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Internet of Things: How Much Does it Cost to Build IoT Solution?

October 21, 2016 Written by Andrei Klubnikin, Senior Content Manager
IoT is trending. Companies invest in new tech to streamline business processes and cut expenses. Consumers buy wearables and Smart Home appliances to save time and improve the quality of their lives. If you’re set on releasing a smart device or consider optimizing your business workflow with the Internet of Things solutions, you need to get an idea of how much it may cost you to build one. In this article we’ll try to figure out what may constitute the final cost of an IoT solution

Internet of Things Cost Breakdown

The Internet of Things is the environment where gadgets equipped with smart sensors collect data and exchange it over a network.
Thus, the system operates on three levels:
  • Hardware (various objects enhanced with firmware/embedded systems and smart sensors).
  • Infrastructure (a piece of software that receives, analyzes and stores sensor data; it runs in the cloud or on a corporate server).
  • Apps (applications for smartphones, tablets and PCs that connect hardware to the infrastructure and enable users to manage smart gadgets).
Internet of Things High-level Architecture Although IoT potential economic impact will exceed $ 11 trillion by 2025, the Internet of Things development requires substantial upfront investments. Where does the money go?

Hardware

The price of building a smart gadget may amount to 70-80% of the total IoT cost and depends on the type and complexity of a solution you intend to create.

Hardware Design Stages Influencing IoT Project Costs

  • Analysis: the phase involves concept development, budget planning, cost optimization and technical requirements specification.
  • Modelling: engineers and industrial designers create Printed Circuit Board (PCB) layout schemes and visualize the gadget’s interior in 3D CAD.
  • Prototyping: a hardware device manufacturer creates up to ten PCBs, debugs them and makes corresponding changes to the requirements document.
  • Testing: successful prototypes are transformed into pre-production models which use different materials for the device case. Various types of tests are then conducted, including climatic, electrical safety, pre-certification and user tests. During this phase, critical errors might be detected, and the prototyping process starts all over again.
Innovative IoT solutions usually go through three to five iterations until they are ready to be passed for mass production. On average, an IoT gadget spends anything between six months and two years in the development stages we’ve mentioned above before finally making it to market.
How much does it cost to develop IoT hardware then – given that you need to invest in research, analyze technical requirements, prototype and test your idea, and, finally, manufacture and market the end product? The honest answer is, “It depends”. A complex Home Automation system which uses machine learning algorithms to identify and remember a home owner’s face and automatically adjusts its settings based on the person’s preferences may cost up to $5 million (hardware and software costs included). The price of building a custom EKG tracker which analyzes the electrical signals of a human body and visualizes sensor data via a mobile app is estimated at only $300 thousand – but there are hidden costs you might overlook.

Hardware Certification

Certification is often considered one of the major factors behind the cost of the Internet of Things hardware design and – despite what people think – is not handled by a contract manufacturer.
There are several types of certificates you might need for your product, including:
  • FCC certification, which is required for all electrical devices sold in the United States and might be significantly more expensive for devices using wireless connectivity.
  • UL/CSA certification for electrical devices that plug into electrical outlets; obligatory in both Canada and the United States.
  • CE certification, which is the European Union analogue of FCC and UL.
  • RoHS certification confirms that a product does not contain lead. It is a standard certification procedure both in Europe and the United States.
Although IoT device regulations differ from country to country, they usually fall into the following categories:
  • Environment and electrical safety (including the Restriction of Hazardous Substances Directive and Energy Star compliance, as well as tests for issues like overheating and electric shock).
  • Communication protocols (before you label your gadget as Bluetooth-compatible, you have to test it in certified labs).
  • Electromagnetic & radio-frequency interference (you need to prove the performance of your device won’t be affected by other connected devices within Wi-Fi/BLE/cellular network range, while the device itself conforms to the electromagnetic radiation exposure standards).
  • Product-specific (such as skin tests required for devices which come in contact with the skin).
Thus, the price of a certificate for a simple electronic gadget (including devices that rely on wireless connectivity) starts from $10 thousand.

