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DBS Asian Insights

DBS Group Research January 2016

From Products to Services:

The Next Internet of Things
And How Asia Is Driving Its Adoption
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From Products to Services:

The Next Internet of Things
And How Asia Is Driving Its Adoption
Sachin MITTAL
Telecom, Media and Technology
Analyst, DBS Group Research
sachinmittal@dbs.com

Tsz Wang TAM

Analyst, DBS Vickers Hong Kong
tw_tam@hk.dbsvickers.com

Suvro SARKAR
Equity Analyst, DBS Group
Research
suvro@dbs.com

Patricia YEUNG
Analyst, DBS Vickers Hong Kong
patricia_yeung@hk.dbsvickers.com

Ling Lee KENG

Equity Analyst, DBS Group
Research
leekeng@dbs.com

Chris KO
Analyst, DBS Vickers Hong Kong
chris_ko@hk.dbsvickers.com

Production and additional research by:

Asian Insights Office DBS Group Research

go.dbs.com/research
@dbsinsights
asianinsights@dbs.com

Chien Yen Goh Editor in Chief

Geraldine Tan Editor
Martin Tacchi Art Director
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04 Introduction

05
What Is IoT
Why IoT Now?
Monetisation Model for IoT

09 IoT Market Opportunity

11 IoT Value Chain

IoT Platform at the Centre of the Value Chain

14 IoT Adoption in Asia

IoT Spending in Asia Pacific
Asia Pacific Ahead in IoT Adoption

17 IT Spending Breakdown

18 Smart Cities
Singapores Smart Nation Project
China Smart Cities

28 Potential Impact on Various Sectors

Utility Sector
Transportation Sector
Manufacturing Sector
Healthcare Sector

33 Conclusion
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Introduction
The first wave of Information Technology (IT) in the 1960s and 70s automated the value
chain of enterprises such as order processing and billing. The second wave was the
Internet in the 1990s, and this led to the formation of global and efficient supply chains.
The third wave of Internet of Things (IoT) is creating smart, connected products. For the
very first time, vendors are able to track their products sold and maintain relationships
with customers even after the sale.

IoT enables product companies to transform into service companies by launching new
services in conjunction with their products and generate recurring revenue streams. For
example, Volkswagens Car-Net service offers security features, maintenance assistance,
and navigation tools to its customers for a subscription fee of US$17.99/month. With this,
automatic crash notifications can be sent to chosen contacts when airbags come into use
in the vehicle.

The establishment of smart cities will accelerate IoT adoption in Asia, with South Korea
and Singapore to be among the global leaders in adopting IoT. In this report, we look at
Singapore and Chinas smart cities initiatives and the opportunities they present. We also
explore how IoT will disrupt not just business operations, but the structure of industries
as well.

IoT will disrupt not just business operations

but the structure of industries
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What Is IoT?
IoT is a network of things that are connected to each other and refers to an ecosystem
comprising of things, connectivity, and services including data analysis.

1) The thing (a sensor embedded in the product) has some intelligence to sense changes
around it.

2) Connectivity is also referred to as Machine-to-Machine (M2M) connectivity via cellular,

Wi-Fi or Bluetooth etc.

3) The service is usually hosted in a remote location away from the thing. This can be a
cloud infrastructure, along with specific applications and data analytics. The service
portion is likely to be the largest portion of the IoT pie in our estimate.

Diagram 1. Three parts: Things, connectivity, and service

Service or App 2020 (f)

% of Revenue
70

10

Embedded
Intelligence

Thing
20
Source: Gartner (December 2014), DBS Bank

Why IoT Now?

The growth in IoT-enabled devices has been fuelled by the declining cost of sensors,
connectivity, and data processing power. The smartphone revolution has resulted in big
scale production of these components, bringing down the cost of components required
for IoT. The software needed to analyse this data has improved gradually and companies
are using it to boost operations and seek out new business models.
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Diagram 2. High smartphone volumes have driven down costs, paving the way
for cheap IoT sensors

Internet of Things

Smartphone Internet 50bn+ Units

Desktop Internet 5bn+ Units

1bn+ Units

2000 2015 2030

Source: DBS Bank

According to an article published in the Harvard Business Review (HBR) in January 2015,
there have been three waves of IT so far.

Wave 1 in 1960s and 70s IT-automated value chains, such as order processing and billing.

Wave 2 in 1990s Internet-enabled connectivity made supply chains global and efficient.

Wave 3 Now Embedded sensors resulting in smart, connected products for the very first time.

Unlike the previous waves of IT transformation that boosted productivity, this wave will
change the structure of industries. Smart, connected products will blur the boundaries
within an industry and change the basic principles of product design.

IoT will also force vendors to standardise their products. For example, a patients home
health monitor needs to talk to the hospitals health informatics system, which will require
coordination on technological and product levels. Similarly in the farming sector, when a
tractor manufacturing company rolls out smart, connected tractors, its product should be
able to talk to irrigation systems, weather data systems, and seed optimisation databases.
This can be achieved through deep co-operation during product development. This is
precisely the reason why governments and big enterprise customers have an important
role to play in standardising IoT protocols across the entire range of products in a sector.
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Monetisation Model for IoT

Diagram 3. Business models to shift under IoT

Platform
Relational
Customer Relationship

Service

Premium
Product
Transactional

Product

Basic Advanced
IoT Capability Source: DBS Bank; DBS Vickers

Premium Product

In this model, a vendor charges a premium price for the connected features of the product. An
example is LIFX, which produces remotely programmable LED light bulbs that can be controlled
through a smartphone app. These bulbs are sold at a premium due to this differentiation.

Service Provider

In this much desired model, a vendor converts what has been a traditional product into
a service, builds a relationship with the customer even after the sale of the product and
generates recurring revenue stream. A classic example of new service revenue for enterprises
is Rolls-Royce, who instead of selling aero engines, now contracts with many of its customers
for power-by-the-hour. Rolls-Royce is able to deliver this service due to remote monitoring
and use of big data analytics on parameters such as pressure and temperate, etc.

