The European Commission recently released the final report for its sector inquiry into Consumer IoT. The report reviewed responses from more than 200 stakeholders in the IoT sector including manufacturers of smart devices, providers of voice assistant services, and standard-setting organisations.

The concerns raised in the final report are largely consistent with those raised in the preliminary report. Our comprehensive summary on the preliminary report can be found here.

In short, the report outlines the EC’s concerns about the role voice assistants and lack of interoperability play in the entrenchment of Amazon, Google and Apple as gatekeepers to consumer IoT. The EC is particularly concerned that accumulation and sequestration of data gives market leaders an unfair advantage which will continue to raise barriers to entry, and reduce competition and consumer choice in the IoT market.

Complex and fragmented standards landscape

The report found that the standards landscape for both the standards needed to integrate and connect devices, and those which ensure quality and security of communications, are complex and fragmented:

“the consumer IoT sector is a highly heterogeneous environment when it comes to standards: devices and services rely on a combination of open standards, protocols, and proprietary and open source technologies. The combination of standards, proprietary and open source technologies largely varies depending on the different technology layers incorporated in devices and software programmes.”

While this might sound typical of a highly dynamic environment, the problem is that, as the report sees it, consumers prefer to access the ‘swarm’ of IoT devices which increasingly are populating our lives through ‘gateways’ which themselves are proprietary. There are a number of formal standards developing organisations and private partnerships which are currently developing standards for the development of consumer IoT technologies. However, the report notes that these standards are still relatively immature and high level.

In the absence of robust and well developed standards, proprietary technologies, particularly those developed by Amazon, Google and Apple are becoming de facto standards. This creates a risk that Amazon, Google and Apple will leverage these proprietary technologies to create an unfair advantage for themselves.

This could be potentially solved by interoperability requiring IoT proprietary standards to be able to ‘talk to each other’. But the report identified a concern that the market leaders, specifically Amazon, Google and Apple, have the ability to create an unfair advantage for themselves downstream by increasing technical requirements for interoperability to artificially increase the attractiveness of their own products or preferencing their own smart devices over rivals.

Interoperability has long been a mandated requirement of the underlying fixed and mobile networks over which IoT services are provided, and there seems to be a growing push to embed interoperability as a feature at the IoT level

“Each [IoT platform] promotes its own IoT infrastructure, proprietary protocols and interfaces, incompatible standards, formats, and semantics which creates closed ecosystems (sometimes called stove pipes or silos). Nevertheless, the necessity for these different solutions to seamlessly work together, i.e. IoT interoperability, is growing. A new McKinsey analysis points out a substantial threat to the predicted economic value: missing interoperability. Particularly, the authors state that 40% of the potential benefits of IoT can be obtained with the interoperability between IoT systems.”

Interoperability could be implemented directly between the operating systems of IoT platforms (‘horizontal interoperability’) or at the level of the consumer gateways (‘vertical interoperability’) – and while the report does not expressly say so, the EC clearly thinks that as consumers increasingly instruct IoT enabled devices through their personal assistants, interoperability is needed at that level.

Voice assistants

While smartphones remain the most popular user interface to access smart devices, the availability and use of voice assistants is increasing and with that, they have a growing role as the “user interface of choice” to access smart devices. The report identifies Amazon’s Alexa, Google’s Google Assistant and Apple’s Siri as the leading general voice assistant providers in the EU and expresses concerns about the ability of other businesses to develop competing voice assistants due to high cost of technology investment, lack of access to necessary data and the vertical integration of the leading voice assistant providers:

“a large number of respondents consider the inability to compete effectively with the leading providers of smart (mobile) device operating systems and voice assistants to be the main obstacle to developing new products and services. This is because these companies are vertically integrated and have built their own ecosystems within and beyond the consumer IoT sector by combining their own and integrating third-party products and services into an offering with a large number of users.”

The report expresses the following concerns about the increasing use of voice assistants to access the consumer IoT services.

• Sequestration of data: the use of voice assistants as the ‘central node’ through which consumers access the IoT ecosystem gives voice assistants a ‘gatekeeper’ role. There is a concern that this position limits the data that third parties can access and utilise for their business development, while allowing the voice assistant providers to leverage the data to improve their voice assistants and develop related consumer IoT products and services. While the majority of consumer IoT service providers and smart device manufacturers surveyed indicate that they allow users to access and download their personal data so they can port them to other service providers and device manufacturers under Article 20 GDPR, portability is hampered by a lack of industry-wide standard for collecting and exchanging data. But the report observed at data portability possibilities appear to be even more limited for data collected via voice assistants. While one reason may be that voice commands may not be easily imported into other voice assistants, the report thought the more likely explanation that assistant providers create their own ecosystem in which they limit the transfer and portability of data outside of this ecosystem.
• Exclusivity and default setting: there is a concern that the prominence of the leading voice assistant providers will allow the providers to act in ways that will reduce competition in the IoT ecosystem. For example, the report notes that there are concerns that the leading providers will be able to require device manufacturers to pre-install or set their own products as the default on IoT devices and even prevent the concurrent use of voice assistants on certain devices. The report noted the arguments of the assistant provides that a high level of control and integration over the environments created by their personal assistants maximises consumer ease of use. But while conceding some consumer benefit, the report was much more focused on competitive concerns:

“While such practices may have potential benefits for users (for example in terms of convenience), they may also determine to a large extent the discoverability, visibility and findability of a consumer IoT service, and give competitive advantages to the provider of a service that is pre-installed, set as a default, or otherwise given prominent placement. The services allegedly favoured in this way are often the proprietary services of the leading providers of consumer IoT technology platforms, or those of large international creative content service providers, to the detriment of smaller and/or local players.”

• Disintermediation: the role of voice assistants as intermediaries between consumers and consumer IoT products and services has made it more difficult for device manufacturers and IoT service providers to develop relationships with IoT consumers. This reduces brand recognition which makes it easier for voice assistant providers to transition customers to their own products or services. This intermediary role also forces device manufacturers to rely on the voice assistant for technical support and technical performance.

Future directions in the EU

The report concluded that there is a need for further case-specific investigations and regulation in the IoT sector. We have already seen the EC announce that they would be conducting a private investigation of Google Assistant in late 2021 and it is likely that the findings of this report will lead to more targeted anti-trust enforcement in the IoT market.

The report also noted that the findings of the report are likely to inform the EC’s future digital and standardisation strategies as well as the ongoing consideration of the Digital Markets Act. It is also likely that the findings of the report influenced the introduction of the Data Act which requires manufacturers to share data with third party tech firms (and which we will address in a forthcoming note).

Read more: Final report - sector inquiry into consumer Internet of Things