Why the IoT industry currently falls short of its growth predictions.

The adoption curve in IoT — Unit economics and the ROI ladder.

Onomondo
Onomondo
May 1 · 9 min read

The cost of IoT connectivity.

Just like any new industry, IoT has several wrinkles in need of ironing out.

One of these issues is the ROI of small-scale IoT projects versus the ROI of large-scale projects. In most small-scale projects, each device generates a large amount of value, justifying its cost. In larger scale projects, however, each device typically only returns a small amount of value. The project as a whole is creating a reasonable ROI, but the individual devices don’t generate enough value on their own to make up for their cost.

The issue is that the average cost per device doesn’t decrease even though the value provided per device is less than it would be in a small-scale project. Currently due to this limitation, predictions tend to focus on, for example, alternative connectivity types to cellular for short distance connections.

In order to ensure that IoT projects can grow sustainably, there needs to be a solution where the average cost of an IoT device is congruent with the value it creates. This focus on alternative pricing may be enough to bring cellular into the centre of IoT connectivity.

Data transferred.

The first major cost that starts to add up with IoT connectivity is data packets.

These are the packets of information that your IoT devices send and receive throughout their lifespan. Currently, most IoT network providers don’t have complete control over their network. As a result, they end up relying on several roaming partners to meet your connectivity needs.

This means that your data is actually being handled by these roaming partners on behalf of your IoT network provider. And since these providers aren’t able to handle your data directly (for security reasons) your data needs to be ‘packaged’ before being sent.

While that may not sound like a big deal, it adds an extra step to all of the data that your devices are sending. For example, say you have a smart metering IoT device. It takes in information from a simple sensor (temperature, pressure, utility measurements) and sends it back to your IoT hub.

Figure: How a typical data packet is sent and received by a server.

Device: Once the data is recorded, an HTTP header is added, followed by TLS header and finally a TCP header before being sent.
Network: receives the data from the device, SIM details are mapped to correct customer before it is forwarded to the destination.
Server: Receives the data, unpacks the headers and processes the dat

We’ll assume that each packet contains around 100 bytes of data (which is at the high end; in our experience, an average packet of data will actually be closer to 10–20 bytes). Every time one of these packets is sent, the device adds a layer of overhead. Each of these layers requires more processing power and adds extra data to the packets. The largest component is the SSL/TLS encryption, which can easily be over 6,500 bytes of data.


A Visual breakdown of steps in a TLS connection.
We found A great illustration of the different steps that occur during a TLS connection


All of this extra information, time, and processing power increases the cost of data transmission — despite the fact that the data being sent is the only valuable component.

Each data packet sent increases the required minimum value required.

Cost per SIM.

Another area where connectivity costs can cut into your budget are SIMs.

Typically, an IoT connectivity provider will charge a monthly fee per connected SIM. Sometimes this is labeled as a connection fee, other times it’s known as a management fee. Either way, it’s an extraneous cost that can quickly limit the growth of your IoT fleet.

These SIM fees charge your devices for being connected to the network, regardless of whether or not that device is transmitting any data. This means that any SIMs that don’t transmit any data during a particular month — or those that don’t transmit enough data to justify their monthly fee — are sunk costs.

Other IoT connectivity providers may offer a solution where instead of a monthly fee, customers have to pay for infrastructure development and licensing fees. Some even leave it to the end user themselves to create the connections. These fees may not be monthly, but they are still unnecessary expenses that can increase the connectivity cost per device.

Each data packet sent increases the required minimum value required.

ROI for your project.

The IoT industry is still in its infancy, and the majority of the current IoT initiatives are extremely critical with a high return on value. Since these make up most of the current IoT projects, these are the initiatives that connectivity providers cater too. Oftentimes, these critical, high-value projects are small-scale in nature.

The devices are small, the sensors are small, and the amount of data being transmitted is small. This means that each device is low in cost but high in value. However, the average cost per device using normal cellular providers outweighs this value, preventing IoT projects from making a return on their investment.

In order to offset this loss and increase project value, IoT initiatives end up resorting to cheaper connectivity methods, like wifi, Bluetooth, or even physical connections via USB cables. These connectivity options limit the growth of IoT projects and overcomplicate the connectivity process. This not only hurts the IoT projects relying on these methods, but the industry as a whole.

Currently the unserved market is required to find other solutions, normally pushing the responsibility onto the user or customer.

A new business model for IoT connectivity.

In order to support the growth of the IoT industry for now and the future, there needs to be a significant reduction in cost per device. This reduction would allow for embedded connectivity in the millions of devices that currently are not being served.

So, how do you cut back on the cost per IoT device?

Reduce the overhead.

