Internet of Things: A Semiconductor Dilemma
By Anshuman Tripathi, Consultant
Internet of Things brings up an interesting dilemma for semiconductor companies. While semiconductor companies make revenue with high volume custom chips (i.e. ASICs & SoCs), the IoT market is too fragmented and diverse to create those high volumes. Nevertheless, analysts continue to predict that IoT will bring more revenue into semiconductor companies. What are we missing?
The shortest answer comes from Gartner which predicts 50% of IoT solutions will come from startups that are less than three years old.
Traditionally, the semiconductor business model has been a sequential value chain model. For example, Seagate bought custom controllers from Marvell for its hard drives. The model adds value at each stage from the smallest blocks of IP to design and manufacture of full chips and their subsequent sale in high volumes to one or two large customers. This small customer base makes acronyms ASIC & SoC stand more for Application Specific Individual Customer and Solely One Customer chips, respectively.
On the other hand, Arduino and the Makers popularized a platform business model like Apple’s App economy for hardware prototyping and small volume production. The Arduino shields enabled developers to quickly slap daughter cards of various functionalities on the board and program to specific applications. This agile software-like hardware development, along with open source ecosystems, enables online marketplaces in buying and selling hardware based gadgets. These small volume solutions cannot justify custom chips as ingredients, but they do gobble off-the-shelf standard chips. This app-economy-like model changes the rules of engagement and strategy drastically for semiconductor suppliers as it outsources innovation into the platform and ecosystem.
In 2013, by many estimates, 57% of the US adults (135 Million) identified themselves as Makers. Numerous low-volume products are created and consumed by Makers and early adopters using commodity semiconductors in high volume. This thriving market is evident with the success of component suppliers, like Adafruit and Sparkfun, sales platforms like Tindie and Etsy, and IoT funding trends on Kickstarter and Indiegogo.
If in the process a product takes off and a unicorn, as they say in the VC world, is born, the semiconductor supplier could be a default choice for a custom chip. Many semiconductor suppliers, hoping to net those evasive IoT unicorns, have launched Arduino-like rapid-prototyping boards and a recreating ecosystems around them. For most semis it’s a major challenge as the value chain metrics of success, fine-tuned over decades, fall short of providing the desired results.
The processes and metrics for viably birthing and nurturing the next Nestor Pebble still seem like an art to many mid to large semiconductor companies. The success of an app economy hinges totally on its developer community. The more vibrant the community the larger and more insightful it gets. Growing on “network effects,” the community provides many advantages e.g. content marketing, shorter time to market, quicker feedback from multiple stakeholders, entry into new markets, early visibility into downstream value chain entities etc. along with strong analytical insights from the community interactions.
Vision Mobile puts the 2015 active IoT developer community at 4.5 Million and growing to 10 Million by 2020. Those that leverage this community are bound to outperform their competitors over time. Startups and smaller semiconductor players are at a major advantage. Firstly, their small size makes them better suited to exploit the agile hardware paradigm. And secondly, the low barriers of entry at the new marketplace make them competitive with their individual niche-product platforms. Intel, MediaTek, STMicroelectronics, etc. all have a variety of rapid prototyping cousins to Arduino and Raspberry Pi, while it was Silicon Labs’ chips that lit the audience’s bracelets when Coldplay performed at Super Bowl 2016. These music synchronized lighting bracelets are made by Xylobands.
Recently Broadcom sold its IoT business unit to Cypress, which is more open and inclusive with its developer community and thus better at engaging the Makers and their kin. Surely this was a factor in the sale decision.
Clearly, for semiconductor companies, curating a developer community is not a choice but an imperative as community members move on to create 50% of the future IoT market. As President Obama pointed out – “Today’s D.I.Y. is tomorrow’s ’Made in America.’”
Anshuman Tripathi (@anshufellow) is presently focused on market adoption strategies for emerging storage media at Tejes Services Inc. He has established organic and inorganic growth opportunities in Storage, Semiconductors, Cloud Computing, and Internet of Things in incubators and startups to Fortune 500 companies. He has served as a panelist for the National Science Foundation. He is the founder of Avlambh, Inc., a non profit focused on bridging digital divides worldwide, and holds a patent in semiconductor chip design. He is a Sloan Fellow from Stanford Graduate School of Business, holds a master’s in computer science from University of California, Irvine and a bachelor’s in electronics engineering from Malaviya Engineering College, India. On bright sunny days he can be found playing Ultimate Frisbee.nternet of Things: A Semiconductor Dilemma