Another example of service revenue is smart thermostat manufacturer, Nest (acquired by

Google in 2014 for US$3.2 billion). The company uses its Learning Thermostat a home
automation and energy management product as a platform to offer energy management
services to utility companies. Nest charges utility companies US$30 to US$50 per thermostat
annually for its service. Nest automatically reschedules usage of equipment with high electricity
consumption such as air conditioners to avoid outages during the peak hours. By doing so,
it has been able to reduce overall electricity requirement by as much as 50% in peak times.
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Platform Provider

In an ecosystem, the focus is not on selling a product or a service, but on providing a

shared platform to other players in the ecosystem hardware manufacturers, software
developers, service providers. The platform provider ideally makes money from both end-
customers as well as other platform users. Platform users pay for listing and the platform
provider also gets a share whenever a product is sold to the end-customer on the platform.

SmartThings sells its own products and services while creating a platform for other IoT
companies to sell their services. SmartThings has a smartphone app that is used to control
its hub and all of its connected devices. Various products that the company sells as part of
the platform include locks, switches, environment sensors, alarms, etc. SmartThings offers
design guidelines to developers who want to make products for its platforms. SmartThings
works with partners such as Belkin and Phillips, and on operating systems such as Android
and iOS. According to popular technology review website CNET, over 1,000 devices and
8,000 applications have been made till August 2014 when the company was acquired by
Samsung Electronics for approximately US$200 million.

Diagram 4. Examples of new service launch by product companies with the help of IoT

Service Benefits to Customers and Vendors

Video analytics Singtel offers the cloud based Video-Analytics solution for the retail industry on a monthly
service by a telecom subscription basis. The service leverages analytics to extract information such as age,
service provider gender, and emotions from video images.

Instant ink service HP Instant Ink programme allows customers to subscribe to a monthly service that enables
by a printer the customer to print a fixed number of pages through their printer. A sensor is installed in
manufacturer the printer to detect when the printer will run out of ink and HP will mail the customer an
ink cartridge before the printer runs out of ink. The monthly charge is inclusive of the ink
cartridge, shipping, and recycling of ink cartridges.

Pay by flight hours Rolls Royce introduced TotalCare, a suite of predictive maintenance and repair services
service by a jet for its jet engines. Customer pays Rolls Royce based on the number of flight hours the
engine supplier engine is used and Rolls Royce takes the responsibility to maintain and improve the
durability of its engines.

Remote monitoring General Electric has opened facilities around the world to provide real-time monitoring
service by a turbine and diagnostic services for its global base of gas turbines and compressors. A combination
manufacturer of sensors and control devices capture data about the performance of the equipment,
which is then transmitted to these facilities where maintenance and repair needs are
monitored and scheduled.
Mobility as a service Daimler AG launched Car2Go, a car sharing programme which allows customers to locate
by an automaker and use vehicles provided by Daimler for their journeys. The customer is charged per minute
for the use of the vehicle while all fuel and maintenance charges are borne by the vendor.

Source: Companies, DBS Bank

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IoT Market Opportunity

Gartner forecasts an installed base of 25 billion connected things in 2020 compared
to 4.9 billion in 2015, representing a compound annual growth rate (CAGR) of 33%.
This excludes smartphones and PCs, but includes dedicated objects, such as vending
machines, jet engines, connected soap dispensers, etc. In terms of annual shipments,
Gartner forecasts 1.6 billion connected things in 2015, rising to 8.3 billion in just five
years in 2020. The highest volume shipments are expected to come from connected LED
interior light bulbs, followed by smart TVs and automotive infotainment systems.

It is estimated that by 2020, over 80% of IoT supplier revenue will be from services. The
incremental cost of hardware and software is relatively small while the services opportunity
(including data analytics) is much larger. Gartner forecasts IoT will support total services
spending of US$69.5 billion in 2015 rising to US$263 billion by 2020 at 23% CAGR.

But IoT connectivity opportunity (part of service revenue) will be relatively small. At US$32
billion in 2020, the opportunity for IoT connectivity services is just 12.3% of total IoT
service opportunity. As the revenue base of telecom service providers fixed and mobile
revenue is large, it will translate to less than 3% of their total revenue according to
Gartner. Very few IoT connections may go through the SIM-based cellular networks and
most of the devices will be connected over free networks such as Wi-Fi and Bluetooth or
ZigBee, etc. provided by IT companies and engineering teams of customer organisations.
Telcos are expected to charge only US$1-3 for each cellular connection, which is much
lower than smartphone connections. Connected cars, smart electric metres, remote
patient monitoring, and outdoor security cameras will be top applications for telcos.

Diagram 5. Gartner IoT-related service revenue forecast

Source: Gartner (Dec 2014)

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IoT solutions opportunity At a size of US$231 billion in 2020, the IoT solutions opportunity will be much bigger than
will be significant connectivity. However, this will require IoT players to provide (i) industry specific solutions
to enterprises helping them either launch a new service or reduce cost; (ii) services such as
security, health monitoring services, etc. to consumers and charge a monthly fee.

Gartner forecasts consumer services to account for 24.7% of IoT service revenue in 2020
with enterprises accounting for the bulk over 75%. Enterprises will be big adopters of
IoT so that they (i) sell new services to their customers (both enterprises and consumers);
(ii) lower their costs by reducing downtime of their equipment and supply chain costs.

IoT adopters to reap 6-7 Gartner forecasts that IoT will produce close to US$1.9 trillion of economic value-add in
times more benefits than 2020. Economic value-add for a sector is essentially the sales in that sector minus inputs
IoT suppliers and supplies from other industries. For example, manufacturing sales minus the cost of
raw materials and energy will be the economic value-add for the manufacturing sector.

IoT will also facilitate new business models, such as usage-based insurance calculated
based on real-time driving data. The banking and securities industry will continue to
innovate around mobile and micro-payment technology. IoT will also support a large
range of health and fitness devices and services, combined with medical advances, leading
to significant benefit to the healthcare sector.

Emerging connected sensor technology will lead to value creation in diverse areas such as
utilities, transportation, and agriculture. Most industries will also benefit from the generic
technologies, in that their facilities will operate more efficiently through the use of smart
building technology such as connected LEDs and heating, ventilation and air-conditioning
(HVAC) systems.

Diagram 5. Economic value-add by industry sectors in 2020

Source: Gartner (Dec 2014)

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McKinsey Global Institute has even higher projections. It predicted in 2013 that IoT would
improve global productivity by between US$2.7 trillion and US$6.2 trillion annually
between 2013 and 2025. McKinsey believes 80% to 100% of all manufacturers will be
using IoT applications in ten years.

