Internet of Things and beyond: cyber-physical systems

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The new industrial revolution is a cyber-physical systems revolution. The Internet of Things (IoT) forms a foundation for this cyber-physical systems revolution and it is driving the biggest shift in business and technology since World War II.

Introduction

“Cyber-physical systems (CPS) are physical and engineered systems whose operations are monitored, coordinated, controlled and integrated by a computing and communication core. Just as the internet transformed how humans interact with one another, cyber-physical systems will transform how we interact with the physical world around us.”[1]

It has been said that the world is on the brink of a fourth industrial revolution[2], and that this new industrial revolution is a cyber-physical systems (CPS) revolution. The Internet of Things (IoT) will form a key foundation for this cyber-physical systems revolution. The emergence of IoT is the beginning of a revolution that will have as great an impact on society and the way people and business are organized as the computer revolution did on the post-World War II era.

Machines now interact and interface with other machines and as well as human beings in new ways. The combination of AI, machine learning, the cloud, and IoT means that systems of machines will be able to interact with human beings, learn about them and adapt to their wants and needs.

These systems will also be able to apply the principles of behavioral economics[3] and enable human behavior to be ‘nudged’ in predetermined directions. Governments around the world are already setting up behavioral insight teams – also known as ‘nudge units’.[4] Further, marketers are already applying the principles of neuromarketing[5], where consumers’ sensorimotor, cognitive, and affective response to marketing stimuli are being studied with a view to driving consumer purchasing behavior based upon these studies.  It is likely that we will see autonomous machines adopting the use of these kinds of techniques to drive human behavior in predetermined ways. This trend is emergent, with fitness wearable devices, such as Fitbits[6], using social sharing and gamification to assist users in achieving fitness goals.

Other technologies supporting the evolution of IoT and the emergence of CPS include software-defined networks[7], software defined storage[8]. This drives automation of repetitive tasks, even for manual labor like bricklaying [9] – consumer products as well as industrial output[10]. This is reshaping industrialization, and regulatory frameworks for IoT are now beginning to emerge[11]. Issues like privacy, data ownership, and security will remain important for CPS.

With the emergence of IoT and CPS, consumers face new challenges with their personal data. The new devices, services, and products collect data in volumes hitherto unimaginable. The volume of data being collected about consumers and their activities is reshaping how business is done. For example, insurance companies can offer insurance premiums based, not upon actuarial assumptions, but upon real-time data provided by consenting human beings as they go about their daily activities[12]. This combination of real-time data and analytics enables pricing models and risk profiles can change subject to actual results in real time.

What Will Change?

There is emergence of the industrial internet together with the rise of networked industries, this convergence of industrial, digital, analytics, and connectivity is different, it is:

  • Shaped by a design focus;
  • Enabled by ubiquitous networks;
  • Driven by application ecosystems;
  • Enabled by different modalities such as flying drones, wearables and ingestible technologies;
  • Reshaping industries with adoption of autonomous computer systems, robotics, and 3D printing; and
  • Changing the nature of employment and restructuring the

Advances in IoT and related technologies make it possible to deploy CPS within which information from all related perspectives can be monitored and synchronized between the physical manufacturing locations and computational spaces. With real-time data analytics, capabilities together with software-defined infrastructure, networked machines will be able to perform more efficiently, collaboratively and resiliently. Thus, machines will connect autonomously to each other as and when required without human intervention. This trend is transforming manufacturing industries, leading some to call for a clear definition of CPS.[13] IoT and CPS build upon well-established protocols[14] and use enterprise grade cloud hosting.  Tools such as AI, machine learning, and data analytics are also critical[15], as are mesh networks and peer-to-peer connectivity.[16]

Societal and business impact

Identity, access, privacy and data security remain critical for IoT and CPS. However, as these systems become ubiquitous, understanding what autonomous systems are doing, recording and deciding in relation human beings will emerge as a problem area, together with commercial decisions made based upon this information.