As we established, there is a lot of overhead when it comes to keeping your IoT devices connected. In some cases, this overhead is unavoidable, particularly when using providers that are partnered with other networks. As mentioned before, when using a connectivity provider that doesn’t have complete control over their network, each device is required to package and encrypt data before it is sent in order to keep your information secure from your network’s partners. This adds extra layers of cost per device in the form of processor power, added encryption data, and the time it takes to secure and send data. This process — known as data packaging — creates a cost that is passed on to you, increasing the average cost per device in your IoT fleet.

Reduce the cost of connectivity.

IoT projects can also reduce the cost of their IoT connectivity by choosing providers that offer the best prices for their specific needs. Every IoT connectivity provider will have different plans, connectivity options, and so on. Looking at these options and comparing them against your own needs in a practical way will ensure that you cut back on costs as much as possible.

The price per megabyte of data transmitted will vary from one provider to the next. Some will offer data pools with a minimum cost, while others lower the cost of each megabyte transferred as more devices are added to the connectivity plan. The type of connectivity used will also play a major role in the final cost of your network solution.

The goal of balancing all of these options is to reduce the average cost of connectivity per device as much as possible without sacrificing any of your essential connectivity needs. Just be sure that you choose the right kind of pricing model for your IoT project, or you could end up increasing the average cost per device while thinking that you are decreasing it.

Reduce the frequency of data transmission.

Another great way to improve your connectivity budget is to reduce the amount of data you transmit and how often you transmit this data. One of the best ways to do this is through a process known as edge computing. Edge computing is the idea of managing as much of the data on-device as possible before you transmit it.

This means that rather than your IoT devices simply sending all of the data they collect and have it processed in the cloud, some processing and decision making occurs locally. Data sent to the cloud will often be more compact and readable (like an average, sum, trend, actions taken, etc.).

This way, you see the overall picture of the data being collected without having to transmit every literal bit of gathered data. Keep in mind, though, that edge computing will require more complex IoT devices or gateways, which can become a notable cost in its own right.

Reduce device costs.

Finally, another way to boost your ROI on IoT connectivity is by evaluating the devices you use within your IoT fleet. While the cost of your hardware is indirectly related to the cost of your IoT connectivity, it does play a significant role in the average cost per device.

You can cut back on device costs by examining your current hardware and comparing it to what you actually need. Are there any features that you thought you would use that you haven’t? Is there anything the device is doing that offloaded down the IoT chain? Any specifications that ended up being overkill? Think about the ways in which the data your devices collect is used and modified, and consider whether or not your devices are capable of more than they’ll ever reasonably be used for.

Opting for more affordable and low-end devices and components can be a great budget-saver as well. Just keep in mind that cheaper solutions save money in the short-term, but create more expenses in the long-term (repairs, replacements, increased security risks, etc.).

How Onomondo is different.

Using our experience from the IoT industry, Onomondo has learned from the challenges of IoT connectivity, considered the solutions to these challenges, and created a new IoT connectivity business model that maximizes ROI. Onomondo’s Connectors were developed specifically for the IoT market, making them a better fit for IoT projects than most competitors.

Onomondo also has complete control over our network. This means that since there are no connectivity partners, there is no need for unnecessary layers of overhead every time a data packet is transmitted. You can add the majority of your data overhead into our network without compromising on security.

Onomondo also offloads some of the work that would typically be done on-device, allowing you to purchase simpler, more cost-effective devices. We believe in value-driven pricing, meaning we don’t charge a monthly or device fee. Instead, you pay just for the data used. If your devices are connected but don’t use any data, then you don’t pay for their connection.

Figure: How Onomondo Connectors ease devices in sending data packets.

Device: Once created, data is sent once directly to Onomondo.
Network: Onomondo receives the packet and maps it to the correct customer.
Onomondo Connectors: add the HTTP, TLS and TCP headers before forwarding it to the server to unpack and process the data.

This business model was designed to not only offer IoT projects with a better, more modern solution, but also to provide the industry with the ability to sustain its rapid growth.

IoT is one of the most exciting and promising emerging industries, and we believe that connectivity shouldn’t prevent your project from being able to capitalize on this new technology.

Test some of our SIMs and see how Onomondo’s Connectors can change your IoT business cases.

Onomondo

Connectivity for IoT is vital, yet very complex. It is the back bone of any IoT project or smart device and its challenges and implications should be understood by all.

Onomondo

Written by

Onomondo

Discussing the implications and considerations of IoT and challenges in connecting and staying agile.

Onomondo

Onomondo

Connectivity for IoT is vital, yet very complex. It is the back bone of any IoT project or smart device and its challenges and implications should be understood by all.

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