IoT Value Chain

Diagram 6. How the IoT value chain works

1 2 3 4 5 6 7
Smart Smart Network Service System Service Reseller Customer
module object operator enabler integrator provider (Business
Customer)
SIM card Vending Network Platform Interfaces Packaging/ Uses Buys
Sensor machine Connectivity Enabling Solution bundling service service
Actor Appliance Availablility capabilities build-up Service Resells Uses
Car Hardware provisioning services service
Aggregator Quality Applications
Camera Back-end CRM
Transponder
Computer Billing

Share of total value

5-10% 15-20% 30-40% 15-20% 10-20%

Source: Arthur D Little

Smart module Smart modules combine the radio, sensor, and microcontroller, integrate it with storage, and make
it insertable into a device. Radio/communications chips provide the underlying connectivity, sensors provide much
of the data gathering, micro-controllers provide the processing of that data.

Smart object The smart object is the product a refrigerator, a vending machine, a car, etc. that its manufacturer
has designed to be able to connect to others via its smart module and a network.

Network operator - The network operator enables and manages fixed or wireless communication with a smart
object using cellular or non-cellular technologies such as Wi-Fi, or smart objects can be connected with each other via
Bluetooth, ZigBee, etc. without the operator.

Service enabler or platform provider The platform provides the underlying management and billing capabilities to
IoT (such as Android OS to mobile). It also manages the multitude of partners that offer third party applications that run
on the platform (e.g. for vehicle tracking), in a way that is similar to how an app store is managed. Many tech giants
such as Apple and Google are vying to be platform providers as this part captures the maximum value in the value chain.
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IoT Platform at the Centre of the Value Chain

There are multiple players trying to promote their platforms to attract more developers to
come out with new innovative solutions.

1) Smart Home - Apples HomeKit, Googles Brillo, GE Wink, Smarthings, etc.

2) Smart Healthcare - Apples HomeKit, Google Fit, Samsung SAMI, Human API, etc.

3) Smart Car - Apples Carplay, Googles Android Auto, Microsofts Windows in the Car,
Fords Applink, etc.

Sectors like utilities (smart metering), industrial applications, and smart cities present
attractive business opportunities despite the lack of standardised IoT platforms. These
applications focus mostly on solving well-understood needs for known customers. As
such, a universal platform supporting innovative services is not essential to provide smart
city services as long as various government agencies in a city/country use a single platform.

System Integrator The smart object has to be integrated with the platform and its
relevant applications. In most cases today, this integration is cloud-based, meaning that a
chosen application platform will support the integration through standardised application
programming interfaces (APIs) as a consequence. All large system integrators, such as Ericsson
and IBM, are entering this territory, which used to be dominated by smaller regional players.

Service Providers They brings together the hardware, the connectivity and the platform
to provide end-to-end solutions to different verticals. Most importantly, they take care of
bundling the solutions, setting the tariffs, billing, and customer care.

Diagram 7. Some of the popular categories by shipments in 2020

Source: Gartner (Dec 2014)

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Gartner forecasts that the highest volume will come from connected LED interior light bulbs
for business applications in 2020 followed by smart TVs and automotive infotainment
with increased availability of online on-demand content.

Smaller-volume consumer items such as networked thermostats, which enable analytics-

based advice for energy-saving programmes, as well as remote controls, would also be in
high demand.
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IoT Adoption in Asia

IoT Spending in Asia Pacific
Frost & Sullivan estimates that total spending on IoT in the Asia Pacific was US$10 billion
in 2014, which will grow at a CAGR of 34.1% to reach US$59 billion by 2020. Asia Pacific
is characterised by a large presence of manufacturing economies which is expected to
drive spending on IoT applications in telematics and supply chain visibility. IoT spending in
the manufacturing industry is expected to be one of the fastest growing markets in Asia
Pacific, growing at a rapid CAGR of 52.7% between 2014 and 2020.

Adoption of IoT is not without its challenges, as there are several hurdles that could
prevent it from achieving rapid growth. Security and information privacy are some of the
largest hurdles to the adoption of IoT. With smart and connected devices embedded in
business processes and tied to critical functions, the ability to negatively affect enterprises
and individuals is increased significantly.

Diagram 8. South Korea and Singapore are expected to be among Top 5 global
markets to adopt IoT

United States
IoT Influence on Economy

Germany
Higher

Japan
South Korea
China UK Singapore
Norway
Australia Sweden

Brazil
Lower

India

Lower Higher
Pace of IoT Adoption
*Bubble size represents 2020 GDP size
Source: AT Kearney

Asia Pacific Ahead in IoT Adoption

Gartners survey found Asia Pacific (APAC) companies were more aggressive in IoT adoption.
APAC survey respondents generally expect IoT to have a greater long-term impact on their
organisations than respondents in other regions. We believe this attitude is partly because
some Asian organisations tend to conduct very long-term strategic planning and partly
because some of the respondents may come from smaller and more agile organisations.
North America lags in terms of IoT impact. This may partly be a consequence of some
respondents coming from larger and less agile organisations.
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A recent global study done by Forrester Consulting on IoT implementation in various

enterprises also puts Asia Pacific ahead in IoT adoption. It found that 58% of APAC
enterprises are either implementing or planning to implement IoT over the next 24 months
versus only 45% globally.

Diagram 9. Expected long-term impact of IoT by region

Source: Gartner (Feb 2015)

An IDC survey also puts Asia Pacific as a leader in IoT adoption. Market research firm
IDC shared the results of its survey of 2,350 IT and business decision makers in (mostly)
large and medium-size enterprises worldwide in 2015. According to the survey results,
enterprises in Asia Pacific are leaders in IoT adoption.

B2B is considered by survey participants as the area where IoT will grow, a reversal
from last year where a majority of survey participants thought that consumer IoT is
where the action will be.

Shift in the location of processing the data: More survey participants this year will
process the data generated by IoT sensors at the edge rather than in the data
centre, a reversal from last years survey.

Top drivers for creating an IoT strategy: Increased productivity (14.2%), time to market
(11.8%), and process automation (10.1%). Top challenges for the IoT: Security,
upfront costs, ongoing costs.

