A conversation earlier today with some of the innovation folks at IBM about their Smarter Planet initiative has got me revisiting some research we’ve done at the ILO Institute on a concept know as the “Internet of Things.” The essential idea is that objects in the physical environment around us are increasingly being embedded with networked technology, interacting with the larger network, and creating data. In fact, a video by IBM (shown below) suggests that there already might be more objects connected to the Internet than people.

I first encountered the Internet of Things concept in 2006 working on a report on the future of RFID (radio-frequency identification). RFID is a technology used to embed miniature wireless communications in objects of all kinds, such as packaging, boxes, equipment — even humans and animals. At that time I was in touch with some people working on the Internet of Things concept at MIT.

Charles Murray of MIT’s Auto-ID Center had written in Design News that “RFID will be the backbone” of this Internet of Things, “in which almost everything, large and small, is connected via the Web.”

In our 2006 report we wrote:

On a product level, says Murray, each item would be tagged by “a sort of Web page for each item” coded in HTML. “Thus, all products could be identified anywhere, instantly.” Plans include migrating from sticky tags to RFID devices embedded in cardboard cartons during the manufacturing process.

Murray speaks of this emerging Internet of Things in terms of the supply chain. However, the eventual possibilities go far beyond keeping track of products for supply chain management. If miniature Web pages and servers could be embedded in building materials, components of vehicles and aircraft, furniture, appliances, apparel, and other places, this could have huge implications for marketing, communication, and provision of services, not to mention changing the very nature of the world around us.

Wanting some further insights, I had a phone conversation with MIT’s Sanjay Sarma, an RFID expert at MIT. Sarma stressed the impact the Internet of Things will have on business:

MIT’s Sanjay Sarma tells ILO researchers that this Internet of Things is “going to have a huge impact,” and that RFID is one of the key enabling technologies. He points out that RFID creates a greatly increased connection between the physical world and the world of information by connecting more data to physical things and transferring it at much greater speeds in much greater volumes. “We used to connect data to the physical world through keyboards, but there’s only so much data you can get in through the keyboard. But with RFID it’s automatic and it’s happening all the time.”

Sarma says that the Internet of Things will allow you to “have control in your enterprise in a way that is completely unprecedented.” Sarma calls this control “high-resolution management—management with eyes everywhere, as opposed to management by gut reactions and guesswork.”

Earlier this year, we completed a report on how the Smart Grid is likely to affect the shape of the electric utility business in the future. If the smart grid initiative rolls out as anticipated (and utilities are working on this very aggressively right now), the electric grid in the U.S. will be transformed from the traditional century-old dumb one-way transmission utility into what Thomas Friedman has called an “Energy Internet” (see his book Hot, Flat, and Crowded, chapter 12, “The Energy Internet: When IT Meets ET”).

Under the Energy Internet paradigm, networked technologies will be embedded all through the electricity delivery system — in control facilities and substations, in smart meters at homes and businesses, in home appliances that will shut on and off in response to grid conditions, in electric vehicles and their charging systems, in home-based generating systems that will sell electricity back to the grid, and much more that we probably can’t imagine.

Friedman maintains that the smart grid will enable “a great energy transformation.” On page 286 of his book, he outlines what this could mean for utilities companies:

Utilities, instead of limiting their vision from the power plant to your home electricity meter, would be wholly transformed. Their universe would stretch from the generation of clean power on one end right into your home appliances, your car battery, and even the solar panels on your roof. Rather than just being a seller of dumb and dirty electrons, it would be an enabler of this whole smart grid-Energy Internet system. And it would make money from optimizing this system.

In effect, Friedman maintains, smart grid will bring utilities, businesses, and consumers together into an interactive energy market. Taking the reader forward in time, he projects how such a market might function (pages 277-278):

[N]ow that we’ve moved to the Energy Internet – the smart grid – utilities can run your refrigerator or adjust your thermostat in line with when the wind is blowing or the sun is shining. It can match the supply with the demand. Therefore, it can use more of these renewable power sources at much lower cost. When clouds block out the sun or the wind dies down, the utility’s smart grid lowers demand by raising prices (so your SBB [Smart Black Box] decides not to do the laundry then) or by adjusting your home temperature settings. And when the sun is shining brightly and the wind is howling, the utility runs your dryer at the lowest price. So there is now a direct correlation between how smart your grid is, how much energy efficiency it can generate, and how much renewable power it can use.

…. When the smart grid extended into a smart home all the way to a smart car, it created a whole new energy market on the other side of your electric meter. In the old days, there was no market beyond the raw dumb electrons that came into your house. Everything stopped at the meter, and you just paid the price calculated at the end of the month. But once your appliances became smart, and a Smart Black Box was introduced into your house, a market was also created beyond your meter and throughout your home, and, more broadly, inside every factory and business around the country.

How will the Internet of Things, a Smarter Planet, transform the world? My guess would be that what eventually emerges will surprise us all. As humans, our predictions tend to be vastly oversimplified. In our smart-grid report, we wrote,

It is good to remember that 20 years ago, experts were referring to the Internet as an “information superhighway” – not wrong in itself, but a vast oversimplification. How many pundits at that time could have foreseen today’s massive World Wide Web and e-commerce activity – not to mention Google or Facebook?

The implication, then, is that utility companies need to become generators not just of power but of innovation – watching for potential new ventures and business models that will surely arise out of such areas as smart-metering, electric vehicles, and renewables. Utilities need to start now building the organizational capabilities necessary to exploit the opportunities that will emerge in this networked energy marketplace – which means expanding R&D and internal venture funding, establishing entrepreneurial units and innovation teams, and building a new culture of innovation.

For some insights into the Internet of Things concept, I invite you to watch this thought-provoking video from IBM:

AB — 20 May 2010