Compared to previous years, the pace of corporate activity in the IoT arena has settled down. This is to be expected in a maturing market cycle. This impression may be at variance with wider industry sentiment where the use of AI/Blockchain/IoT/Machine Learning labelling continues to sensationalize.
As a sign of IoT market reality, the opening event of 2018 dealt with the commercial reality. It took the form of Telefonica O2 withdrawing from the smart home market through the closure of O2 Smart Home. The year ended with a couple of more promising events for the mobile and IoT industries. I’ll touch on these later.
Most activity was concentrated among three groups: technology vendors; network operators (mobile, low-power and virtual); and, platform providers.
Within these groups, network operators primarily announced partnering and market entry/expansion initiatives. Examples include Vodafone’s expansion in the Indian IoT market and Sprint’s launch of an IoT Factory for enterprise customers. Deutsche Telekom and Softbank were two operators that made smart city commitments.
Technology vendors and platform providers concentrated on partnering and acquisition/investment activities. Amazon, for example, made a reportedly $1bn investment to acquire the smart doorbell company RING. Its strategy seems to involve expanding its home security and in-house delivery services.
PTC was the target of a $1bn equity investment from Rockwell Automation, both aiming to align their respective smart factory technologies. The two organizations expect their combination to deliver integrated, productivity-enhancing information solutions. They are targeting increased productivity, heightened plant efficiency, reduced operational risk, and better system interoperability.
Partnering is a given in the IoT market so there are no surprises that it was a recurring theme. Organizations are looking for complements in terms of geographic reach (increased revenue potential), channels to market (increased revenue potential) and solution delivery (improved operational efficiency and cost containment).
Acquisition and investment cases highlight which segments see the need to invest or control acquisition-worthy capabilities. In this regard, Munich Re, the insurance company, added to its 2016 investment in Relayr to acquire the business for $300m. Munich Re saw an opportunity to combine its knowledge of risk, data analysis skills and financial strength with Relayr’s IoT technology and solutions to obtain critical business data which can be used to improve processes and thus profitability.
Nokia was one of the more active corporates in 2018. Following the 2017 launch of WING, its worldwide IoT network grid offered as a managed service, Nokia signed distribution agreements with Tele2 and AT&T. Nokia also disposed of its Withings business, exiting the connected consumer and wellness management arena. Soon after, it announced the acquisition of SpaceTime Insight, to bolster its software portfolio via machine-learning analytics and IoT applications in the transportation, energy and utilities sectors.
Ericsson was another active organization. In contrast to Nokia, its initiatives focused on partnering and services higher up the value chain. These included a professional services partnership with AT&T and the launch of an IoT Accelerator Marketplace targeting the IoT developer community. Ericsson’s telco industry focus included partnerships with Sprint and PTC, the latter aiming to create offerings for telecoms operators.
Among the network operator community, Deutsche Telekom, AT&T and Vodafone were some of the more prominent organizations. Smart home and smart city initiatives were recurring themes in their initiatives.
A final mention goes to ARM which made several strategic commitments to the IoT market. These included its acquisition of Stream Technologies. It places ARM on the first rung in IoT platform arena in the form of connectivity and device management capabilities. At the device end of the IoT solution stack, ARM struck an agreement with Intel, a long-time rival. Their arrangement establishes a common framework for managing device credentials and to automate periodic firmware updates that minimize the threat of security vulnerabilities. At the upper end of the IoT solution stack, ARM acquired Treasure Data, an enterprise data management company. This acquisition offers ARM the capability to aggregate and translate massive volumes of scattered and siloed data across CRM, eCommerce systems, edge, IoT devices and third-party sources.
Setting the Stage for 2019
Tighter integration along the solution stack looks to be an emerging theme for the coming years based on the ARM/Stream Technologies/Treasure Data, MunichRe/Relayr and Rockwell/PTC patterns. These go a step beyond partnering and highlight a business threat for organizations that are present in the lower layers of the IoT solution stack. The value associated with end-user applications, data and data management suggests that large, corporate end-users (with significant investment capacity and aggregated demand) will shape the strategic direction for IoT solution delivery. By shaping the market through their actions, this creates a market opportunity to serve the needs of small and medium sized businesses.
A word of caution about end-user led initiatives is however due at this point. After a few years of positive publicity, consider how sentiment has shifted for GE due to its difficulties with GE Digital and its Predix platform. In December, GE announced its plan to spin-out the unit out as an independent, $1.2bn revenue IoT company. Apparently, GE Digital did not deliver enough value to its captive base of other GE business units. As an independent business, it will now face the additional challenge of demonstrating its independence to other industrial sector prospects as it seeks to broaden and diversify its customer base.
Consolidation will be a theme among organizations working on industry frameworks, best practices and standardization. There was evidence of this in 2018 with the merger of the Industrial Internet Consortium and the OpenFog consortium. Expect to see more consolidation horizontally and vertically in the IoT arena.
There will also be more voluntary and collaborative moves towards rules-based systems of regulation. This will be driven by businesses that value the benefits of standardization (reduction in adopter risk, scale economies that result in affordable solutions) and others that see the need to prepare for eventual regulation (e.g. carry over of GDPR-like data management and stewardship rules applied to IoT and mixed data, safety and certification of autonomous vehicles).
Finally, those promising year-end events I mentioned at the beginning of this post relate to Transatel and Qualcomm. In the case of Transatel, its acquisition of a strategic investor in the form of NTT Communications signals the importance of eSIM capabilities, in addition to Transatel’s other commercial attributes. eSIM represents a technology that injects a dynamic, switching capability the mobile market (think of a more evolved form of number portability). It adds a new dimension to competition, places greater power in the hands of device aggregators (e.g. auto manufacturers, consumer electronics) and opens up the prospect for new business models. It is a development that has been quite a few years in the making and serves as a benchmark for how long it takes to go from concept to operations.
With regards to Qualcomm, it launched its 9205 LTE modem, combining cellular low-power wide-area (LPWA) LTE-M and NB-IoT connectivity, and support for IoT developers. Low-power (constrained) devices constitute a sizeable portion of the addressable IoT market. They are one of several important building blocks in overall IoT solutions, much like big data, analytics and AI. Like a jigsaw puzzle, it will be the combination of technologies and not any single one that will deliver the full promise of IoT.
With the supply-side of the NB-IoT industry gaining momentum, the corporate world will be able to tap into a global eco-system for industrial IoT devices. This has the potential to replicate the phenomenon of affordable and high-performance devices that transformed consumer communications over the past 25 years. After many years of developing industry consensus and achieving 3GPP standardization, the availability of NB-IoT modems fills in another piece of the overall IoT picture.
Ken Figueredo consults to companies on business strategy and new market offerings in the connected devices arena. He advised the GSM Association on its Connected Living market development strategy.
His recent focus is on corporate strategy and the long-term technology roadmap for IoT as well as enterprise and telco digital transformation. Ken has worked with major mobile operators, institutional investors and equipment vendors from Asia, Europe and North America.
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