IoT is anyones game in 2016: Hardware and networking vendors have lost ground in
their perception as leaders, while software vendors, analytics vendors, and device/
component vendors have gained in terms of market awareness/ perception.
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Diagram 10. IDC survey on IoT

Source: IDC

According to Gartners survey, respondents expect the utility sector, followed by

transportation, services, manufacturing and retail to be impacted the most by IoT in the
short term (less than three years). In the long term (more than five years), they expect the
highest impact to remain on utilities, followed by retail and manufacturing.

Surprisingly, respondents do not see much potential in transport and services in the long
term despite good short term potential. This could be explained by the fact that these
industries have already invested in tracing and telemetry services.

Diagram 11. Short- and long-term impact by industry Impact will be higher on
Utilities, Transportation, Retail and Manufacturing sectors over the next three years

Source: Gartner (February 2015)

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IT Spending Breakdown
Enterprise software is the fastest growing segment. Gartner expects key applications
such as digital commence, marketing and sales software to be the key drivers. We believe that
cloud services and data analytics are two key reasons for enterprises to spend more. Traditional
on-premise application providers are being disrupted by cloud service providers. Meanwhile,
increasing unstructured data and rising adoption of big data analytics is another key driver.

IT services is the second fastest growing segment. Many of the developed markets are
shifting toward next-gen social, mobility, analytics and cloud (SMAC) solutions. IT outsourcing
demand especially in Europe is expected to increase over the next several years in order to cut costs.

Moderate growth in data centre systems. The stagnating servers and storage market due
to disruptive technologies, such as cloud computing and software defined storage, will lead
to moderate growth in data centre systems. Network refreshes will fuel demand for network
equipment. We believe that network equipment companies are better prepared to handle
transition to cloud.

Devices sales are likely to decline. PC and tablet market continues to weaken with spending
declining by 9.6% in 2015. On the mobile phones, Apples high end phones continue to do well
while Android growth is slowing due to lower replacement activity from higher life of smartphones.

Communication services sales may decline as well. The abolition of roaming charges in the
EU (due to regulation) and the elimination of roaming charges in parts of North America (due
to competition) are key concerns. This could be partially offset by communication providers
seeking additional revenue from IoT connectivity and value based pricing.

Diagram 12. IT spending by Sector, worldwide, 2013-2019

Spending (Billions of Dollars) 2013 2014 2015 2016 2017 2018 2019 CAGR (%)
2014-2019
Data Center Systems 164 168 169 172 174 176 177 1.1
Software 297 314 312 332 353 375 400 4.9
Devices 677 694 658 659 665 673 681 -0.4
IT Services 937 955 919 955 996 1,039 1,087 2.6
Communications Services 1,605 1,606 1,495 1,499 1,527 1,551 1,572 -0.4
Overall IT 3,680 3,736 3,555 3,616 3,714 3,815 3,917 1.0
Growth (%)
Data Center Systems - 2.6 0.9 1.5 1.2 1.2 0.8 -
Software - 5.7 -0.7 6.2 6.4 6.4 6.5 -
Devices - 2.5 -5.1 0.1 1.0 1.1 1.2 -
IT Services - 1.9 -3.7 3.9 4.2 4.4 4.6 -
Communications Services - 0.1 -6.9 0.2 1.9 1.6 1.3 -
Overall IT Growth - 1.5 -4.9 1.7 2.7 2.7 2.7 -
Source: Gartner (Oct 2015)
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Smart Cities
Singapores Smart Nation Project
Singapores Smart Nation Programme will harness IT, networks and data to raise standards
of living, productivity and responsiveness to peoples needs and aspirations. Smart Nation
will rely on IoT and big data.

Singapores small size will help in standardisation. Many would consider Singapores small
size a disadvantage in some areas but it gives Singapore an edge in the implementation
of the Smart Nation. Most smart city projects around the world are led by their pro-active
mayors or governors who may have little control over national policies. These projects
may be constrained by certain laws that affect the whole nation. For example, Federal
and State legislation may not allow for the smooth transition of some American cities
into becoming smart cities. As such, many smart city projects are going for piecemeal
solutions only such as street lighting or waste management. In Singapore, the fact
that this programme is led by the national government means that legislations can be
amended and various public agencies are strongly motivated to make it a success. This
enables Singapore to lead the standardisation efforts for Smart City.

An Internet of Things (IoT) Standards Outline in support of Singapores Smart Nation

initiative has been laid out and announced in Aug 2015 The IoT Standards Outline focuses
on three types of standards, namely sensor network standards, IoT foundational standards
and domain-specific standards. Standards will play a critical role to create an environment
where government agencies, planners, developers, manufacturers come together to
develop new technologies and smart solutions efficiently.

Smart Nation Infrastructure

HetNet is a key The government is keen to promote Heterogeneous Network (HetNet) technology for
component of Smart Smart Nation. HetNet network services will be maintained by switching between different
Nation types of networks such as Wi-Fi and 4G and 3G. It is meant to mitigate capacity crunch,
optimise overall network capacity to improve quality of service, facilitate intra-operator
roaming that would improve network resiliency.

Singapores small size will help in standardisation

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Diagram 13. Smart Nation Infrastructure

Physical Base
Infrastructure

Smart Nation
HetNet Next Gen NBN
Platform

Active
Data Centres
Infrastructure

IP Core Passive
Infrastructure

Aggregation
Gateway Boxes Source: DBS Bank

We see at least two key reasons for this. Firstly, Singapore often sees extremely high data
usage in certain pockets of the city such as in MRT stations and popular shopping malls.
HetNet deploying Wi-Fi for small cells and 4G for macro cells is a relatively more economical
solution than only deploying 4G due to cheaper cost of Wi-Fi equipment. Also, Wi-Fi uses
an unlicensed spectrum of around 2.4 GHz band, thus making it more spectrum efficient.
HetNet will be able to provide better user experience. Secondly, HetNet could also be a
better solution than public Wi-Fi networks alone in the monitoring of various services
especially when people are mobile. For example, when one leaves home to catch public
transport, everything can be monitored by operators using HetNet.

Diagram 14. Smart Nation Services

Smart Nation

Smart Health Smart Smart Smart HDB Smart Tech

Assist Transport Logistics Town Framework Challenges

Source: DBS Bank

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There are currently five main areas of focus: Smart Health-Assist, Smart Logistics/Mobility,
Smart HDB Town Framework and Smart Tech Challenges. The governments annual projected
healthcare spending is expected to reach S$12 billion by 2020, up from an estimated S$8bn
in 2015.

