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Internet of Things - Smart Systems and Dumb Policy could be a Dangerous Combination in a Dynamic Global Arena Steve Bell, President, KeySo Global LLC Introduction As a result of a recent C-PET Internet of Things (IoT) round table teleconference and the recent 3rd Annual Internet of Things Europe 2011 conference in Brussels it was thought appropriate to share the following paper. This report is a summary extract of the key points discussed at a CPET IoT conference held in December 2009. It is based on a comprehensive report developed by KeySo Global (available on request) of the meeting that examined these points in light of a number of trends and developments of the IoT during 2010. In order to keep this document fresh and relevant, the opportunity was taken to carry out a hindsight/foresight review of the material and to test the temperature of the conclusions in the light of IoT developments in Europe, and the progress being made. Hindsight & Foresight Two years ago, the consensus appeared to be that the EU had first mover advantage on IoT but now it appears that China is clearly in the forefront of the countries developing the Internet of Things. Some of the issues that this observation surfaces are the cultural and philosophical differences between and amongst the eastern and western societies and governments. The goal for IoT & Internet in the EU by 2020 is "smart, sustainable, inclusive" with values like privacy built in from the start on the assumption that it will fail otherwise. Peter Hustinx, European Data Protection Supervisor makes the point that “fundamental to the successful deployment is trust”. Privacy of data and trust of the consumer will be critical components to success of the Internet of Things. While the rhetoric on “right to silence” may be “hyperbole” it starts the global conversation on privacy by design. Does an equivalent statement exist for the US and should it? Does Washington even understand the profound implications that the IoT will have on the U.S and global economy? These were some of the areas touched upon in the recent roundtable where Michael Nelson identified 3 Tech Cultures: W. Coast, Prototype Principle; E. Coast, Profit Principle; Europe, Precautionary Principle. As Dan Caprio & Mike concluded, the issue is not which is the right principle but how to embrace all 3 in a horizontal approach across the EU and

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the US, and at the same time recognize that China and Asia are moving at a rapid pace of development as well. There are a lot of moving parts and players involved in assessing multiple international policy issues but it is essential to start addressing them. The paradox is about protecting a fragile and evolving Internet and those who want control over this and the emerging IoT technology. Today's Internet policy framework is “elegant in its restraint” and has enabled extraordinary innovation, according to the OECD, but they see trends that threaten to balkanize the Internet, creating mini national Internets that will destroy economic and social potential. M2M communications only become the true IoT when interfaces & data open up & everything talks globally. The sensors are the means not the end; they are ambient and do not need “modal” interfaces that require human attention. The Internet of Things is really about data management and the privacy implications that arise from this built environment. The IoT will indirectly enable the observation and understanding of human behavior in buildings and places. Where this information can be mashed together to create swarm behavior analysis, it raises the interesting issue of who owns the data and knowledge. Open data will drive the Internet of Things. As Meglena Kuneva, European Consumer Commissioner, said in March 2009 “personal data is the new oil of the Internet & the new currency of the digital world.” It seems reasonable to anticipate that this complex global environment will spawn many different privacy solutions rather than a single “privacy by design” solution and that the focus should be on the transparency of the systems that hold the data, not necessarily on the transparency of the data itself. This is why, instead of the Internet of Things, it should potentially be renamed the “Cloud of Everything”. This would be comprised of billions of people controlling the use of open data generated by billions of devices for millions of apps & services, which in turn utilize the data made available by the Cloud for the purposes of sharing and analysis. The “Cloud of Everything” is the classic double power conundrum; it is the biggest opportunity and the biggest challenge to everything that individual societies and cultures hold absolute.

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Report Introduction In December 2009 the Center for Policy on Emerging Technologies (C-PET), a non partisan think tank for the 21st century, held a roundtable discussion in Washington DC hosted at the offices of McKenna Long and Aldridge. The small but broad cross section of participants and experts brought a wealth of knowledge and perspectives. They facilitated a better understanding of the potential, the impact and the implications of the Internet of Things (IoT), both in the U.S.A and globally. The discussion itself was held under the Chatham House Rule which enabled some interesting and lively debate, but this was never documented. Twelve months have passed since that meeting and this paper attempts to capture the themes that emerged during the day long discussion, and view them in the context of pertinent, interesting and rapid developments this past year.

