End May 2018 the GSMA released some new data from GSMA Intelligence, predicting that the global Internet of Things market without hardware will be worth $1.1 trillion in revenue by 2025, whereby the market value inevitably shifts. An IoT operator opportunity perspective.
The main driver of growth in the global IoT market (without hardware): the industrial segment, for the GSMA meaning IoT solutions deployed within enterprises or vertical-specific applications, which is a quite broad definition that covers many markets and use cases beyond Industrial IoT in the strict sense.
In other words: quite in line with forecasts you might have encountered for several years now. Take the 2018 IoT spending data from IDC (and, in fact, those of previous years too): IoT spending in Industry 4.0 segments remains high with manufacturing still by far leading the pack before transportation and utilities. In the coming years they will increasingly be joined and here and there even be ‘beaten’ by, among others spending in cross-industry IoT use cases (e.g. smart buildings, connected vehicles), healthcare and more.
The IoT operator value opportunity in the consumer market
In fact, according to IDC, consumer IoT spending will already be the fourth largest industry segment in 2018 with leading use cases related to the smart home, including home automation, security, and smart appliances.
So, it’s not a surprise that GSMA Intelligence expects the smart home market to strongly grow through the forecast period too. Here we don’t have precise revenue data but the predicted number of IoT connections certainly does give an idea: 11.4 billion connections in the consumer segment by 2025, driven by that smart home market, and 13.8 billion for the mentioned industrial segment (the latter being more than half of all IoT connections).
Knowing that the industrial segment includes solutions with far more connected devices (as is usually the case in manufacturing, utilities etc.) than we typically see in the home market context (even if you include appliances) it does give an idea indeed. We’ll look at it from a connectivity, solutions and market perspective a bit more below.
The IoT value opportunity for operators in the industrial segment
Despite the strong rise of the consumer segment, the industrial segment, according to the GSMA definition, represents the highest IoT operator value opportunity. Moreover, the services and solutions one can sell here obviously come with far higher margins than in the consumer space.
An important question is how operators can move towards those areas where the IoT value opportunity for operators is higher, without forgetting the key role connectivity has and will have, even if it’s less interesting from a revenue perspective. And where precisely is that IoT value opportunity higher? Can operators even become “IoT businesses” and, if so, how?
We won’t cover everything in one single post. Yet, the purpose and messaging of the GSMA Intelligence announcement is clear: operators should adapt their business model as there really is not too much money in the IoT connectivity part.
The GSMA Intelligence findings back that up: even if connectivity revenue will grow through the forecast period, IoT connectivity revenue will only account for 5 per cent of the total IoT revenue opportunity (again, hardware not included) by 2025.
Here as well there are parallels with IDC. As mentioned in a 2017-2021 IoT investment and spending overview (the numbers change but the dynamics pretty much remain the same), IDC’s Carrie MacGillivray stated that the conversation has shifted away from the number of connected devices, pointing to the very logical evolution towards IoT platforms, software and services (before we stop talking about IoT and “it” has become like computer networks or the Internet: essential but just a given).
The messaging of the GSMA, where the number of connected IoT devices is important given the very nature of a part of what operators do: the IoT value opportunity shifts away from the IoT connectivity part.
GSMA Intelligence states that the platforms, applications and services segment will continue to increase as a share of overall IoT revenue, capturing two-thirds or 68% of the total revenue by 2025.
Why the IoT value opportunity is important for operators
Operators are already turning the IoT value opportunity into reality. GSMA Intelligence knows that and reminds that many operators are creating dedicated IoT business units and service lines as indeed is the case since several years.
Yet the question remains: can they become IoT businesses? How? And why is this all important for operators to begin with?
We’re de facto still in the early days of IoT and the IoT value opportunity simply is one operators can’t afford to ignore. IoT is one of the major (future) revenue drivers for operators as they are, among others, confronted with regulatory decisions that eat away their margins in some regions (ironically among others in the EU that wants fast 5G deployments but doesn’t exactly increase the appetite for operators to invest) and have revenue and profit issues (even if mobile broadband grows in terms of traffic, in terms of profit for operators it remains flat or declines).
M2M and IoT in this scope are ways to not just increase revenue and profit as more devices get connected but also as way to leverage the investments done in existing GSM networks and done and still to do in 5G. So, the IoT value opportunity for operators and their ecosystems of vendors, IoT system integrators and partners is looked at from all perspectives.
Sylwia Kechiche, Principal Analyst, IoT, GSMA Intelligence in the GSMA press release: “As the number of connected consumer devices and industrial machines grow rapidly, the IoT ecosystem will evolve to become a trillion-dollar market over the course of the next decade but the IoT revenue opportunity is shifting away from simply connecting devices to addressing specific sectors with tailored solutions, and successful ecosystem players will need to adapt their business models in line with these market trends.”
Remember ecosystem, it is and remains key in all IoT evolutions, no matter what area you look at.
Dilemma: the importance of connectivity and of moving beyond it at the same time
Precisely given the mentioned fact that in the end for many organizations it is still early days when it boils down to IoT and given more recent cellular 3GPP-license standards in the LPWA space (mainly LTE-M and NB-IoT) for which operators have high expectations, connectivity matters.
In practice such LPWA offerings (including non-cellular offerings as many operators chose a mix of, for example LTE-M and LoRaWAN) are often rolled out in segmented ways. Operators can address the typical verticals or use cases for LPWAN, they often focus on the midmarket, companies just starting with IoT, etc. There are ample ways to segment and target specific markets. In that context operator strategies often differ per market, due to local circumstances. Orange, for example opted for a mix of LTE-M and LoRaWAN, yet as previously reported, since in Belgium its main competitor already is the LoRa partner of choice since years, Orange offers LTE-M and NB-IoT in the Belgian market since early May 2018.