Smart Health-Assists Challenge

Limited Healthcare Infrastructure
Hospitals are already operating at close to full capacity in Singapore. Along with medical tourists
coming for better treatment, Singapore is also facing a rapidly ageing population which will
squeeze Singapores healthcare capacity.

It is estimated that by 2030, there will be 900,000 elderly citizens in Singapore which represents
a one in five ratio, increasing the emphasis of the importance of Singapores healthcare system.
The Pioneer Generation Package is for 450,000 Singaporeans. In contrast, there are around
one million Singaporeans between the ages of 45 and 64, who will reach retirement age in
ten to 20 years.

Diagram 15. The challenge of ageing population in Singapore

In Daily
Ageing Population +30% Singapore, 90% occupancy
seniors rates at
The world population is rapidly ageing
avearge public
hospital hospitals in
Past Now stays length Occupancy Singapore

By 2020, 11,000
300,000 erlderly citizens in
2015 Singapore (1:9):
more hospital beds
will be added

?
Food for thought:
900,000 erlderly citizens
2030 in Singapore (1:5):
How will this shapre costs and infrastructure
when it comes to our future healthcare system?

Source: Smart Nation-Forbes

Singapore would use telehealth to tackle its own healthcare challenges. National University
Hospital is undertaking a trial to see if remote healthcare is viable. In this trial, patients are
monitored at home with smart devices so that earlier intervention can be provided if need be
in order to reduce the number of visits to hospital.

From the perspective of the consumer/patient, they will be able to manage their medical
conditions especially chronic diseases such as cardiovascular, diabetes, respiratory diseases
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whilst in the comfort of their own homes. Any deterioration of a patients health can be
detected faster than if the patient was left to their own devices to visit a medical professional.

Another use for the sensors would be the development of Smart Elderly Alert Systems for the
monitoring of elderly relatives to keep them safe. Sensors placed in the flat can help to monitor
the movements of the elderly, and caregivers will be alerted should irregular movements be
detected.

This in turn would reduce traffic in hospitals emergency departments or inpatient admissions
by early intervention by the healthcare provider. This would also mean that healthcare staff can
be more efficiently allocated.

There are three key areas (not including infrastructure) that still require development, namely
next generation sensors, decision support systems and big data analytics.

Development of Next Generation Sensors. Currently, most commercially available healthcare

sensors are often intrusive and cumbersome when a patient needs constant monitoring.
Sensors are also not refined and may set off false alarms. This opens an opportunity to develop
solutions to these problems, for example, heart rate and blood pressure monitors that come in
stick-on patches, digital wrist watches or sensors embedded in items such as pillows.

Decision Support Systems. Decision Support Systems (DSS) are meant to help healthcare
professionals diagnose and recommend the right treatments and care plans for patients. This
increases the consistency of treatments of evidence-cased care and the monitoring of key
clinical and service outcomes. For example, if a medical professional comes across a rare case
that he or she has not seen before, they are able to access a database of all the past medical
cases to ensure that their diagnosis is correct.

Big Data Analytics. The data collected by the sensors will be stored in national health data
bases which would allow medical professionals to gather new insights into disease patterns
and contribute to further medical research. In Chicago, there is a group called the Health Data
Liberation Meetup Group that is devoted to helping providers, insurers, and institutions to
adopt open data practices in the field of healthcare.

Smart Transports Challenge

Limited Space for Roads
With a population of 5.4 million and approximately one million cars on the roads, the number
of vehicles that Singapore can have is severely limited. At the same time, roads take up 12%
of land space suggesting that we cannot increase its operating capacity. In response to
this, the LTA has come up with ideas that make use of ICT solutions.
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Diagram 16. Singapore transport sectors challenge

1 million
cars on the road in SIngapore (approx)

12%
land space in Singapore use for roads

Mobility
with limited land space, the number of
vehicles or roads cannot be increased

Source: Smart Nation-Forbes

Smart Traffic Congestion Management. The government plans to replace the current
ERP system with one that uses satellite position technology by 2020. This would get rid
of those structures that are a negative externality to many peoples eyes and clear up
space for other things. Using Global Positioning System (GPS), motorists may have to
pay based on the distance travelled in a congested zone rather than paying a flat fee. It
could also replace a whole range of things from replacing parking coupons to paying for
tolls at checkpoints. It would also allow motorists to obtain real-time traffic information
on an interactive computer installed in vehicles, in place of the existing in-vehicle unit.
The system should ideally be able to learn a motorists regular route and calculate how
much he could expect to pay that day. It should also be able to suggest alternative routes
with different prices and journey times. There is a possibility that motorists could pay ERP
charges at the end of a month, after the distance clocked has been compiled.

A range of payment options will be available, from upfront payment through Contactless
e-Purse Application (CEPAS)-compliant stored value cards to backend payment using
credit and debit cards, a virtual payment account and GIRO.

Monthly subscription fees for all transportation needs? Whether you travel by bus,
train or cab, the Mobility-as-a-Service (MaaS) mobile app may allow you to pay a one-off,
monthly subscription fee to get around Singapore. Adding the fact that you will be able
to get the app to plan a trip for you all you need to do is enter your starting point
and destination and MaaS could just be the next efficient, one-stop platform for our
transportation needs. Details are scant, but according to IDA, this integrated model will
allow commuters to get around at a lower cost. Another huge advantage is its efficiency;
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there is no risk that ones ez-link card is running out of money, or having to rush to top
up the card when one is running late for work.

Autonomous Vehicles in Sentosa. In April 2015, IDA revealed that it will be working with
the Sentosa Development Corporation. Driverless cars will ferry visitors around the island,
drones will roam to check for litter, and self-driving lawnmowers will maintain the landscape.

Ministry of Transport, Sentosa Development Corporation and ST Engineering have

signed MOUs to conduct tests for a fleet of on-demand self-driving shuttles, which
will complement the islands existing bus, tram and monorail network. These driverless
shuttles will allow guests to travel around the island by calling for them via smartphones or
information kiosks. The public trials for this will take place after 2018, once an engineering
study determining the technical requirements for seamless navigation is completed

Smart Logistics Two Key Challenges

Present day track and trace technologies are often used by large organisations for
premium cargo but many of them lack near time information. Also verifications are also
very disjointed with the change of custody across different service providers with as many
as 25 parties required to process one export shipment, with each using different standards.

