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Startup Report

Why The Internet Of Things Hasn’t Gone Cellular Yet

Particle CEO Zach Supalla on putting ordinary objects online from anywhere.

[Photo: Flickr user Bill Damon]

In the future that Particle CEO Zach Supalla envisions, you’ll never lose your luggage, or find out too late that your basement is flooded. Production lines will recognize exactly when a single piece of equipment is about to fail, and city workers will automatically get notified when a garbage can needs emptying.

That’s because every one of these devices will be connected to the Internet, regardless of whether there’s a functioning Wi-Fi network within range. Particle is in the business of making the tools that enable these "Internet of Things" devices, from circuit boards to software platforms to large-scale manufacturing plans. The company’s latest product, the Electron, is the first to have a cellular radio and data plan built in.

Getting to this point hasn’t been easy, however. For Supalla, the creation of Electron has been a lesson in how wireless carriers work, including both their networks and their internal politics. With the first Electron units shipping this week, I talked to Supalla about what he learned, and what still needs to change before cellular IoT takes off.

Particle's Electron, a building block for IoT devices

Wireless Carriers Don’t Do Small-Scale

The Internet of Things isn’t (yet) a big business, and the concept favors lots of small-scale devices, rather than a handful of hits. Certifying, provisioning, and managing data plans for all of these devices is a tall order for wireless carriers, who are used to selling smartphones by the million.

"There are a lot of really interesting customers out there that they would love to support," Supalla says, "but they're just not built to support smaller companies, and interestingly their definition of a smaller company can be quite large."

Naturally, Supalla hopes that carriers will be drawn to aggregators like Particle, which can negotiate one-size-fits-all data plans on behalf of many startups. If Particle ships Electrons to 10,000 companies that are building IoT devices, and those customers in turn ship thousands of Electron-based products, carriers get to scale their Internet of Things business without much extra effort.

The Data Plans Aren’t Ideal

In negotiating with wireless carriers, Supalla has learned that old habits die hard, and he acknowledges that Electron’s data plan—which carries a $3 monthly fee and $1 per megabyte overage charges—was something of a compromise. (Particle acts as a mobile virtual network operator, working with a worldwide carrier that has agreements with AT&T and T-Mobile in the United States.)

"It's so baked into their DNA, this monthly plan," Supalla says. "Even us getting a plan where we didn't have a contract associated with it—I mentioned we can suspend our SIMs and un-suspend them—that was hard to negotiate. They really didn't want to give that up."

Carriers are insistent on monthly plans, Supalla speculates, because they’re afraid that any exceptions they carve out for Internet of Things devices will jeopardize the smartphone plans at the core of carriers’ business.

Particle CEO Zach Supalla

"Every time you create something that's cheaper for an IoT application, you're going to have a bunch of smartphone companies that are going to say, ‘Hey, I saw what you did there, and if you can do that, then something's wrong with our contract,’" Supalla says. "And that's really risky for a carrier, if all your other partners decide to renegotiate."

That's not to say carriers have been completely uncooperative. For instance, as a cost-saving measure they've suggested reducing data rates during off-peak times, which makes a lot of sense for IoT devices whose transmissions aren't urgent. Still, Supalla believes Internet of Things devices could communicate in a different way than smartphone data altogether. He points out that for basic status messages, Electron devices could easily use the same protocol that text messages rely on currently, and it would be a lot cheaper for everyone. But again, in discussing this with carriers, Particle ran into what seemed like institutional reluctance.

"In theory, every single party would benefit, but that's not how they charge," Supalla says. "They charge expensive rates for text messages—absurdly expensive, it's like back to '90s text-message pricing—and I'd like to see that change."

The Hardware Is Too Expensive

It may be obvious that Internet of Things hardware must become smaller and cheaper to achieve ubiquity. But what’s less obvious is where those costs actually come from.

In cellular, a significant chunk of the hardware cost comes down to intellectual property. Every time Particle sells an Electron, for instance, the maker of the device's cellular modules has to pay a licensing fee to Qualcomm, which owns a significant number of patents for 3G and LTE radios. A $20 IoT device will have a harder time absorbing those fees than a $600 smartphone because so much of the final price goes toward licensing.

"The same kind of factors that are happening on the plan side are happening on the hardware side," Supalla says. In other words, if Qualcomm reduced its fees just for small-scale devices, phone makers might complain or try to exploit that system to get away with paying less.

Fortunately, this problem may get solved over time. As LTE gets faster, telecommunications groups have agreed on a range of "categories," each with their own limits on transfer speeds and simultaneous transmissions. The hope is that licensors could dial their fees up or down according to these categories, and Internet of Things devices would sit on the low end. "Those are some of the issues that kind of have to get worked out, to become truly accessible for lots of different products," Supalla says.

Photo: Flickr user Mikhail Kryshen

It's Still Early Days

The last time I spoke with Supalla, he likened today’s Internet of Things devices to the broader Internet of the 1990s. Just as plenty of people doubted the Internet’s transformative power back then, right now it’s hard to fathom the impact—both good and bad—of giving an Internet connection to virtually anything.

If this analogy holds up, the real transformation will happen once these devices are untethered from a local network, similar to how smartphones led to an explosion of Internet-based applications. The makers of these products will even face the same hesitation from wireless carriers that Steve Jobs and Apple faced as they tried to deliver the first iPhone.

But Supalla is optimistic that carriers will see the light, especially as revenue growth from smartphones starts to dry up.

"I do think those market conditions will force them to make IoT work," he says.

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