1Q18 device revenue results were boosted by market shifts and increasing ASPs in PCs and smartphones compared to a weaker 1Q17

HAMPTON, N.H. (July 13, 2018) — Technology Business Research, Inc.’s (TBR) 1Q18 Devices and Platforms Benchmark finds that there is ongoing revenue opportunity in both the PC and smartphone markets. Total benchmarked revenue increased 15.9% year-to-year to $112 billion despite indications of saturation in the high end of the PC market.

Total PC benchmarked revenue increased 12% year-to-year to $32 billion. Total PC benchmarked gross profit increased 10.4% year-to-year to $5 billion despite increasing component costs. “Despite speculation that the PC market is dead, major device OEMs have been able to successfully navigate the shifting market and generate healthy profits,” said TBR Analyst Dan Callahan. “Renewed appetite for premium PCs in enterprise — and PC OEMs shifting their go-to-market strategies to respond — has been the primary driver.”

Total benchmarked smartphone revenue increased 11% year-to-year to $72 billion. Total smartphone benchmarked gross profit increased 14.8% year-to-year to $23 billion. Smartphone OEMs are combating worldwide saturation by increasing average selling prices (ASPs). Apple’s gamble with a $1,000 smartphone paid off, as customers responded with demand, and Android peers are following suit.

Device as Service (DaaS), an expansion of the former PC as a Service market, is transforming into an offering aimed at supplanting traditional PC financing. The benchmark explores how HP Inc. was the first of the big three PC OEMs to capitalize on the emerging opportunity and has been the first with concrete outbound messaging to partners and customers. This has afforded the company a lead, but it is not cemented. Dell Technologies and Lenovo will use the path HP Inc. paved to introduce DaaS to the market and quickly solidify their own unique solutions. Lenovo and HP Inc. see opportunity beyond the PC in PC as a Service, thus the introduction of DaaS.

The DaaS opportunity remains mostly untapped. Customers and partners are still trying to understand how this service differs from traditional financing and are still kicking the tires on the analytics often attached by OEMs as the main selling point of DaaS.

TBR’s Devices and Platforms Benchmark provides insight on interrelated ecosystems, including device vendors, platform providers, supplier relations, and technology partners across the consumer and commercial spaces. TBR’s vendor-centric analysis speaks to industry trends, while market sizing illustrates opportunity. Our Devices and Platforms research includes PC, tablet and smartphone vendors; platform providers; and technology partners.

 

Letting your clients pick you: Tweaking the digital transformation center model

“Start with a new space, furnish it with funky chairs, nontraditional work spaces and all the latest technologies. Recruit creative talent, mixed with some data scientists and wonder-tech folks, plus seasoned strategists. Bring in current clients and consult on digital transformation.”

The last time I talked about getting leadership right at digital transformation centers, I made the comment above and also mentioned three other critical elements: client selection, talent management and technology partner cooperation. I’ve seen the steady evolution on client selection, but an event last week showed me how much room exists for consultancies to play around to find a winning formula. IT services vendors, led by consultancies, initially designed these centers to cement relationships and expand their footprint with existing clients, often by demonstrating capabilities and services beyond the current engagements. For example, PwC’s supply chain management clients learned the firm also offers cybersecurity, and companies contracting Accenture for BPO could immerse themselves in that consultancy’s digital marketing services. Because initial investments drove the need for cost justification, most consultancies began by opening their doors to any and all clients, with predictably mixed results.

Consultancies learned the most efficient use of these centers included only clients on either end of a simple digital transformation spectrum, forcing the firms to spend additional sales time and effort ensuring clients came prepared. Consultancies stopped wasting half of a one-day workshop resolving a client’s internal political dysfunction or just beginning to scope core business problems and cemented processes around client selection and preparation.

Which leads me to what I saw last week. We will soon publish a special report, but it was strikingly different from every other event, as the consultancy intentionally stayed in the background — a self-described footnote at its own event — allowing clients and non-clients the space and time to collaborate, share cross-industry struggles, innovate and, in many cases, realize the combination of confidence in the ability to change and ambiguity about how to do so led to epiphanies around the need to hire a consultant. Very likely the one who had been in the room for the last two days. Subtle, smart, maybe possible only because the event was off-site for everyone and intentionally a mix of Fortune 500 companies and small to midsized enterprises.