There is be a shift from a product delivery model to a delivering products plus services model, and this is driven from a one-off product sales based model to an ongoing service delivery model. We are already seeing this shift from delivering a one-time only product to providing ongoing services to support connected products. This means that companies will to need to change the way their organization is structured to service customers and products on an ongoing basis.

“Business models will have to change. We used to build them [products], ship them and forget about them until we had to service them…”
“We’ve moved to a new world where we have to ship and remember.”[17]

The sharing economy[18] drives different utilization models for capital equipment, and it is already starting to change the way consumers and business provide access to capital equipment. Uber and Airbnb have enabled people to obtain greater utilization from their assets – cars and houses – to derive additional revenue from an existing asset. This idea of allowing other users to access existing capital equipment is growing, even in the manufacturing sector.[19]

Devices will increasingly communicate and operate autonomously and independent of human oversight. There was a recent example of a motor vehicle involved in an alleged hit-and-run accident where the car reported the accident.[20] The driver of the vehicle did not intend to report that accident, yet her connected vehicle did so autonomously. Thus in this connected world there are new affordances for business and consumers.  However, the reality of this connected world is only now starting to be perceived by society.

The regulatory landscape for IoT is evolving and regulators struggle to understand and support the rapid emergence of new services, products, and business models.[21] The regulatory landscape includes licensing and spectrum management, switching and roaming, addressing and numbering, competition, security and privacy. At present IoT is governed by a plethora of existing regulations, which may or may not be a good fit. A US Senate Committee on Commerce, Science and Transportation hearing noted that IoT is more than merely about consumer protection and privacy. It is also significant in industry and agriculture and that strong security in all devices critical: “We have to design security in at the beginning and throughout a connected device’s lifecycle,” said Intel IoT Group Vice President and General Manager Doug Davis.”[22]

Summary

CPS includes traditional embedded and control systems, and these will be transformed by new approaches from IoT. However, the challenge for IoT and CPS remains privacy, security and risk management. As less rigorously controlled systems are linked then risk becomes distributed and the provenance of software components becomes difficult to trace. This gives rise to questions around risk management and liability for breaches or damages. As demonstrated in the 2014 Target hack[23], via their HVAC provider’s system, third party systems are now attack vectors. Further, regulators have not yet addressed this issue of distributed or daisy-chained risk arising from connected systems.  Attacks on connected systems from nation state actors and non-state actors are also an increasing threat: “According to Crowdstrike researchers, targeted intrusions will continue to proliferate and nation-states will use espionage to collect information from any organization with valuable data that will serve the country’s national interests.”[24]  The big challenges that are raised by IoT and CPS center around risk, security, geopolitics, trust, and privacy.

Notes

[1] Rajkumar, Ragunathan Raj, Insup Lee, Lui Sha, and John Stankovic. “Cyber-physical systems: the next computing revolution.” In Proceedings of the 47th Design Automation Conference, pp. 731-736. ACM, 2010.

[2] Schwab, Klaus, “The Fourth Industrial Revolution: what it means and how to respond”, World Economic Forum, 15 December 2015, https://agenda.weforum.org/2015/12/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/ (retrieved at 30 December 2015).

[3] Thaler, Richard H. and Sunstein, Cass R., Nudge: Improving decisions about health, wealth, and happiness, Yale University Press, New Haven, CT, 2008.

[4] Rutter, Tamsin “The rise of nudge – the unit helping politicians to fathom human behavior,” The Guardian, 25 July 2015, http://www.theguardian.com/public-leaders-network/2015/jul/23/rise-nudge-unit-politicians-human-behaviour (retrieved at 30 December 2015).

[5] Lewis, David & Brigder, Darren (July–August 2005). “Market Researchers make Increasing use of Brain Imaging”, Advances in Clinical Neuroscience and Rehabilitation 5 (3): 35+.

[6] https://www.fitbit.com/au (retrieved at 30 December 2015).

[7] Kirkpatrick, Keith. “Software-defined networking.” Communications of the ACM 56, no. 9 (2013): 16-19.

[8] Ouyang, Jian, Shiding Lin, Song Jiang, Zhenyu Hou, Yong Wang, and Yuanzheng Wang. “SDF: Software-defined flash for web-scale internet storage systems.” ACM SIGPLAN Notices 49, no. 4 (2014): 471-484.