“Hardware” does not Necessarily Mean “Electronics”

The whole concept of the Internet of Things is based on continuous data acquisition and analysis – and you don’t always need an electronic device with custom-written embedded software running on it to collect sensor data and send it to a cloud-based or on-premises server. In fact, by 2020 electronics will comprise only 0.2% of all gadgets that will have some form of IoT capability.
Here are several examples of simple IoT projects to illustrate the point:
  • Diageo, an alcoholic brand that manufactures Smirnoff, Baileys and Johnnie Walker, places printed sensors on the bottles to track goods across supply chains and interact with customers after the purchase.
  • A typical IoT greenhouse is just a set of temperature, light and soil moisture sensors paired to a microcontroller or microcomputer.
  • It is RFID tags and inexpensive BLE-enabled devices like beacons that allow retailers to collect data on customers’ in-store activities and optimize their marketing efforts.
In other words, anything can be smart these days – and the fact that sensor costs have dropped by almost 200% between 2004 and 2016 proves the Internet of Things powered by basic tiny data acquisition devices is on a path to a bright future.

Fit into a Baseline Cost to Go to Investors for Funding - Start with an MVP or PoC Built Using SoCs and IoT Prototyping Boards

According to Gartner, 50% of all IoT solutions are developed by start-ups – and small Internet of Things companies seldom possess financial resources to design and produce a market-ready connected gadget from scratch. What’s more, IoT success often requires Proof of Concept – the evidence that your idea can find commercial success, and there are no technology limitations on your way. Using off-the-shelf prototyping tools including systems on a chip (SoCs), microcontrollers and single-board computers like Arduino, BeagleBoard and Raspberry PI is a win-win solution to both problems. Besides, having a working prototype significantly increases a company’s chances of getting funded.
Here’s an example:
MedAngel, formerly known as Insulin Angel, is a healthcare technology start-up from Germany which designed a temperature-tracking device to reduce insulin wastage. The start-up implemented the Wunderbar off-the-shelf prototyping solution to design a simple tracker and a mobile app facilitating its management. Once they had an MVP, they were able to launch a successful IndieGoGo campaign, take part in several tech contests and create some media hype around the project.

Infrastructure

Components of IoT Infrastructure & Additional Costs they Incur

  • Network. The Internet of Things won’t work without a highly scalable wireless network infrastructure, low latency and high speed connections. IoT connectivity is usually enabled by means of short range wireless (Wi-Fi, Bluetooth, NFC), cellular and low-power wide-area network (LPWAN) solutions. In case your product comprises a system of connected gadgets communicating over a cellular network, you should plan for extra connectivity expenses.
  • Middleware. If you’re planning to incorporate a ready-made 3rd-party gadget into your IoT ecosystem, you might need middleware – a piece of software which functions as an interface between IoT components, thus connecting devices that fail to communicate otherwise. According to Intel, 85% of all IoT products on the market are not designed to talk to each other or connect to the Internet.
  • Cloud-based or data center infrastructure. Here we talk about storage solutions and software that boils down gigabytes of raw data to what’s truly meaningful. The Internet of Things start-ups typically leverage smart gadget connectivity and data analysis through PaaS solutions built by Intel, Amazon or Microsoft.

Hidden IoT Infrastructure Costs

Many IoT solutions require a complex support system which is also called “infrastructure”.
For instance, you produce distribution transformers enhanced with oil level and temperature sensors and provide Predictive Maintenance services to your customers. The goal of the connected solution is to monitor crucial performance indicators such as the rise in ambient/oil temperature automatically and detect equipment that needs repair or replacement. In order to manage a large network of distribution transformers effectively, you need a mobile app to generate alert notifications if sensors register abnormal behavior and a desktop admin dashboard for real-time equipment monitoring. You will aslo need an app running on your customers’ PCs. The equipment maintenance process involves services from and communication with third parties such as equipment manufacturers, network providers and maintenance, repair and operations (MRO) companies. In order to automate the entire process and enable efficient interaction with these companies, you have to integrate your custom software with their business apps.
Another example is IoT-based monitoring systems for elderly people, which, besides hardware, software and cellular networks, require a dedicated customer support team ready to help users who pressed the life alert button. To enable connectivity for your IoT solution, you rely on cellular networks. In this case it will incur network costs, and they will depend on a telecommunication company's rates