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The Arena During this year the Internet of Things, or smart systems as some people refer to it, has increasingly become the subject of technology and business conferences, magazine articles and webinars by IT companies pushing their solutions. At these international conferences it is common to see the presence of those government representatives who are responsible for driving technology and economic agendas as well as sponsored research programs. It is also interesting to note the increasing number of global initiatives that are occurring, for example the EU-China Internet of Things Expert Group, which had its kickoff meeting in May 2010 in Beijing. Additionally, at the 2nd Annual Internet of Things Conference in Brussels on 1st June 2010, Neelie Kroes, European Commissioner for the Digital Agenda, announced the creation of an international expert advisory group to the Commission. Some of the more fundamental implications of IoT technology are only now being considered by policy makers, and its broader effects just barely understood. For example, what will the implications be of Vivian Reading’s concept of consumers having the right and opportunity to silence chips that transmit usage or location data (see box below)? It is in this context that Dan Caprio, Managing Director of McKenna Long & Aldridge LLP, noted at the Brussels conference that policy and governance in such a changing environment needs to be flexible, forward looking and contextual. The Changing Environment This volatile digital environment includes

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shifts in cherished paradigms. In a recent Scientific America essay Sir Tim Burners-Lee warned of a series of disturbing trends that could threaten the open web as we know it. In his view fragmented islands with audiences held captive, increasing state and private snooping and a threat to net neutrality are all elements that could change the ubiquitous and egalitarian tool we have grown to trust, and have a significant consequence on the emergence of the Internet of Things. Compound these potential issues with the wave of fear generated by the media earlier this year around the Stuxnet virus, and the possibility that it could be state sponsored cyber terrorism, and the environment for consumer and industrial adoption of the IoT concept could be significantly impacted. That is why a compelling future vision of the Internet of Things is a key ingredient of its success and accelerated advancement. Compelling Visions One general conclusion arising from the C-PET panel was that competing visions exist for the IoT and that the general public does not yet have a clear and compelling sense of what it is or of the benefits that it could potentially provide. One definition that was shared is that “it is everything, always on, always connected, everywhere, pushing and pulling to conduct your operation; it is anything that consumes power and is connected”. Another definition was that the “Internet of Things takes your preferences and style and imposes them on this technology and manages it for you – it is an amplifier of what you would have wanted to do if only you had time to do it”. The European Union has an alternative and official perspective: “Internet of Things (IoT) is an integrated part of the Future Internet and can be defined as a dynamic global network infrastructure with self-configuring capabilities, based on standard and interoperable communication protocols where physical and virtual “things” have identities, physical attributes, and virtual personalities and use intelligent interfaces, and are seamlessly integrated into the information network.” The C-PET panel recommended definition was much simpler and attempted to address the need for a clear, compelling, benefit-driven definition that could be understood by consumers. This vision emphasizes “connecting the things that matter to make life better” which aligns to the intent of a group