[9] Redrup, Yolanda, “Robot bricklayer that can build a home in two days impresses on ASX debut”, The Australian Financial Review, 18 November 2015 , http://www.afr.com/technology/robot-bricklayer-that-can-build-a-home-in-two-days-impresses-on-asx-debut-20151118-gl1oa9#ixzz3vnAjAWIk  (retrieved at 30 December 2015).

[10] Regalado, Antonio “GE’s $1 Billion Software Bet: To protect lucrative business servicing machines, GE turns to the industrial Internet”, MIT Technology Review, 20 May 2014, http://www.technologyreview.com/news/527381/ges-1-billion-software-bet/ (retrieved 30 December 2015).

[11] Spencer, Leon “IoT could ‘smash’ Australia’s regulatory framework”, ZDNet Australia, 25 March 2015, http://www.zdnet.com/article/iot-could-smash-australias-regulatory-framework/ (retrieved at 30 December 2015).

[12] Olson, Parmy “Wearable Tech Is Plugging Into Health Insurance”, Forbes, 19 June 2014, http://www.forbes.com/sites/parmyolson/2014/06/19/wearable-tech-health-insurance/  (retrieved at 30 December 2015).

[13] Lee, Jay, Behrad Bagheri, and Hung-An Kao. “A cyber-physical systems architecture for industry 4.0-based manufacturing systems.” Manufacturing Letters 3 (2015): 18-23.

[14] Protocols include Wi-Fi, RFID, Zigbee, Bluetooth, 2G, 3G, 4G

[15] Kambatla, Karthik, Giorgos Kollias, Vipin Kumar, and Ananth Grama. “Trends in big data analytics.” Journal of Parallel and Distributed Computing 74, no. 7 (2014): 2561-2573.

[16] Wark, Tim, Peter Corke, Pavan Sikka, Lasse Klingbeil, Ying Guo, Chris Crossman, Phil Valencia, Dave Swain, and Greg Bishop-Hurley. “Transforming agriculture through pervasive wireless sensor networks.” Pervasive Computing, IEEE 6, no. 2 (2007): 50-57.

[17] Robinson, Teri, “IoT security forcing business model changes, panel says”, SC Magazine, 22 October 2015, http://www.scmagazine.com/iot-security-forcing-business-model-changes-panel-says/article/448668/  (retrieved at 30 December 2015).

[18] Zervas, Georgios, Davide Proserpio, and John Byers. “The rise of the sharing economy: Estimating the impact of Airbnb on the hotel industry.”Boston U. School of Management Research Paper 2013-16 (2015).

[19] Anagnost, Andrew “Not Just Airbnb and Uber: Why Manufacturing Is Already a Sharing Economy”, Autodesk LINE/SHAPE/SPACE, 8 December 2015, http://lineshapespace.com/manufacturing-sharing-economy/  (retrieved at 30 December 2015).

[20] Osborne, Charlie “Car calls 911 after alleged hit-and-run, driver arrested: A Ford safety feature has also turned out to be a way to track badly-behaved drivers”, ZDNet, 7 December 2015, http://www.zdnet.com/article/car-calls-911-after-alleged-hit-and-run-driver-arrested/  (retrieved at 30 December 2015).

[21] Soltani, Ashkan “What’s the security shelf-life of IoT?”, Federal Trade Commission, 10 February 2015, https://www.ftc.gov/news-events/blogs/techftc/2015/02/whats-security-shelf-life-iot?utm_source=govdelivery (retrieved at 30 December 2015).

[22] Bracy, Jedediah “Senate Committee Explores Internet-of-Things Regulation”, The Privacy Advisor, 12 February 2015, https://iapp.org/news/a/senate-committee-explores-internet-of-things-regulation/  (retrieved at 30 December 2015).

[23] Weiss, N. Eric, and Rena S. Miller. “The Target and Other Financial Data Breaches: Frequently Asked Questions.” In Congressional Research Service, Prepared for Members and Committees of Congress February, vol. 4, p. 2015. 2015.