In some segments which are targeted, there are additional revenue opportunities with partners for the IoT connectivity and device platforms (which offer more features but it’s typically in these areas operator platforms are stronger) and hardware for rapid development or specific use cases. Those operators offering additional services to the midmarket and specific segments (including to existing customers) as most do, can also increase revenues more significantly with, for example, custom IoT solutions, security services and so forth.
The IoT operator platform revenue opportunity
This brings us to those IoT platforms where operators, depending on target markets, size, strategy, location and context overall, have various strategies and/or different strategies at the same time.
While sometimes partners are picked for smaller deployments for companies testing the waters of IoT or for small and medium businesses, most large operators have their own IoT platforms and some are really among the leading ones in the overall platform market, which however is a topic on its own as there are many evolutions and challenges here too. For now, let’s say that connectivity is just a small (and increasingly low-margin) market, as is everything surrounding it: IoT SIM cards in the cellular space, the (cost of) connectivity of devices, the modules and so on. However, also the typical functions and services on the level of IoT connectivity and IoT device management platforms and services become commoditized.
Still, also on a platform level connectivity remains essential of course. Without connectivity, connected devices (and device management), connected data from connected devices (and data management) there is no IoT.
GSMA Intelligence expects that by 2025 there will be more than 25 billion IoT connections (cellular and non-cellular combined with cellular not just being cellular LPWA protocols such as LTE-M and NB-IoT but also all the M2M connections already in place in M2M with 2G, 3G and 4G and 5G and IoT somewhere on the way). Platform strategies are already shaping the market and ecosystems in that context today and since several years in fact. Just one recent example: Orange Business Services and Siemens. And it’s not just about ecosystems and partnerships between operator IoT platforms and others but also about additional capabilities such as enhance security, artificial intelligence or analytics but also evolutions in the use cases that need to be supported in specific verticals (e.g. digital twins) and the movement towards the edge (e.g. fog computing and edge computing), to name a few.
The opportunity for operators to get a bigger piece of the market by offering services and solutions using full-fledged IoT platforms is anything but new by the way. MachNation, the company behind the MIT-E test environment for platforms, already said that much in 2015 and earlier in 2018 IDC’s Stacy Crook stated that, as the market matures more operators move from connectivity-oriented offerings to broader offerings and platforms as you can read in “IoT wireless communication and network connectivity provider platforms“. However, that is not always easy as market evolutions have shown. Here too ecosystems as per usual is a key term.
The IoT operator value opportunity in professional services
Next, there is the corporate market. As known, most operators offer professional business services and ICT services, acting as ITOs (IT outsourcers) since ages.
Some have large corporate client entities (e.g. Verizon Enterprise Solutions, Orange Business Services, BT Global Services, AT&T Business and Vodafone Business Services, to name just a few) that already offer IoT solutions within the broader scope of the contracts they sign with larger organizations or big projects they win and some indeed also have dedicated IoT units, such as Telefónica IoT. Many have a mix of dedicated IoT business units or service lines and corporate services divisions.
With a strong corporate customer base it’s logical that IoT sooner or later plays a role here on top of high-end services on levels such as hybrid cloud solutions, security services, managed services and so forth. This too is a topic on its own with quite some evolutions as we move from IT outsourcing to as-a-service models in the sourcing market.
Do note that the high-margin business of IoT professional services, including system integration, managed services and consulting, by 2025 would account for the remaining 27 per cent share of total IoT revenue according to GSMA Intelligence.
Despite the fact it’s less high than other areas it is where the real money will be made in the end. Again, the question becomes if and how operators can prepare for it.
Those professional services divisions don’t stand on their own either: they use the infrastructure of the operator and of the various partners in the operator’s professional solutions ecosystem (where end-to-end solutions are sought) in function of customer demands, can leverage the IoT platforms where they exist and so forth. Yet, again, at the same time this is another story with some challenges on its own as industry insiders know: some operators are or have been looking to sell such divisions for ample reasons.
The battle for the home – ample opportunities, a diverse landscape and many options
Finally, as promised a bit more attention for the mentioned consumer IoT opportunity with smart homes and the IoT operator aspects.
Expect some battles and geographic and ‘per case’ differences here. “Smart homes” really is an umbrella term for many IoT home automation applications and use cases that can be totally different. There is, for example, a big difference between the smart home market where most money sits (luxury homes where you will find high-end IoT home automation use cases that are typically served by experts in, for example, light and room control) and the lower-end market where you find ample vendors and players, including the a-typical ones such as Google.
Operators will have to think about the right partnerships and priorities here too and on a connectivity (and platform and solutions level) there are many options.
On top of short-range protocols such as Wi-Fi, Z-Wave and probably even LiFi once standardized, for the longer range and for the last mile operators meet the cable players (which in the EU are very happy right now, as opposed to operators, in the move to the gigabit society but also in other regions are active, among others with LoRaWAN in the US) and on the wireless front there are the non-cellular LPWA ecosystems such as LoRaWAN and in several places Sigfox (often present with cable players), another reason why for some operators it makes sense to offer the latter as well.
More information on the IoT revenue opportunity
Operators (and others who can access the GSMA Intelligence report section) seeking more data and guidance on the revenue picture and the shifts in the IoT revenue opportunity can read more in the two accompanying reports:
Peter Jarich, Head of GSMA Intelligence on the findings and those reports: “It’s well understood that connectivity will represent only a fraction of the total IoT opportunity. Complementing our IoT connections data with this major new dataset and analysis on IoT revenue provides a comprehensive and realistic view on where market opportunities exist for operators, vendors, integrators, and everyone else playing in the IoT ecosystem”.
All GSMA Intelligence data and quotes and more information in the GSMA press release.
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