# Efficiency and the third wave of the internet

It seems that everyone these days, from Steve Case to Goldman Sachs analyst Simona Jankowski, is talking about the “third wave” of the internet. In this model, the first wave was the building of internet infrastructure in the 90s, and the second wave was the dual 2000’s phenomenon of internet services as well as mobile connectivity.

So what’s the “third wave?” Ostensibly another name for the internet of things, it refers to the networking of the physical world, be it your thermostat or an oil rig in the ocean. If the internet has been thought of as this specific place people one turned to to accomplish a set of tasks or acquire information, the third wave of the internet will be very much about the internet being everywhere—in our Google glasses, in our lights, in our clothing. In fact, I imagine a time 20 years from now when we think of the internet as something invisible, that’s merely everywhere weaved into our lives because it exists across our physical world.

That may sound highly conceptual or more simply like, hype, but there are reasons to believe that the networking of the physical world will produce sustainable business models. The most basic reason is that at the heart of almost all IoT endeavors is efficiency, a topic close to my heart after watching cleantech for so many years. In many ways IoT is the ultimate manifestation of the digital green strategy. Connecting physical objects creates the opportunity to use resources more efficiently.

While in the world of cleantech, this is viewed in terms of energy efficiency, the enterprise world sees it in terms of operational efficiency. Whether it’s a garbage can with a sensor that notifies collectors when bins are full to optimize routes or the burgeoning smart grid analytics market where capital light software solutions are enabling previously impossible energy savings strategies like residential demand response, it’s always about saving resources. (Residential demand response involves using large volumes of consumers acting in aggregate to turn down their thermostats on hot summer days in order to avoid using more peaking natural gas power plants. Connectivity and analytics have enabled this solution.)

In a recent blog post for the Harvard Business Review, Jankowski pointed to some early promising figures. In 2013 the smart home device market was $7.8 billion but Samsung has said it thinks that market will close to double as soon as 2015, which makes the company’s motivation for its acquisition of smart home hub/platform maker Smart Things even more clear. In terms of the smart grid, the U.S. sits at about 50 percent smart meter penetration and Europe should hit 80 percent by 2020. All that smart meter data is creating new markets. More broadly, smart cities are pushing connected street lighting to maximize efficiency, connected cars are in the early stages, telemonitoring has major potential to improve health care outcomes and the industrial sector remains fairly untapped. While it seems very ambitious, Jankowski thinks the industrial IoT opportunity alone could be$2 trillion by 2020.

Industrial IoT has taken longer to crack because product lifecycles are longer in industry but startups like Electric Imp, which has largely been an IoT platform provider for the consumer sector, is actually more optimistic long term about the industrial opportunities. If one thinks of something simple like asset tracking of a company’s supplies so that it has realtime geolocation data on all aspects of its production in order to better manage inventory and eliminate downtime on a factory floor, one can see the early potential. Additionally, I suspect that IoT will expedite product cycles because companies will have data on how their devices are being used leading to better and quicker design decisions.

The macro drivers are clear. Sensor costs have halved over the past ten years, bandwidth costs are magnitude smaller and compute processing costs have come down even further. Moving compute and storage to the cloud has allowed for even better economies of scale. Add to that smart phone ubiquity and the increasing role of mobile broadband, and the building blocks of the third wave of the internet are in place.

Will all connected devices become new markets? Surely, no. We may not all need connected toasters. But the third wave ultimately will prove to be a testing ground for the solutions that provide clear ROI and efficiencies. And whether you’re saving time, energy or money, there’s always a market for that.