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that emerged in Europe called “The Internet of Things Council”, founded by Rob van Kranenburg, an innovation and media theorist. The Council describes itself as “a loose group of professionals with different ideas and opinions who believe that IoT is an ontological shift towards a different relationship between men, things and the world”. To get to a winning solution they believe that it is necessary to “transcend the short-term opposition between social innovation and security by finding a way to combine these two necessities in a broader common perspective” and to effectively “design a way out”. In other words, make the vision compelling and human, so that people will embrace it and their natural ingenuity will overcome the obstacles to its adoption. Impact of the Internet of Things The Internet of Things (IoT) is the ultimate paradox; by definition its lineage is clear (Moore’s Law, Internet, cellular, RFID and the web) but the implications of what it yields or unleashes are truly unknown at this time. Elements grounded in science are predictable but as you move up the software and services stack, second and third order derivatives are more difficult to predict, and their implications on society even less so. 5 years ago who could have imagined the impact of Apple’s catch phrase “there’s an app for that!”? Today the market for smartphones is exploding, with 270m being sold this year. The original Apple “App Store” is selling more than 250,000 app’s that have been downloaded over 6.5 billion times, spawning multiple clones by operators, and software and hardware manufacturers. More significantly, with its new platform for mobile advertising, Apple is generating incremental revenue from the personal and usage data it collects. This reinforces the point made by the C-PET panel that it is not just about the technology but it is about making the business process and the overall product attractive to encourage people to adopt it. A Flash Forward The potent capabilities of IoT bring together multiple

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ingredients that enable the creation of a whole new confection of developments, most of which are beyond our imagination. These mash-ups could forever change the world we know. As an example, one major concern in May this year was the “20 minute crash” which was caused by flash trading. It took many months to identify what the cause of this was, and now policy and regulatory bodies around the globe are asking how they can prevent this from recurring. Now imagine an IoT world where all supply chains are monitored by sensors 24/7; where raw materials and food stuffs are evaluated for quality, and minute shifts can be identified within micro seconds. Will commodity trading be the same as it is today? Will the sensor network connected to sophisticated algorithms be predicting the impact on company performance long before corporate reports are generated? Will individual traders have a role in the stock and commodity markets of tomorrow? How will the fundamental infrastructure that supports the economic development of most nations adapt and survive in the future? Given the latency of policy in response to events, such as the one demonstrated above, how will policy makers cope in this new IoT future? This is a glimpse of some of the concerns that are emerging as the Internet of Things becomes an ever increasing reality. The Human Dimension These concerns raise some interesting considerations. With such a diverse set of visions for the IoT held by multiple participants, all with different agendas, it is interesting to consider which entities will in fact define, shape, build, regulate and ultimately control the Internet of Things. Further, as alluded to already, it is not just about the things themselves, it is about how they will interact with people in this “brave new world”. A recent article in the Economist magazine on the Internet of Things highlights four main areas of concern surrounding this interaction: Privacy: an increasing number of sensors will mean that offline data can be mixed with online data, creating enhanced digital footprints Control: the risk of abuse by a malevolent government using Orwellian ways to keep people under control Security: the fear that smart systems might be vulnerable to malfunctioning or attacks by hackers - the Stuxnet scenario Elitism: the concern that those with access to smart systems could be vastly better informed than those without, which could lead to control by a few

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To avoid some of these issues, the systems and the owners of the systems need to be transparent in the way they operate and reveal what happens to the data that is collected. Additionally, the default setting globally needs to be set for “opt out” so that every user has to consciously opt into the system. The Facebook example in the inset box exemplifies both the need for a standardized approach for privacy and also the need for consistency of approach. Additionally, the revelation that Google’s Street View cars had inadvertently collected snippets of email, and potentially IP addresses by location, as they collected pictures of buildings, adds further concerns. There is clearly a need for people to know the extent of information that is being gathered about their digital footprints from everyday Internet usage. Equally, consumers need to be aware that by acting as the “ears and eyes” of the web, they have voluntarily turned themselves into sensors that can be traced; by carrying around mobile devices, and being willing to gather and upload geo tagged information via social networking sites, they are exposing themselves to this type of tracking. The Internet Era: a Predictor of Change In his book “The Shallows: What the Internet Is Doing to Our Brains” Nicholas Carr uses the analogy of “filling a bathtub with a thimble; that’s the challenge involved in moving information from working memory into long-term memory”. The issue he alludes to is man’s ability to absorb, store and intelligently process ever increasing amounts of information. With the additional amount of data and connectedness that becomes available with the IoT, do we need to rethink educational and training processes? What Internet based mechanisms need to be in place to filter the ever increasing amounts of data that constantly bombard us, so that we can focus our attention on the critical information and not diminish our intellectual processing capability.