Smart logistics will be a centralised platform. This platform will allow different players
- cargo owners, freight forwarders and ground handlers - to leverage upon sensory
networks in airports and seaports to track and manage their cargo in near real time. The
government will fund the building of the infrastructure and allow small players to access it
at an affordable price. According to IDA, smaller players in particular, will benefit from this
more affordable system that will enable timely response to unforeseen events, automate
labor intensive processes and reduce inventory.

TradeNet, the e-government platform for the local trade and logistics industry launched 25
years ago, will be undergoing a facelift. There is a plan to combine the backend systems of
TradeNet, TradeXchange and Customs into one system, tentatively to be named National
Trade Infrastructure, once the current contract expires in 2017. The government hopes
that this keystone project will boost Singapores productivity and competitiveness through
a digitalised, integrated supply chain. A tender for this project had been called and bids
are now being evaluated.

Ningbo City in China, for example, has developed a Smart Logistics Center to streamline
the ports entire supply chain and allows 5,000 logistics companies in Ningbo to share
data. Using this cloud platform, logistics companies and their clients can work together
to respond to changing demands to better decide what to produce and when and where
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to ship it. Every shipping vehicle has a GPS tracker now and the idling of trucks has
decreased significantly by up to 80% in some cases.

Smart HDB Town Framework

The Smart HDB Town Framework maps out the introduction of smart technologies in HDB
towns and estates by focusing on four key areas: Smart Planning, Smart Environment,
Smart Estate and Smart Living.

Smart Planning. It refers to the use of computer simulations and data analytics to
enable HDB to effectively plan and design its estates. For example, when assessing the
effectiveness of various initiatives (e.g. LED lighting, solar energy, vertical greenery,
rainwater harvesting, recycling, pneumatic waste collection), and making a decision on
the best combination to achieve sustainability goals in a cost effective way. Each car park
will also have an intelligent parking demand monitoring system that will automatically
increase the number of available lots during non-peak hours for visitors, as residents with
season parking tickets are out, and reduce the number of available lots for short-term
parking visitors in the evening, to ensure sufficient lots are reserved for residents with
season parking tickets returning home.

Smart Environment. Estates will be linked with a network of sensors to create a Smart
Environment. These sensors will capture real-time information on environmental factors
such as temperature and humidity. Innovative solutions can then be found to create a more
pleasant environment for residents. For example, fans in common areas can be triggered when
certain thresholds of temperature and humidity are reached. The fan speed can be regulated
to improve the thermal comfort level for residents, while reducing energy consumption.

Smart Estate. Data will be analysed by Smart technologies to optimise maintenance

cycles and pre-empt problems. This will allow us to better understand the usage patterns
of common amenities so as to easily check and identify problems to resolve them. For
example, lighting fitted with sensors can help HDB to understand human traffic patterns
and optimise the provision of lighting. The lighting in common areas with little or no
human traffic detected could be reduced to 30%, hence reducing energy usage.

Another example would be the installation of a Smart Pneumatic Waste Conveyance

System. Waste disposal patterns and volumes can be monitored which will allow effective
waste collection frequencies. This can help to optimise the deployment of resources
needed for waste collection.

Smart Living. The Smart Nation plans include using smart technology in housing estates.
HDB estates are the first to try using these smart technologies to see if individuals can
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adapt these for day to day living. Residents will be able to tap on Smart home applications
developed by commercial companies that can enhance energy savings, and enable them
to access services like healthcare, in the comfort of their homes. Seventeen companies
are participating in the trials, including the likes of Samsung, LG Electronics and StarHub.
For example, HDB, together with the Energy Market Authority (EMA) and Panasonic,
are exploring a suite of different energy choices and solutions for households. Residents
can also monitor their energy consumption patterns, and manage their home appliances
anywhere, in real time.

Smart Tech Challenges

The Smart Nation Tech Challenge is meant to encourage individuals and businesses to
join the government and use new technologies to solve problems that we face in an
urban environment. The Smart Nation Tech Challenges are very much a government-led
initiative. Other smart cities such as Amsterdam and New York have citizen-led initiatives
that allow anyone to convert an idea into a feasible project. Although there is no clear
direction, there is a lot of citizen engagement

Video Analytics Smart Nation Tech challenge. Video analytics is the analysing of video
streams and footages taken by surveillance systems and translating these into data that
the government or another type of organisation could use. It could potentially boost
public safety and improve resource utilisation when video analytics software senses that
something is amiss, or improve services in areas such as transportation, healthcare, retail
and security through relevant data gained.

The challenge is thus to build up industry technical capabilities in video analytics (i.e.
accuracy and availability of algorithms) and to create solutions to video analytic problems so
as to generate greater value from cameras. The evaluation, validation and announcement
of winners for the challenge is expected to be announced in January 2016.

There are three main benefits to the advancement of video analytics technology, namely
public safety, manpower utilisation and situational awareness.

China Smart Cities

IoT is one of priority projects of Chinas 12th Five-Year Development Plan (2011- 2015).
In February 2012, Chinas Ministry of Industry and Information Technology (MIIT) released
the national 12th five-year plan which put forward the objectives, investments and
roadmap for Chinas IoT market. According to Chinas R&D Centre for Internet of Things
(CIT-China), the Chinese government is expected to invest around 3.8 trillion Chinese
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yuan (US$610 billion) in developing a M2M ecosystem within the decade ending 2020.

Chinas central government has selected over 200 cities to pilot smart city projects. These cities
include Beijing, Shanghai, Guangzhou, and Hangzhou beside others. Over 90% of Chinas
provinces and municipalities have listed IoT as a pillar industry in their development plans,
For example In Zhenjiang, Jiangsu province, high-speed 4G networks have become standard
in buses, trains and the citys app broadcasts bus arrival times. Zhenjiang states that over
500,000 commuters now utilise these features daily saving 6,700 tons of carbon dioxide and
US$2.7 million in fuel costs annually by more closely tracking real-time bus routes.

Diagram 17. China Smart City Technology market to boom

Source: Navigant Research

Tai Lake in Wuxi City is using IoT technologies to monitor and predict the Cyanobacteria
outbreak and protect the water supply to the city. China Smart City Industry Alliance, an
association sponsored by MIIT predicts that smart city related industries will grow at a
compound annual growth rate of 18% over the next 15 years from 2014 and IDC predicts
that urban construction investments associated with smart cities in China will reach 2
trillion yuan (over US$300 billion) over the decade ending 2025.