So, a curious twist. Instead of centering on existing clients and ensuring the right ones come to the right collaboration/digital transformation center at the right time, this consultancy allowed clients and potential clients to self-select how much more advice they needed. I don’t expect a wholesale adoption of this by other vendors, but believe I will see elements of this repeated as everyone continues learning what works and what doesn’t, always looking for what’s best for the client and what starts returning some investment on these centers.

IT vendors ‘patently’ sharpening focus on developing newer technologies

IBM has a unique position as a software, hardware and services vendor. — Bozhidar Hristov, Senior Analyst

Time to get industrial about healthcare

Internet of Things (IoT) hesitation in the healthcare vertical stems from the industry’s complexity, as it is chained by liability and privacy issues, a general unease about change, legacy equipment, and unevolved processes. These complexities are all rooted in real concerns of customers and vendors in the healthcare space. However, the “Industrial IoT Analytics for the Healthcare Industry” presentation by Glassbeam employees Gopal Sundaramoorthy and Puneet Pandit at PTC’s LiveWorx event highlighted that it is time to shift how vendors go to market within the healthcare industry.

Sundaramoorthy indicated there are not a lot of high-level analytics, or grand-scheme IoT implementations, in healthcare. The challenges mentioned above, especially privacy issues, including healthcare organizations’ desire to keep data internal, prevent it. Instead, Sundaramoorthy explained vendors need to talk to healthcare organizations like they talk to manufacturers, focusing on how healthcare organizations can connect equipment to improve asset utilization, save costs and increase efficiencies. This is the operational technology (OT) discussion instead of the IT discussion.

With asset utilization, for example, how is a medical scanning device being used? How many scans are being done and in how much time, what types of scans are being done, and when are the scans happening? Or, a conversation around operator utilization could include aspects such as determining whether operators are fully trained by measuring what functions they are using and how long they take compared to average or trained users. Likewise, predictive maintenance, such as noting when a bulb needs to be replaced in an MRI machine, helps avoid costly or dangerous downtime. These simpler-to-implement OT-based measurements will help hospitals run more efficiently and save money just through connecting machines and adding straightforward analytics. It also helps medical device manufacturers better understand why things are going wrong and how to best improve diagnostic time, shorten repair time and relieve frustration for medical professionals.

Sundaramoorthy indicated that simple connectivity is healthcare’s biggest problem. To break the hesitation barrier, vendors should focus on solving the first step in IoT: connecting the often woefully out-of-date machinery and building in IoT, in the spirit of OT, to prove ROI to medical organizations. After machines are connected and OT-based IoT is proving consistent ROI, the discussion to move to more transformative IT use cases will be a much easier sell.

Smart city solutions have to think outside the trash bin

The “Connecting Your Business to the Smart Cities We All Live In” panel during PTC’s LiveWorx event included ideas consistent with TBR’s previous views on smart cities. One of the most interesting speakers was Nigel Jacob, the co-founder of the Mayor’s Office of New Urban Mechanics, an R&D organization within Boston’s City Hall. Jacob gave a presentation on the “Boston Smart City Playbook,” compiled by his organization, which lists the following rules for vendor engagement:

  1. Stop sending sales people.
  2. Solve real problems for real people.
  3. Don’t worship efficiency.
  4. Better decisions, not (just) better data
  5. Platforms make us go ¯\_(ツ)_/¯.
  6. Toward a “public” privacy policy

All of these points align well with TBR’s view of how vendors need to improve their go-to-market strategy, but a few stood out. “Stop sending sales people” translates well inside and outside smart city applications. Internet of Things (IoT) is a complex technology, and it is difficult for end users to really understand what IoT can do for them. Public sector officials, just like the CEO, CIO or CTO of any private organization, do not want to listen to a sales pitch about why a technology is great. Instead, in the example of Boston, decision makers desire vendor engineers or consultants to be on-site to explain why IoT is good for their city’s particular challenges, how it can be implemented and how it has worked for others, as well as to provide concrete evidence of what Boston can expect to gain in the long run. Only then will a vendor’s solution be taken seriously.

“Better decisions, not (just) better data” is a point TBR believes vendors should take to heart. Data is a building block to insight, but piles of data with no feasible way to turn the data into actionable insight is little more useful than no data at all. Customers seek insight through data, but if there is not an easy path to achieving insight, its value is significantly reduced. Customers believe that to get value out of IoT, they need to bolster their IT, operational technology (OT) and data scientist staff. TBR believes incorporating artificial intelligence and improving user interfaces to simplify IoT products is a path to unlocking value for business decision makers, enabling them to make better decisions without incurring huge selling, general and administrative expenses.