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Along similar lines, in a July 2010 Wired magazine article Daniel Pink, author of the book “Drive: The Surprising Truth About What Motivates Us” and Clay Shirky, author of the book “Cognitive Surplus: Creativity and Generosity in a Connected Age” point out that baby boomers and their follow-on generations have become accustomed to a significant amount of free time. Someone born in America in the 1960’s has watched more than five and a half years of TV. Leisure time among the world’s educated population has amounted to an estimated trillion hours per year. This new resource is referred to by Shirky as the “cognitive surplus”. It is a surplus that has been liberated and enabled by blogs, wikis and social networking sites, and in turn has resulted in people generating unparalleled amounts of material. For example Americans are no longer passive television viewers; instead they are now interactively engaged with it. This is why Facebook overtook Google in Internet traffic, and why self-created video traffic and content is exploding at exponential rates. Pink identifies that, beyond satisfying biological needs and responding to 20th century carrot and stick methodologies of motivation, we have a “third drive”. “We do things because they are interesting, because they are engaging, because they are the right things to do, because they contribute to the world”. Imagine what will happen when internally motivated and engaged 21st century citizens in the workforce, with access to the Internet and Web 2.0, become enamored with the limitless possibilities enabled by the Internet of Things. The challenge for consumers is going to be data management, both on the output and the input side of the equation. As far as output is concerned, it is in terms of how much and what they give, who has access to it and how it is used. On the input side, it will be an issue of how to filter, store, digest and use the mass of data that will become available. Industry and the Internet of Things In a recently released Deloitte report entitled “The 2010 Shift Index” specific emphasis was placed on worker passion, as it represents a prerequisite for effectively responding to the mounting pressure to perform. Deloitte tracks this pressure in terms of

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the return on assets (ROA) for U.S. firms, which has steadily fallen to almost one quarter of 1965 levels. Despite significant easing of performance pressure as the current economic downturn begins to dissipate, it is Deloitte’s contention that “all long-term trends point to a continued erosion of performance”. To address this situation, organizations need to identify, find, hold and motivate passionate workers. Deloitte contends that passion is essential to drive sustained extreme performance improvement. There are indications, however, that, as the economy recovers, companies may find it harder to hire and retain these passionate workers (see inset box right). The recent changes in health care policy could enable employees to become independent contractors, resulting in increased pressure on existing companies. One challenge identified by the C-PET panel was how to unlock the latent value of the Internet of Things in order to unleash human creativity; specifically to ensure that it truly remains an Internet of Things and that, through policy, its potential is not limited to an “internet of fewer things”. This challenge becomes critical from an economic development perspective if the fundamental architecture of the existing economic model is in decline, as indicated by the Deloitte analysis. The objective should be to focus on innovation, inventiveness and investment in order to implement the IoT and facilitate the momentum necessary for turnaround. In a McKinsey Quarterly article about the IoT it is identified that more and more objects are being embedded with sensors and that, with accelerating shifts in technologies and consumer adoption, today’s static business models will rapidly evolve into dynamic models. As a result, companies taking advantage of continuous real time information from “everywhere” are able to engage interactively with customers in a variety of new ways. McKinsey identifies two groupings of applications that will enable this shift: a) those that use sensors and track behavior in real time b) automation and control applications that improve efficiency and resource management, and address complex autonomous systems.

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The inset diagram captures the forces and the interplay of the component pieces that will shape business models as well as the fundamental architecture and structure of the U.S and global economy in the next 10 to 20 years. Those companies that do not adapt their business models will be subject to increasing pressure on their performance beyond even what Deloitte has tracked and predicted to date. Some ultimately may not survive if they do not learn how to transition. One of the factors that will impact the pressure on companies globally will be if some regions facilitate or enable the adoption of the IoT faster than others. The business and economic impact cannot be viewed in geographic isolation because the ramifications on trade patterns by acceleration and focus of resources on adoption of IoT could be significant. These impacts could relate to better manufacturing costs and quality, efficiencies of supply chain or enhanced services based on data gathering and utilization. Consumer desire and business needs will rapidly align to goods and services that are better quality, more economical and are personalized by utilizing context data to enhance experiences. So what aspects will affect the adoption of the IoT and can they be influenced?

