Operators, where is my Consumer IoT?

A lot of expectations and estimations have been built around the Internet of Things (IoT) in the past few years. If we take a closer look, many of these hypes emphasize the value potential of IoT in the business context rather than in the context that is most relevant for individuals, namely Consumer IoT (CIoT). Technology companies such as Amazon and Google started offering CIoT products quite early on, however, it was not until 2017 that we began to see more CIoT product offerings from several large mobile network operators (MNOs).

In my opinion, the main reasons can be that there are quite limited use cases in CIoT that truly require cellular connectivity and it is also difficult for MNOs to build a sound business model that enables them to compete effectively with technology companies which offer CIoT products using non-cellular connectivity.

Nonetheless, the above reasons do not necessarily imply that MNOs have no chance to take a slice in the CIoT market. According to a markt report from GrowthEnabler, the IoT market size will reach US$ 457 billion in 2020, among which US$ 110 billion (24%) will be contributed by the three main categories of CIoT products, namely wearbles, homes and cars. The potential market size of CIoT is definitely big enough for different players to participate and try to make some profits from it. For MNOs, the most relevant question here is in which CIoT product area(s) do they have competitive edges over their technology counterparts? Based on the recent actions of some MNOs, as well as some less successful product launches, there are good lessons to be learned for operators to increase their chances of succeeding in the CIoT market. And more importantly, those leassons signify a specific CIoT product area which can be an ideal battlefield for MNOs.

Figure 1: Main Categories of Consumer Internet of Thing (CIoT) products

Different MNOs are taking different approaches to explore the opportunities in CIoT. Some of them are becoming resellers by offering various off-the-shelf CIoT products through their sales channels, such as Orange in Romania and O2 in the UK. Others actively leverage their cellular network assets by bundling CIoT products with SIM cards. One of the most recent and biggest moves has been made by Vodafone in November 2017. The company launched a series of CIoT products using cellular connectivity under the brand of V by Vodafone and made them available to existing Vodafone mobile consumers. In general, MNOs do not have significant preference towards certain CIoT product area but the majority of the offerings included features such as location tracking and remote control functions.

Figure 2: Examples of CIoT product offerings from European operators

What can be the success factors?

The overall impression from the existing CIoT offerings from European MNOs is that many of them provide different CIoT products, but only a few MNOs have a compelling value proposition based on their competitive advantages. As stated before, there are only a limited number of CIoT use cases that require cellular connectivity to function well. However, even in those use cases it is not always easy for consumers to distinguish MNOs’ CIoT products from those offered by technology companies and why it is worth the money for them to pay an extra monthly subscription for cellular connectivity. The diversification of product portfolios cannot be the main reason for consumers to buy CIoT products from MNOs. Instead, it should be the features of security, stability and mobility of cellular-connected CIoT that give MNOs the competitive advantages over technology companies (See our whitepaper on Connectivity Technologies for IoT). Technology companies are aware of this and hence they focus on building their value proposition around the technological features, such as voice recognition systems, of their CIoT products. In turn, it seems that MNOs are better off defining their value proposition by emphasizing the advantages of cellular connectivity in certain use cases such as connected car and leverage such advantages by offering features or services enabled by cellular connectivity.

The increasing numbers of CIoT offerings from MNOs are being followed by a certain number of less successful service/product launches. The most recent one is the smart home package from O2 in the UK that was introduced in late 2016 and officially closed down by the end of February 2018. The package allowed consumers to control different connected home functions such as smart lock with an app. According to the company, the reason for the closure was that they did not achieve the “category-leading take-up” they had expected. Clearly, there are uncertainties in the market that have led to the absence of success in this case. However, there are also things that O2 could have done better. Aside from the value proposition, another issue that can be observed in this case is that the system offered was not simple enough to use for the end customers. Instead of making it a “plug-and-play” solution, O2 needed to send out technicians to perform the installation at the consumers’ homes. This did not only increase the operating cost for O2, but also disincentivized consumers from buying the product. Consumers always want something that is easy to deploy, and therefore a complicated system and installation definitely does not help convince them that CIoT can make their lives simpler.

So, which CIoT product area can potentially be the battlefield for MNOs?

Finally, it is probably time for MNOs to reconsider whether it is a good strategy to enter all of the product areas within CIoT or whether it would be a wiser move to focus on the field in which they have a clearer competitive advantage over their technology counterparts.Naturally, there is no one-size-fits-all success formula available.However,in order to increase their chancesof succeeding, operators should at least better define their value proposition based on their competitive advantages, i.e. cellular connectivity. Moreover, they shouldfocus onmaking the user experience as easy and simple as possible. This way, they will have a higher chance ofconvincing consumers that CIoT is a value-adding item to have in their lives.

To sum up, cellular connectivity together with “plug-and-play” solution seem to be the essential components in the success formular for MNOs to compete in the CIoT market. Looking at the three main categoties of CIoT products, “Car” seems to be the potential field where MNOs can have greater chance to compete effectively with their technology counterparts.

/Denise

Denise is an Analyst at Northstream

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