In smart city initiatives rolling out smart grids, establishing smart traffic management
systems, video analytics and surveillance and smart governments are key areas of focus.

Big spending on smart metres and grids. Chinas biggest power distributer, China State
Grid Corp., has spent about 400 billion yuan (US$6 billion) last two years on its electricity
networks and plans to invest over 420 billion yuan (US$6.8 billion) in 2015. Growing
electricity demand due to urbanisation, the nations pledge to generate 20% of its
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energy requirements by 2020 from renewable sources and increasing demand for electric
vehicles is expected to drive demand for smart grids. McKinsey estimates that Chinas
urban population will grow to 840 million by 2020 and over five million electric vehicles to
be on the roads by 2020. By 2013 China had deployed over 250 million smart metres. A
recent report by the WorldWatch Institute states that the Chinese government is planning
to have smart metres installed in 95% of Chinas households by 2017. As such, over 435
million smart metres are expected to be deployed by 2017.
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Potential Impact on Various Sectors

Utility Sector
Likely to see a 15% uplift in operating profit by 2020. According to Research and
Markets: Global Utilities Industry Report 2014-2017, the global utilities industry was
worth US$3.4 trillion in 2014. Gartner predicts US$95 billion IoT-related economic value
additions in 2020. An operating margin of 19% in the industry according to CSIMarket,
suggests that there could be a positive impact of 15% on the sector due to IoT. The
biggest impact will come from lower input costs for the utility companies and creation of
more eco-friendly businesses. According to Gartner, utilities have about 299 million units
of IoT in 2015, slightly behind 307 million units in manufacturing.

Power companies to benefit from smart metering and smart grids. Smart metering
is already seeing deployments in regions such as the United States, Western Europe and
Asia. Singapore and China have taken the lead in Asia by putting in place state mandated
smart metering programmes that have paved the way forward for future standards in the
sector. According to various market intelligence reports, the smart metre installed base (as
a percentage of all metres) in Singapore is expected to reach 75% by 2020. The EU for
example has set a target of 80% for smart metres by 2020.

According to Navigant research, 94 million smart metres were shipped worldwide in 2014,
and the total installed base is predicted to reach 1.1 billion by 2022. Whereas traditional
metres just offer total consumption, smart metres break it up by date and time, helping
to raise awareness about the value of energy conservation. For example, a customers
bill may go down if he shifts his lifestyle to do more on a Saturday (much lower tariff on
Saturday), while the electric company benefits by spreading out that load more into the
weekend instead of a weekday.

Diagram 18. Smart Meters feedback loop

Smart meter measures Data is transmitted to Energy producers Monitoring household

and records household electricity distributors
electricity usage every who own and
30 minutes manage the grid,
poles and wires
make consumption
data available to user,
via web portal or
in-home display
energy useage helps
user compare offers
and better manage
costs
Source: Switchon
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Most importantly, the data generated will used by utility companies for automated billing and
optimisation of electricity generation and distribution. In addition, governments are promoting
the use of renewable energy, whose generation capacity varies according to weather patterns.
Utility companies can develop better predictive models using the newly available sensory data to
manage loads as well as implement dynamic grid operations to support the changes in generation
and usage. IoT technology is also useful in testing and implementing new technologies. For
example, techniques such as distributed energy generation where households generate energy
which is then distributed to their neighbours through a smart grid can be adopted.

Water is another area of interest. This includes areas such as smart metering (for water) to
tele-managed irrigation networks and use of optimised routes for efficient garbage collections.
Smart metres for water, similar to electricity, can be used to control and reduce water usage
and wastage. Smart water metres are also an integral part of smart water systems which uses
real time data to better monitor water usage and detect any problems such as leakage.

The use of sensory data can optimise the use of water in irrigation activities. For example,
Barcelona is already testing a tele-managed irrigation system to reduce water usage, where plants
are watered depending on the moisture level of the soil. This is important for areas with limited
water supply and can reduce costs relating to transporting and distributing water. The Barcelona
city council estimates a savings of US$555,000, representing a 25% cut in water usage.

Waste management companies to benefit from lower manpower needs. Singapore,

for example, is implementing Pneumatic Waste Collection System (PWCS). When residents
throw rubbish down their chutes, it goes to a refuse chamber on the ground floor. A sensor will
be triggered when the container in the refuse chamber is full. The waste is then transported by
exhaust air, through underground pipes. It travels at speeds of between 50 and 80 kilometres
per hour to a centralised bin, where the rubbish is stored in sealed containers. When full, trucks
will transport them to incineration plants. As for the exhaust air, it is passed through dust and
odour filters. The clean air is then discharged into the atmosphere. With the process being
automated, overall manpower needs are expected to be 70% lower.

Diagram 19. Waste management with IoT

NetBin

Sensor monitors Collection can be planned

bins fill level around bins that need
Cloud based application monitors bins emptying. Route can be
level and sends message to collection planned on smart phone
Source: FarSite Communications
lorry that it needs emptying or smart device, or desktop
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Transportation Sector
Likely to see 21% upside in operating profit from IoT. Gartner projects IoT to have
about US$114 billion impact on the transportation segment. According to Research and
Markets Global Transportation Services Industry 2012-2017 forecast, the size of the
global transportation industry will be US$2.7 trillion by 2017. Based on operating margins
of 20% in the 2015 June quarter according to CSIMarket, the overall impact of IoT will be
around 21% at operating profit level.

Cargo owners and freight forwarders to see lower inventory and insurance costs.
These players will be able to intervene pro-actively to manage deliveries in the case of a delay
or any exceptional event, using real time tracking. They will also be able to prevent loss of
inventory from environmental damage by monitoring and managing temperature, humidity,
exposure to light etc especially for the commodities. Routes can also be optimised. Through
active monitoring, excess inventory along the supply chain can be minimised, which will add
to profits. In addition, the data can be used to improve and optimise the logistics processes
which can be lead to cost savings and reduce delays. As such, the cost of insurance for such
shipments should reduce with a lower risk of shipment failure.

Ground handlers to benefit from optimisation of equipment use. By creating a tag

association between cargo and ground handling equipment, ground handlers will be able to
provide a full suite of real time track-and-trace capability to customers with such demands.
Also, the tagging of equipment such as pallet dollies and tractors will reduce reliance on
ground handlers to track equipments, translating to their optimal use. Usage of automation
can have much bigger impact on e-commerce logistics than standard logistics services as
e-commerce operations tend to be dominated by high volumes of small and irregular orders.