Enabling the Internet of Things During the C-PET session consideration was given to what was needed to enable the Internet of Things to flourish. The conclusion was that the IoT comprises multiple, interacting components that, when combined, provide the catalyst for

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encouraging the speed of its adoption and degree of consumer acceptance. Depending upon the effectiveness of this combination, forecast scenarios for the Internet of Things vary significantly from 16 billion connected devices by 2020 to 7 trillion nodes, according to the CTO of Intel. The following is an augmented summary list of the components that were discussed at various times during the course of the C-PET session:    

 

IT and broadband networks for backhaul, coupled with robust layers of wireless data networks, are essential for the provision of ubiquitous access anywhere, any time These networks need to be scalable globally and have the ability for communicating with billions of billions of addresses (IPV6 adoption) and a domain name standard that allows devices to be traced Spectrum management needs to address the future requirements of networks of smart systems, with billions of devices continuously refreshing their status and needing control guidance The networks need to be robust, resilient, flexible and probably redundant if they are to interface, link and service utility and health systems. Denial of service and threat of cyber attack cannot be acceptable on critical infrastructure Architectural and policy recognition that, unlike the Internet, the IoT is not a singular or totally open system but is in fact comprised of overlapping networks of open, closed and partially open systems. Standards and interfaces will be needed to ensure companies can protect proprietary supply chain information, but on the other hand have the ability to track and recall goods (food & drugs) across multiple systems when necessary With the ability to gather data 24/7 from potentially billions and billions of devices, there is a need for heuristic software capability and deterministic rules. Control systems need to be able to monitor and risk assess “data in flight” and have the predictive ability to initiate corrective action, as well as determine what data is essential or critical, and that which can be discarded New data storage concepts need to be considered: despite the continually lowering cost of this, there is a distinct possibility of running out of storage. IDC estimates that the digital universe of information that will be created and replicated will increase to 35 zettabytes. This will be exacerbated if the current inefficient paradigms of secure backup continue to replicate data 3 or 4 times New capabilities in smart pattern recognition will be required to handle current and historic data, and to then determine how best to use this data effectively Business processes need to adapt, and companies need to be able to see the economic benefit of investing in IoT. The lesson from RFID is

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   

that, even if the cost of sensors and chips continues to fall to extremely low levels, the issue becomes the total cost of the system as a whole. If the other components (readers, network and support systems) are high cost relative to perceived benefit, industry will be reluctant to adopt this new technology. Equally, if the overall proposition is not attractive, easy to use and can be seamlessly adopted into consumers’ lives, they too will reject it A framework needs to be created to enable open innovation, based on the premise of open access to data. This will encourage the engagement of the global “cognitive surplus” to accelerate solutions in areas where real world and digital communities have passion, for instance “green” projects Provision needs to be made for security, privacy policy and mechanisms that address a new set of paradigms; where access, storage, usage and ownership of data related to someone or something are not necessarily under the control of an individual or corporate entity, and where national boundaries have little meaning Consideration for regulation of smart grids where there is more than one owner, the owner is outside the national border or the grid is part of an international network Global collaboration between governments and industry on consumer security and privacy service level agreements, and opt in rules regarding silent chips and surveillance Policing and enforcement to address the federated crime syndicates that are already emerging and that recognize no borders, generating a shadow economy that is already more than a trillion dollars The consideration of industry partnerships and stimulus funding to accelerate development of technical, economic and social capabilities; to ensure that IoT based structural change positions the U.S. to take a leadership role in what could be the next industrial revolution Government and Structural Shifts The development of IoT technologies has the potential to change perspectives and paradigms in relation to societal, economic and political order. Not since 16th century Italy when Machiavelli wrote “The Prince”

