptimal outcomes for the ecosystem. This is driven in large parts by incumbents trying to secure a favorable outcome in what appears to be an incredibly large future market with perceived winner-takes-all dynamics — the power laws of the internet apply — and thus strategically hedging their bets. Theo Priestly had a look into that over at Forbes and found:

While there are differences between their focus; for example industrial IOT use cases and smart home interoperability, what’s interesting to note is just how many camps these 6 vendors are playing footsie with. Cisco and Samsung are part of seven initiatives. IBM, Honeywell and Intel are aligned with five.

Why this makes sense for large platform providers to stave off potential disruptors is handily explained by Ars Technica:

But this is typical of how Google operates. The company’s actions have shown it doesn’t really believe in focusing on a single solution to a problem, regardless of how much easier that would make things for users. It has to deal with external competitors in all sorts of areas, and Google seems to see no reason why competition can’t also come from within — Google products competing with other Google products.

It’s almost like every product category is just a big A/B experiment for Google. As Google’s search engine constantly gathers data from the Web to learn and improve, Google the company works much the same way. It provides multiple solutions to a single problem and expects the best one to win out over the other.

They’re spreading their investments in the hopes to have a presence in whatever platform or standard wins out. But while Ars Technica focuses on the user, that is not the target audience the standards groups are speaking to.

Any potential IoT standard rises and falls with developer adoption. It is third party manufacturers that need to be convinced to buy into an ecosystem and design products with that ecosystems standard in mind. It is application developers that need convincing to write apps for the platform. After all, that’s the point of “interoperable” standards.

But while it makes sense for incumbents to place their bets across many different standards, developers and manufacturers don’t have that luxury. Often it is simple cost and time constraints that requires them to focus on a single supported platform. How many startups do you know that launch iPhone first, with a vague promise to support Android later, and no mention of any of the also-ran mobile platforms?

But which platform to develop for? The optimal outcome for the ecosystem would be for manufacturers and developers to agree on a standard, forego short-term profits for growing the long-term market size. Growing the pie, rather than your piece of it. But with current market dynamics, the strategic choices are limited to guarantee suboptimal outcomes, as the dominant strategy for every market participant is to roll their own. In that way, they at least have a modicum of control over their underlying infrastructure, rather than being at the whims of a whole-market A/B experiment, of which they might easily back the wrong side.

What would be required for interoperability to happen is non-zero-sum thinking with the big platform vendors. And yet we have entered a spiral of zero-sum competition in what seems to be a crucial part of a still-emerging market.

What this will lead to is a necessary segmentation of the market. It is unrealistic, and a problematic aspect of the whole Internet of Things discussion, to have cluster such a variety of things as Industrial and Supply Chain applications, Automotive, Health and Home together. Each of these industries will likely develop their own set of competing standards, where winners will be easier to find, but a lot of deadweight loss will occur. (Think HD-DVD firms and customers.) The really valuable position to sit in such a scenario is at the fringes of respective verticals — being a gateway and translation point between them. We’re starting to see key player jockey into position for this.