Diagram 20. Beeline app suggests routes based on crowd sourcing

Source: Beeline
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Increased flexibility of public transport. Another facet would be through understanding

crowd behavior and patterns. The data collected by sensors in trains, busses, airplanes and
transportation hubs can be used to predict the demand for transport services, which can be
used to dynamically adjust availability of services. For example, Singapore launched Beeline
app in April 2015, whereby bus routes are crowd sourced. People can input suggested
routes at various times in the app which can be aggregated to start shuttle services.

Improved uptime and on-time schedule for public transport. As regular maintenance
can be costly, early failure of neglected equipment is typically far more expensive. With
predictive maintenance using sensors, the unexpected downtime in public transport will
be reduced significantly. For example, In Oslo, the operator focussed on faulty train doors
causing delays across the whole line. Research into the problem determined that speed
of the door slowed down gradually prior to the point at which it remains open. This
discovery led to the creation of an application to monitor this parameter. Now, each
train car has Wi-Fi and a unique ID. The data snapshot gets downloaded into an internal
database. For example, more than three slow closing errors for a particular door in a
day set a flag for predictive maintenance to take place.

Manufacturing Sector
Likely to see a 22% upside to operating profit by 2020 due to IoT. This sector will see the
highest gains from cost efficiencies and new business opportunities. According to World Bank
data, the global manufacturing industry was worth US$11.9 trillion in 2013. Given operating
margins of 11% in the industry according to CSIMarket, it would suggest that there will be 22%
upside from the US$285 billion IoT-related economic value addition as predicted by Gartner.

IoT manufacturers will increasingly sell services, not just products. Manufacturers of
larger goods elevators, air-conditioning units, jet engines, and medical equipment sell
maintenance contracts along with equipment. This requires regular inspection and maintenance
visits, and customers still experience downtime and emergency call-outs.

With IoT, manufacturers can remotely monitor the condition of equipment and look for indicators
of imminent failure such as vibration, temperature, or pressure. This means that the manufacturer
can make fewer visits, reducing costs, and freeing up employees. For the customer, it means less
disruption, increased utilisation, and higher satisfaction. Manufacturers may take this to the next
level by offering a price-per-use, inclusive of all hardware, installation, and servicing.

Production lines have the most to gain from connected equipment. Most production-line
systems already contain the necessary sensors for anomaly detection its just a case of adding
connectivity. The data in manufacturing automation systems on factory floors is used only for real-
time control or anomaly detection. By connecting production-line systems, manufacturers can
move to predictive maintenance, which will make better use of resources and reducing unplanned
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downtime. Currently a big part of data generated is not analysed except for anomaly detection.
But with IoT, data will be analysed for predictive maintenance and work flow optimisation.

Healthcare Sector
Likely to see a 9% upside to operating profit by 2020 due to IoT. According to Gartner,
the biggest impact on healthcare industry from IoT comes from new market opportunities
and lower input costs. The overall benefit for the healthcare segment, in terms of economic
value, by adopting IoT is expected to be about US$285 billion, according to Gartner. The
global healthcare industry is expected to see revenues of about US$13.7 billion by 2020
according to estimates by Bain & Company. Given industry operating margins of about
23% in the 2015 June quarter according to CSIMarket, the overall benefit to the operational
profit of the industry is likely to be around 9%.

Remote patient monitoring will reduce staff costs and help to divert resources towards
serious ailments. More than 70% of healthcare spending goes towards treating chronic
ailments, such as diabetes, hypertension, chronic pulmonary diseases and cardiac conditions.
Costs can be optimised if we can keep patients out of hospitals, in their homes and still provide
a comparable level of care by using mobile applications like telehealth (for example, sensor-led
continuous monitoring, rather than a nurse checking on patients frequently).

A Singapore based company, Silverline is already using IoT tech to provide remote monitoring
to the elderly. It claims to have established the worlds first mobile and smart home assisted
living ecosystem, which helps the elderly to lead a more wholesome and healthy life by
empowering them through technology. They have a range of devices and customised
smartphone apps for elderly and caregivers to monitor and track activity.

Growing popularity of wearables to provide relevant data to healthcare providers.

The availability of data from various wearables means that this information can now be sent
to hospitals and ambulatory health records, and combined to create complete patient
data that includes data for both within and out of a hospital setting. The old-style, hospital-
or physician-focused data, without the accompanying data from wearables provides only a
snapshot of the patients condition at that particular time

Hospitals and healthcare providers to benefit from less downtime and more
efficient allocation of resources. For example, IoT technology can monitor and predict
when important equipment of the hospital will need maintenance, allowing the hospital to
avoid rescheduling patient and doctor appointments and increase utilisation of the asset.
Similarly, hospitals can manage their pharmaceutical and equipment inventories more
efficiently, which are generally overstocked. Hospitals will be able to incorporate a higher
level of automation to their electronic health records systems through the use of lower cost
sensors, which will cut labour requirements as well.
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Conclusion
The IoT will revolutionise the way we do business, like the Internet did in the 1990s. South
Korea and Singapore have been identified to be among the global leaders in adopting
IoT. Compound that with Chinas push to build 202 smart cities to cope with the rapid
urbanisation that is taking place, it is no wonder that Frost & Sullivan estimates total
spending on IoT in the Asia Pacific will reach US$59 billion by 2020, from US$10 billion
in 2014.

With IoT set to permeate nearly every facet of everyday life, from health to transport
to utilities, it is vital that the different products made by different manufacturers could
operate seamlessly in their respective ecosystem. But this can only be achieved through
deep co-operation during product development making it vital for governments and
big enterprise customers to standardise IoT protocols across the entire range of products
in a sector.

The IoT will disrupt how businesses operate and the structure of industries. But the
enormous growth opportunities and revenue generation from IoT solutions and services
cannot be ignored. And companies that choose to adopt IoT early, are bound to reap
handsome profits.
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Disclaimers and Important Notices

The information herein is published by DBS Bank Ltd

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from sources believed to be reliable, but the Company
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or correctness for any particular purpose. Opinions
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individuals connected with the group accepts no
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 Living, Breathing Asia

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