[24] Vicinanzo, Amanda “Targeted Intrusions By Nation-State Actors Pose A Major Cyber Threat Going Into 2015”, 12 February 2015, Homeland Security Today, http://www.hstoday.us/single-article/targeted-intrusions-by-nation-state-actors-pose-a-major-cyber-threat-going-into-2015/1f96ee7a4b2867f1b1511387660bb4b8.html (retrieved at 30 December 2015).

 

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Turf wars on the frontiers of the sharing economy

it's the future
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The sharing economy is turning into big business now, with companies perceiving a potential advantage: Looking to save money, big business dives into the sharing economy.

And, as this new economy grows, there will be turf wars between the old and the new world. A recent headline on Mashable read “New York Goes to War Against Airbnb for Disrupting Hotel Business“.

I’ve been expecting to see headlines like this for a while, as governments and old economy businesses realise that their revenue models are being disrupted by new businesses in the so-called sharing economy.

Sharing economy?

It is ‘so-called’ because what is termed the sharing economy really seems, for the most part, to consist in increasing the utilisation of existing assets already held in private hands.

Thus Airbnb enables owners to capitalise upon their existing excess housing capacity to earn revenue, while UberX enables car owners to use their existing asset to earn revenue.

This new economic activity is powered by the maturing of mobile technology and the development of clever peer-to-peer applications. This phenomenon builds upon the foundations of social media and the Web 2.0 revolution of the mid-2000s. In the sharing economy we see the unlocking of earning potential from people’s existing assets.

It is interesting that this phenomenon emerged after the global financial crisis, when consumers sought additional revenue sources as traditional work remained scarce for many in the US.

Organisations like Airbnb and Uber are on the frontier of the sharing economy. And this frontier is a place where intermediary businesses are being displaced by the democratisation of economic activity.

Governments are just now beginning to perceive the potential for this kind of economic activity to disrupt their existing revenue collection model. Apart from traditional corporate taxation, the economic activities of these new kinds of businesses do not fall within existing tax raising processes.

Taxation and Government relations

Yet, now that these companies are reaching sufficient scale, they are coming to the attention of various governments around the world. This is requiring these companies to rethink their relation to taxation and local regulation.

For example, Airbnb, which has always resisted hotel taxes being applied to its business, recently indicated a more positive view to hotel taxes being applied to their business: Airbnb Is Suddenly Begging New York City to Tax Its Hosts $21 Million.

Airbnb has even pointed out that New York city is not setup to receive hotel tax payments from Airbnb on behalf of people letting their apartments.

Governments are not really setup for collecting business taxes from the multitudes. This increases the need for governments to explore e-government and electronic delivery of services. It also means that governments need to start rethinking the boundaries of their various constituent groups – since companies, individuals, and collectives now start to have fuzzy boundaries.

The boundaries between personal and business activity are already starting to blur with the emergence of the sharing economy.

Regulation

This highlights some issues for the sharing economy. How do these organisations fit into the social and economic structures of government? How do these sharing economy organisations, which are often loose networks of individuals, comply with things like health and safety standards, insurance, and contribution to taxation systems?

Over many years western society has created a safer lifestyle for people by regulating certain industries to protect health and wellbeing. And, while some might argue that the nanny-state has gone too far, when disaster strikes the populace often seek regulation for their protection. This is why fire codes have made modern buildings so safe in comparison to the past.

Democratisation of economic activity

With the emergence of the sharing economy there is a growing tension between traditional corporate modes of organisation, such as government and large corporations, with new kinds of collectivist modes of organisation that are looser and more fluid.

These new models of organisation provide an umbrella for individuals to participate in economic activity in ways that were previously impossible. It is a kind of democratisation of economic activity for individuals, enabling them to scale their operations using web and API driven solutions.

This unlocking of the excess economic capacity of assets that are in the hands of ordinary private individuals is the next wave of economic activity.

How the tension plays out, between the traditional corporate organisations and the emerging collectivist organisations, will be very interesting.


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