Applications

How much does it cost to develop web, mobile and wearable applications that enable users to operate connected devices from a smartphone, tablet, PC or a fitness bracelet? Just like with hardware, it depends on the size and complexity of an IoT project.
The factors which might affect the final IoT application development costs include:
  • Number of supported platforms;
  • Integration with 3rd-party solutions like payment gateways and CRM/ERP/DMS/CMS systems;
  • Data ingestion sources and requirements to reporting granularity;
  • Reinforced security standards.

Examples of IoT software projects & their cost estimates

  • A single-platform (iOS) mobile data visualization app which works in sync with a custom EKG tracker takes about 300 man-hours to build and costs $10-15 thousand[1]. Although the application uses several elaborate programming tools including the OpenGL library to render sensor data in real time and produce high quality medical graphs, any project with a duration of 500 man-hours or less is considered to be a small one.
  • A BLE-enabled mobile solution (iOS and Android) that facilitates management of connected stationary bikes, visualizes historical workout data using ios-charts and MPAndroidChart and allows users to share their progress on social media takes about 1000 man-hours to create. It is a medium-sized IoT project estimated at $30-35 thousand.
  • Secure Android and iOS mobile application which is integrated with a wide range of radiation monitoring devices via Bluetooth, analyzes sensor readings, generates reports, sends data to a cloud-based server and features a PIN code generator and obligatory authorization takes around 2000 man-hours to develop. It’s a large-scale IoT project estimated at $70 thousand.
Another example is multi-level IoT solutions which may feature a web-based admin application with CRM/ERP capabilities, embedded software running on custom devices and mobile and tablet applications. Such complex systems may take up to 6000 thousand man-hours to create and cost $200+ thousand. IoT Project Cost Breakdown

Figuring out Cost of Internet of Things Solution: Final Estimates

  • In case you’re working on a complex or innovative IoT project, your Internet of Things journey should start with a Proof of Concept. If you don’t have tech expertise to create it yourself, you’ll have to pay for the man hours your software vendor spends on tech feasibility verification and PoC implementation.
  • You need to design and produce hardware for your connected product. If your budget is constrained, you can always turn to prototypes to get funding for further development and mass production.
  • IoT infrastructure requirements depend on the complexity of your solution and business model you’ve chosen. Don’t try to challenge the industrial IoT and Home Automation markets unless you’ve got a couple of millions to keep a project with an extended timeline going or you’ve found investors eager to support  your idea.
  • Make sure to save some money for marketing. After all, IoT will soon be bigger than mobile, and you have to convince consumers your device is better than its alternatives.
If you calculate and add up the costs of IoT components (including hardware, infrastructure, mobile or wearable applications and certificates), you won’t arrive at a sum smaller than $50 thousand. That’s how much an MVP version of an IoT solution costs.
At this point, you might feel discouraged and consider abandoning the project for good. It definitely wasn’t our purpose. We want you to weigh the pros and cons of building a smart gadget and understand the investment upfront to make sure you can provide the necessary infrastructure for the device and streamline your business. The cost of a comprehensive Internet of Things solution is high, but there are options to get the ball rolling. Provided you have a feasible idea, you may consider finding an investor or launching a crowdfunding campaign to get funding for your project. To present your idea to business angels and funders, you can start with designing a smart gadget using off-the-shelf solutions, do a software PoC. This will help you pitch the idea to VCs and gain credibility for your breakthrough market idea. If you want to discuss the details of your IoT idea implementation, get in touch with our team. We’ll put to work our expertise in the IoT field to assist you! [1] The estimates given in this article are based on the median Eastern European developer hourly rates which range from $ 30 to $ 35

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