Consumer excitement fuels the connected device era!

There is a strong believe across the industry that the number of devices connected over telecom networks will skyrocket. Cisco and Ericsson forecast 20-50 billion devices by 2020 and Ericsson envisions that the 500 billion devices milestone will be reached before 2030.

Compared to just a few years ago, when the reality of connected devices mainly consisted on industrial vertical applications, in the last months the consumer focus has noticeably increased (see also Northstream 2014 predictions).

An impression of “déjà vu” is growing among the observers: the connected devices trend might be soon reaching a turning point in customer acceptance similarly to what mobile data adoption experienced just after the iPhone launch.

In the first months of 2015, in fact, a sizeable number of devices targeting consumers such as smart watches, bands, shoes, glasses, dressing gadgets, have been announced or launched with an appealing look, simple and intuitive usability and connectivity (most often via short range unlicensed spectrum) being fundamental common factors.

The connected devices experience in recent past is summarized in two worlds: Vertical + Complexity

The most relevant and sizeable activities in the connected devices space occurred so far in machine to machine industrial verticals with sectors like energy, logistics and automotive in the leading positions.

Key players in the industrial vertical ecosystem include:

  • Suppliers of enablers and devices
  • Integrators
  • Telecom providers
  • Enterprises

Suppliers of devices and enabling components have seen a steadily increased demand for their products and services. With limited doubts, they have been (and will be) among the undisputed winners of this game.

Integrators have had the role of putting together the complex puzzle from service definition to delivery. So far they have enjoyed the highest revenue share out of the initial enterprise investment reaching even 60-80% of the total pie. Interestingly enough, none of the existing players seem to have so far won an established and recognized leadership in the space. Additionally, in some verticals, e.g. energy and smart metering, substantial penalties for late deliveries and/or not satisfactory SLAs have been a concrete threat in past years.

Telecom providers have so far gotten up to a 5-10% of the value pie over a 5-year period. To properly play in this area, significant investments have been required in the OSS/BSS infrastructure and substantial changes are necessary within the organization to get focus and required capabilities in sales, customer and application management across markets. All in all, not many of the existing telecom operators have yet seen the brilliant financial performances that were projected. 

Enterprises, with respect to connected devices/M2M, can be clustered in the following simple way:

  • Companies who launched into operations
  • Companies who experimented (but did not launch)
  • Companies not yet engaged

Main drivers for enterprises who launched typically included:

  • A regulatory requirement to full fill (e.g. smart metering, smart cities, smart government)
  • A recognized cost reduction opportunity to address (e.g. tracking/ logistics)
  • An identified opportunity to improve quality of the service portfolio (e.g. digitalize after sales support for industrial machinery)
  • An opportunity to stimulate sales (e.g. Amazon Dash, a programmable key that makes reordering essentials like laundry detergent as easy as pushing Start on the microwave)

Enterprises who experimented but did not launch have in the past been struggling with:

  • The complexity of managing the end to end service chain
  • The potential organizational and operational disruptive impacts
  • The uncertainty of the overall result
  • The financial viability of the case

The evolution to the Internet of Things creates advantages for the whole eco-system

The evolution from industrial vertical focus to the broader Internet of Things driven by high volumes of smart devices is going to expand the addressable customer base, simplify customization efforts and leverage the growing footprint of cloud based software solutions.

Additionally, tablets and iPads have in recent years migrated from the sofas at home to the daily professional life for sales people, doctors and nurses, and personal trainers. Similarly it is easy to envision a “spill over” effect of the connected consumer behavior to the enterprise world.

Not to a big surprise, there is a strong consensus among analysts that the worldwide overall economic and social eco-system will grow +6% by 2020 thanks to the IoT trend:

  • The shift to consumer oriented applications will strengthen the position of the suppliers of devices and enablers (with the “usual” few global digital players getting the biggest part of the pie)
  • The larger amount of smart(er) devices reaching the market and at lower prices expands demand and increases interest in broader segments
  • Enterprise appetite for profitability improvements through IoT solutions substantially increases

All in all both consumers and enterprises are going to enjoy a multitude of new digital services, generating and transferring a continuously growing amount of data with consequent increased demand for efficient connectivity.

The evolution to the Internet of Things requires the industry to rethink connectivity and to revamp partnerships to build complete offerings

On the other hand the growing relevance of consumer-connected devices is introducing new structural questions that need to be addressed by the industry.

Traditional requirements from the industrial verticals include, for example, local and wide area coverage (e.g. for smart metering or tacking applications) and low data latency (e.g. security alarms, process monitoring or health care monitoring).

Radio networks over licensed spectrum provide today ideal solutions for such applications, but the risk to be overly complex and expensive becomes high if applications and devices can also accept short-range connectivity and higher latency (which actually happens in the majority of use cases for consumer connected devices…). It is also not difficult to foresee in the near future cases where the above scenarios coexist within the same service.

Standardization bodies, with their usual “speed”, are addressing the issue and discussions are ongoing regarding the possibility to support within the coming 5G standard alternatives to emerging Low Power Wide Area Network Cellular Networks (e.g. Sigfox or Wirepass) to increase data networks cost efficiency.

While the new standards are being developed, a new wave of enterprise demand for connected services is arising with the expectation of simpler and actionable answers to the recurring fundamental questions such as:

  • What service (out of the many possible) to deploy
  • Who should provide the application
  • What connectivity solution to adopt
  • How to introduce the service into operation

A few key players in the ecosystem, among them some innovative Telecom operators, have recently started to proactively engage in building targeted end-to-end solutions based on partnerships. The partnership approach is not new to the industry, but it now finally looks executed with working business models, defined roles in font-ending the customers and global focus across verticals and regions.

In conclusion devices and connectivity are both getting smarter and more affordable, business models have matured, and complete solutions are being brought to market: the time is getting absolutely right for revamping your company’s connected device vision and strategy or to start developing one before the competition does!!!

/Ezio

Ezio is a Senior Manager at Northstream

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