Avoid the disruptors: retaining IoT market share in the face of attack from OTT providers (Reality Check)
The Internet of Things (IoT) is fueled by the abundance of reduced cost infrastructure of compute, storage and networking, with a myriad of service integrations from device management to data analytics. As the cost of entry for IoT continues to fall, coupled with competing access technologies in the unlicensed spectrum, many mobile network operators’ IoT vision and income are quickly reverting to type as basic connectivity, with limited opportunity to provide intelligent value-added services ‘on top.’ Potential end-user customers have numerous options for assembling their own over-the-top [OTT] infrastructure as they look to cloud service providers, low power, and satellite bearer networks alternatives.
Two years ago, McKinsey forecast that IoT applications’ potential economic impact would be $11.1 trillion per year in 2025. Realistically, it’s possible to speculate that very little of this value could find its way into carriers’ coffers.
To address this issue, operators need to ensure they get a greater share of the pie, or they’re at risk from a version of the same disruption that’s given rise to the likes of Uber and Airbnb. Both companies have become shorthand for the complex chain of events that causes industry incumbents to lose market share to previously unheralded competitors. The lesson for carriers is the competitors you see today may not be the ones eating your lunch tomorrow. They may even come from another industry, and they might even be your existing customers or suppliers.
Let’s look at another example. In 2015, Audi, BMW, and Mercedes joined forces to buy Nokia’s mapping data division, called Here. For an outlay of $3.07 billion, they acquired a business that now sells its platform to other automotive makers like Jaguar, and to Alpine, Garmin, Oracle, and Amazon. Five years before then, would any mapping company have looked at a car maker and seen a potential competitor rather than a customer? It’s unlikely. Carriers are in a similarly vulnerable position today when it comes to IoT.
For the past number of years, some of the world’s largest companies have been instrumenting everything they possibly can with sensors, from plant equipment to consumer products. They’re doing it because there’s an evident return on investment. By harvesting and analyzing the data produced by thousands and millions of embedded sensors, companies can get the information they need to make business decisions faster – whether that’s extending a product’s lifespan, understanding customer behavior, or figuring out opportunities for upselling.
Have your IoT connectivity and eat It
Cellular connectivity is well suited to IoT projects that involve carrying large volumes of data from sensors back to the cloud. The problem is, IoT is challenging operators to remain relevant because the connectivity they sell is homogenous and regulated. There are very few markets where customers don’t have at least three choices for cellular connectivity. And if every service looks the same, customers will naturally choose the cheapest option available. What’s more, there are competing alternatives to cellular connectivity, either from unlicensed, narrow-band, low-power networks like SigFox and LoRa, or from satellite providers.
That’s a significant business risk. What would happen if carriers’ total addressable market were to decrease by 10% because customers chose an alternative platform? Operators have expensive licensed spectrum to pay for; faced with a declining market, they would have no alternative but to increase prices for remaining customers – which in turn could drive more of them into the arms of new competitors. We have seen this effect in action in the electricity market, where grid defection is eating into utilities’ margins.
It’s not unlikely to imagine a scenario where a far-sighted automotive manufacturer with the scale and the budget builds a large IoT platform that’s capable of handling traffic from millions of devices. With such a network in place – not to mention years of accumulated industry-specific expertise – that company could then sell capacity to other car makers. At a stroke, network operators bearing the cost of expensive licensed spectrum would lose out to a competitor from an industry they would never have expected.
Despite this potential outcome, carriers are still in an enviably strong position to be the ones that enterprises turn to for help with their IoT projects. For this to continue, the carrier’s value proposition needs to be compelling. It calls for the carriers to layer a rich set of advanced intelligent network services on top of basic connectivity. A stronger, more flexible network makes it more likely to be successful at the application layer, earning additional revenues for the carrier.
The proof of concept swamp
Running a carrier is acknowledged as a capital-intensive business, so the key is to leverage the technology they have already invested in, such as SIM lifecycle management platforms for IoT.
Today, many carriers face a challenge I call the ‘proof of concept swamp.’ This is the avalanche of customer requirements for IoT projects that arrive in the form of sales leads. In any given month, this could range from huge, well-known companies who want to buy half a million SIMs, with start-ups looking for anywhere from 10 to a 1,000 SIMs. Managing these requests needs lots of technical and organizational resources to fulfill; however, there are only so many customer onboardings a carrier can fulfill in a month.
Realistically, 70 percent of these projects may never materialize, but right now, carriers who can automate the onboarding process of these proof of concepts and turn it into a production line are giving themselves the best possible opportunity to own the remaining 30 percent of projects that make it all the way to market. By being more responsive to customers at an early stage of their IoT projects, and then by providing rich services (real-time data analytics, secure data transfer, device management, etc.), on top of basic connectivity, carriers can gain more value from those successful rollouts.
The window of opportunity is closing fast; if carriers fail to grasp this lesson, history tells us those customers in search of rich intelligent services to power their IoT strategies will find a solution somewhere else.