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Background
In July 2020, the European Commission decided to launch a sector inquiry for consumer IoT. The objective of the inquiry is to analyse the consumer IoT market and identify potential competition issues.
Key findings presented in the report
Note: Industrial IoT is not within the scope of this report. Connected cars are not within the scope of the report either.
Integration of leading operating systems and voice assistants
The report explains that IoT manufacturers need to integrate with leading operating systems and voice assistants to be able to compete in the IoT market. These operating systems and voice assistants are mostly provided by Amazon, Google and Apple. Alexa and Google Assistant are by far the most popular voice assistants chosen by smart home device manufacturers, followed by Siri. General-purpose voice assistants play a tremendous role as they allow for the connection of various brands of IoT in a single, integrated environment.
However, smart mobile applications remain the most used user interface to access smart home and wearable devices and consumer IoT services. Operating systems (Android, iOS) here play an important role.
These leading providers govern the interoperability and integration processes. They may limit the functionalities of third-party smart devices and IoT services, compared to their own, by imposing technical constraints, such as limited APIs. The report mentions the example of voice assistants which might not always offer all the functionalities when integrated into third party products.
Outside of these leading ecosystems, interoperability is still missing. The two most prominent communication protocols (according to respondents), Zigbee and Z-Wave, do not allow for interoperability among devices using one or the other.
Standards: a fragmented ecosystem ruled by “de facto standards”
Technologies in the consumer IoT sector typically rely on a mixture of open standards or open-source technologies and proprietary technologies (own technologies or licenced from third parties).
On the one hand, basic enabling standards are mostly based on open standards (Bluetooth, WiFi, USB, HDMI, HTTP, ETSI EN 303 645 on cybersecurity etc.).
On the other hand, device definitions, application layers and user interfaces rely more often on proprietary technologies. For these elements, standards are currently not in a position to compete with proprietary technologies from the leading providers of operating systems and voice assistants. Proprietary solutions become “de facto standards”.
60 % of the respondents expressed the need for further standardisation. Many respondents see standardisation as crucial for achieving true interoperability. Communication standards are deemed particularly important. There is also a lack of standards for data. There are no industry-wide standardised formats for collecting and sharing data between consumer IoT companies. For wearable devices, the FIT file format has become a de facto standard for data sharing.
The standardisation ecosystem is currently highly fragmented with various standards covering the same function. Many respondents advocate for a consolidation of already existing standards rather than developing even more competing standards. Many respondents also mentioned the CHIP Project as a promising attempt to consolidate existing technologies. This project is co-led by Google, Amazon, Apple and Samsung and could result in a connectivity standard allowing interoperability across products.
It is expected that emerging technologies, such as AI, will slow down the development of standards as they will imply ever-changing requirements and challenges.
Costly integration processes
In the integration process with leading operating systems and voice assistants, the main players govern the process and impose certification processes. These certification processes are controlled unilaterally by providers of leading technology platforms. Participation in these certification processes involves the acceptance of non-negotiable standard terms and conditions. Refusing those standardised agreements is generally not an option: the majority of IoT manufacturers and service providers lack bargaining power.
IoT manufacturers need to adapt their products and services to each IoT technology platform in which they want to integrate. This is costly and time-consuming due to the heterogeneity between APIs. IoT players are often not able to offer a consistent and homogenous user experience across the different platforms.
Respondents explained that they must dedicate resources and specialised teams to work on the implementation and maintenance of such integrations. They must also cover the costs of hardware resources needed for API integration (memory size etc.). This “further raises the burden placed on manufacturers”.
Additionally, some wearable manufacturers also experienced difficulties with app store providers that block, remove or delay the approval of their companion apps.
Data collection & data security
The report highlights a situation whereby the leading providers of voice assistants have a key advantage for the collection of data. They collect data regarding the service they offer and also on the use of the IoT device itself. IoT manufacturers do not have such a broad access to data. This limits their possibilities to access data to improve their products. By contrast, leading voice assistant providers may use this data to improve their own IoT products.
Respondents often use encryption technology when processing sensitive (personal) data, for instance health or location data. Some respondents also use separate storage solutions for personal data and for non-personal data.
Default settings & tying practices
The report describes the common practice of “pre-installed” proprietary applications that come with the voice assistant and/or operating systems. This provides an advantage to the provider of these proprietary applications (e.g. default music service on smart speakers).
Another competition issue is the exclusivity clause for voice assistants. For instance, IoT manufacturers can be barred from installing a competing voice assistant on the device.
Control of the user relationship and user experience
The report mentions a potential loss of visibility for IoT manufacturers as users interact with the voice assistants using the voice activation word. In practice, this could reduce the visibility of smart device manufacturers’ brands.
Furthermore, providers of technology platforms often require the user to have an account or an ID in order to access the IoT services. “As a result, smart device manufacturers and consumer IoT service providers are reportedly prevented from controlling the on-boarding experience of the user”. This could prevent the manufacturers from collecting relevant data from users, such as contact details and personal information. Additionally, manufacturers report authentication issues that cannot be solved without the intervention of the platform provider.
Next steps:
The European Commission is collecting feedback on these preliminary findings. DG Competition is soliciting views and comments of interested stakeholders. Interested parties should send their comments to COMP-SI@ec.europa.eu. Deadline: 1 September 2021.
The final report of the sector inquiry should be published in 2022.
If you have any questions on this topic, please do not hesitate to contact Camille Dornier - Policy Manager: camille.dornier@eurosmart.com
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