This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
We have now seen the announcement of at least four consortiums developing self-proclaimed "standards" for communication between Internet of Things (IoT) devices. For a class of product that fundamentally relies on interaction with other devices, this may be of significant concern to both manufacturers and consumers who face a divided market and potentially restricted functionality.
The consortiums we have seen to date include all of the familiar manufacturers:-
Atmel, Broadcom, Dell, Intel, Samsung and Wind River - Open interconnect consortium
Qualcomm, Microsoft, LG, Cisco, and 47 others - Allseen Alliance
Apple - HomeKit
Nest, Mercedes, Lifx, Jawbone, Google - Works with Nest
The concern to consumers is that their Nest thermostat won't talk to their Apple phone, or their Android phone won't talk to their LG television, thus restricting their ability to select the products they like. The risk to manufacturers is that they align themselves with a consortium that is unsuccessful and their products fail to sell.
It is therefore hard to see many merits in this myriad of consortiums. However, to a gambler the merit is clear - if you align yourself with the successful consortium you gain the commercial advantage.
A simple analysis suggests this is a repeat of the VHS/Betamax home video recorder battles. Competing formats were launched, with largely comparable features to the average user, where a bit of industry agreement could (in theory) have seen agreement on a format. Ultimately one of those formats won and took the riches, the other faded. For the VHS backers this was a battle worth fighting. Given that Sony backed Betamax it was clearly not a fatal gamble, but one which set them back significantly.
However, this comparison does not bear a closer analysis. VCRs were essentially a standalone product - you bought a player and could then purchase, hire, or record cassettes for you to play back. It didn't matter whether you had the same system as your friends. It was only in the secondary use of swapping recordings that you needed the same system.
This contrasts with IoT devices which rely on their ability to communicate with other devices to deliver their purpose. A divided range of products is of much more significance to this type of product where a user's choice of products is restricted by the different standards. Once a user has a product from one consortium, any future products must also be from that consortium. An iPhone user is thus perhaps less likely to buy a Nest thermostat.
A better comparison is the mobile telephone market, which similarly relies on the ability of different items to interact and communicate. However, in that field there was wide-spread agreement on standards between manufacturers before products came to the market. This gave a single nationwide market, and enabled competition between manufacturers to supply one market, allowing rapid growth of the market. This contrasts with the current IoT situation where the market is fragmented into at least four individual markets by the consortiums.
Even the consortiums themselves recognize the risks. Rob Chandhok of Qualcomm makes an excellent comparison to the Prodigy and Compuserve walled-gardens of early internet services. These were on-line communities that relied on the interaction of users to be attractive - two divided communities was a bad structure for consumers and for both businesses. Ultimately the market moved on before the battle concluded.
As Chandhok states "It's better for us to have an industry-wide shared platform than to be divided, I don't want to get to a 'Prodigy and CompuServe' of the Internet of Things." This begs the question why the situation has evolved the way it has.
Some of the answers may lie in corporate personalities. Apple are notoriously go-it-alone and have made a business of being different. It is therefore little surprise they have their own standard. Microsoft and Google were never realistically likely to agree, so it is unsurprising they are in separate groups.
One interesting feature of the divided consortiums is that it makes competition through IP more powerful. It is now generally accepted that where there is an agreed standard, and patent owners have been part of the standards-setting body, those owners must licence their patents on FRAND terms. It is therefore hard to patentees to exclude competitors based on their patents, or to define royalty rates with freedom. However, where a patentee has no part in a consortium, and that consortium's standards are not industry-wide, it should be free for the patentee to enforce their IP as they wish. We may therefore see a new wave of patent infringement suits, but this time seeking injunctions to take other consortiums off the market, rather than simply seek revenue from competitors.
With four such high-profile and powerful groups of companies it seems unlikely any of them will quickly fall by the wayside or merge together, and so we can expect a period of competition and battle as each consortium jockeys for position. Perhaps this will turn into a battleground to replace mobile telephones which seem to be edging toward settlement.
