Why Smartphones Are Bringing Down Internet-of-Things Revenue Forecasts

Photograph by Philippe Huguen -- AFP via Getty Images

The market for the so-called Internet of things—where millions of everyday devices are hooked up to the Internet—will be worth $3 trillion in 2025, according to Machina Research.

That’s a big number, but the figures from the research house, which specializes in the burgeoning Internet of things (IoT) industry, actually represent a lowering of its revenue forecast for connected devices and the services that come bundled with them.

Why? Partly because of smartphones.

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Whereas last year Machina predicted this devices-and-services segment would be worth $1.6 trillion in 2024, this week it said it would only be worth $1.3 trillion in 2025. (The other $1.7 trillion of the $3 trillion total will come from associated services such as hosting, application development, and consultancy.)

“One reason our forecasts are coming down a little is because the smartphone is taking on a bigger role that we foresaw,” Margaret Ranken, an analyst with Machina Research, told Fortune.

“For example, in a connected car, we now see fewer connected devices for things like navigation, because people are using smartphones instead. In connected health, we had imagined some dedicated devices that have been knocked out of our forecast [such as] connected medicine dispensers—there’s a potential market for reminding people to take their medicine on time, but also now a lot of apps will do that more cheaply.”

Smartphones aren’t the only culprit, though. Ranken also pointed to the tardiness of the cellular industry in agreeing the standards for new technology that would let IoT devices get their connectivity from traditional mobile networks.

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Those standards were only finalized in June. In the meantime, new challengers like Sigfox and the LoRa Alliance have been building whole new networks that are tailored to the Internet of things.

According to Ranken, the cellular industry’s agreement could now create enough scale to encourage, for example, more washing-machine manufacturers to add connectivity to their products—but just a couple years later than Machina Research was previously predicting.

Machina is now predicting there will be around 27 billion IoT connections in 2025, up from 6 billion in 2015. Cellular networks will account for 2.2 billion of those connections, and 45% of those cellular IoT connections will be in cars.

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