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has there been an opportunity for change of this magnitude. From the Renaissance period of democratization of words and books came many paradigm shattering developments that we now take for granted. We are in the beginning phase of what we at KeySo Global have called Ren2.0; effectively a “Digital Renaissance 2.0” where information is democratized. Already we have seen the explosion of collective knowledge as Web 2.0 technologies enable people globally to create and share information as never before. With the IoT the provision of real time information from sensors will enable people and groups to collectively track and monitor, as well as potentially impact, many things that were previously disparate or limited by economic, political or geographic boundaries. Imagine pictures that not only have geo tagging and friend tagging but start to provide real time environmental data and true cost of ownership, based on carbon footprint and recycling costs, all shared on Facebook or other social networking sites with friends who have the same concerns and interests. The concept of smart cities has been emerging around the globe for a variety of purposes. In China it addresses the anticipated 350m tidal wave of people likely to move to urban living in the next 10 years. In Masdar in Abu Dhabi, Songdo near Seoul, Singapore and Porto in Portugal smart cities were developed to take advantage of new technology, and combine new concepts of urban living with better management of scarce resources. Governments in these tough economic times have sought to link stimulus funding with smart infrastructure packages. In Europe, the IoT is a central part of the EU’s research and development focus, although it suffers the slow bureaucratic Telco mentality of everything being standardized. As indicated above, in Asia

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multiple countries are rapidly developing learning, and modifying technologies, services and applications for use in smart buildings and cities. In addition, Chinese joint initiatives with Europe indicate a dedication of resources to innovative developments. The probability is that the countries of Asia will be both fast followers of European developments and also innovators in their own right. Where will the U.S. stand on this emerging frontier? One possibility is that, with the potential funding issues in local and state budgets, consumers will demand that investments be made that help reduce waste, and make the cities and communities more efficient and cost effective. The impact of grass roots focus, linked to industry’s investment in developing the systems and services, along with government focused stimulus, could be the mechanism to both create jobs and stimulate new growth industries. C-PET has during this last 12months raised the concern that Washington has not cultivated an innovation mindset. Add to this a tendency to regulate everything in a slow and painful process that sustains the status quo and the prospects for facilitating the next industrial revolution are not too optimistic. Where will the cradle of innovation be for the IoT in the U.S.? Some may hope that it will emerge from Silicon Valley. However, with the increasing emphasis on short term results, can it really be nurtured in the U.S.? This may be a time to tap the power of the Internet and foster an open innovation culture that will encourage a new wave of entrepreneurism. Summary and Conclusion This paper captures the themes that emerged from the C-PET panel and examines them in the context of developments over the last twelve months. The Internet of Things is both a technical and societal phenomenon that will, over time, have a significant impact on the very fabric of society as we know it. Every business model, political system, cultural and religious ecosystem and structure will be touched and affected by it. It may be concluded that there are three major issues that will determine how the Internet of Things will evolve. The first challenge that needs to be addressed is how to ensure a global standardized system that enables competing and proprietary networks, and not one that degenerates into a system of discrete noninteroperable networks.

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The second issue is how the world will address ramifications arising from the major structural upheaval in employment and trade patterns that will result from fundamental changes made to global business models. These revised business models will use IoT technology to ensure more efficient use of scarce resources, as well as facilitate the continued shift from goods to services in developed economies. The magnitude and velocity of these ramifications will make the current economic turmoil seem minor. Finally, the big question is where will the emerging power houses in this Web 3.0 world of smart systems, smart cities, clouds and the Internet of Things be located? Which countries will foster the future Googles and Apples, or will they be nationless states? Currently it appears that politicians and administrations worldwide are blind to the limitless opportunities afforded by the Internet of Things. Those in power should be made aware that these opportunities warrant their urgent attention, and should be at the top of their agendas for global debate.

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C-PET paper on the Internet of Things  

This report is a summary extract of the key points discussed at a C-PET IoT conference held in December 2009.

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