“Platforms make us go ¯\_(ツ)_/¯” is also parallel to customer concerns recorded by TBR. Platforms are exciting to techies, but they do not mean much to customers. Instead, they generally raise fears of platform lock-in, where customers will be unable to access outside technologies or risk becoming a member of a dying standard. Also, the platform level is often too high for customers to understand how IoT will benefit them. Vendors must continue to boast interoperability and focus on use cases or small deployments. Small deployments that solve immediate problems — not technical and platform-based discussions — will be vendors’ gateways to customers. After a few successful small projects, vendors can introduce customers to the grander view centered on a wide platform.

Bigbelly vice president of North American Distribution and Global Marketing Leila Dillon, another presenter during the panel, explained how Bigbelly solved multiple problems for individual cities by thinking outside the box. The company sells solar-powered waste systems, mostly bins, that automatically compact trash and alert waste management when they need to be picked up. This granted cities substantially increased efficiency not only because automatic compacting eliminated waste buildup but also because the alert system saved wasted time having trucks on routes checking all bins instead of only those that are full. Additionally, Bigbelly observed that by thinking creatively, it could further cities’ smart city goals. It started working with cities to equip waste bins with small-cell technology to enable ubiquitous citizen connectivity. In other cases, the company equipped cameras or sensors to track foot or street traffic to help cities understand congestion. Bigbelly is a great example of a company helping to solve a pointed problem — in this case, making waste collection more efficient — and then working with the cities to build additional IoT use cases one success at a time.

‘Popcorn market’ and ‘shrink-wrapped’ IoT: TBR gets creative with industry terms

Observers of emerging tech trends often seek the “hockey stick” moment, or that period when the market takes off following an explosion of activity. However, as TBR Principal Analyst Ezra Gottheil explains in his special report ‘Shrink-wrapped’ IoT will drive accelerating growth; an explosion of activity, or huge moment of growth, will likely never occur in the overall commercial IoT market. Gottheil writes:

Each IoT [Internet of Things] solution comes to market at a different time, meaning that as more packaged solutions become available and as some experience rapid growth, the total growth accelerates. The IoT market has been described as a “popcorn” market, in which each submarket “pops” at its own pace — some smaller markets grow explosively, but the total market (the “pot of popcorn”) expands more uniformly.

A popcorn market leads to slowly accelerating overall growth, generating frustration for companies that had anticipated rapid adoption. This is especially true in the IoT market for horizontal IT companies such as Hewlett Packard Enterprise (HPE) and Dell EMC that are finding themselves selling into new markets, including product development, operational technology (OT) and data science organizations, instead of traditional IT department constituencies. Gottheil notes that for organizations that are seeking to benefit from IoT, the key to accelerating growth is developing packaged “off the shelf” — or “shrink-wrapped” — IoT solutions. The increased availability of IoT solutions targeting specific use cases and business processes in industry subverticals will be key to generating IoT-driven vendor revenue for the foreseeable future.

Analysis: When expectations do not match the actual cost in cloud

In the relationship between customer and business, expectations are everything. In a lot of ways, the shift to cloud computing has evened the playing field for what is expected in terms of cost, responsibilities, and the services exchanged between IT customers and providers. With cloud services, customers can experience far more of a service before buying it, see a clear unit price from the outset and understand the constraints of the service-level agreements. However, uncertainty still lingers in the exact specifications for many solutions, as the complexity of the design and variability of the actual utilization continue to make accurately predicting real-world cost for cloud solutions difficult for many customers. — Allan Krans, Practice Manager and Principal Analyst

NFV and SDN begin to yield cost savings and prepare carriers to be competitive in the digital era

HAMPTON, N.H. (July 3, 2018) — Commercial deployments of NFV and SDN are aggressively moving forward, with nearly all leading Tier 1 operators having adopted or planning to adopt NFV and/or SDN by the end of this year, according to Technology Business Research Inc.’s (TBR) 1H18 Telecom Software Mediated Networks (NFV/SDN) Customer Adoption Study.

“The cost savings of network virtualization and automation is becoming more evident,” said TBR Telecom Senior Analyst Michael Soper. “Carriers are leveraging NFV and SDN capabilities, as well as integrating cognitive technologies such as artificial intelligence (AI) and machine learning (ML) to evolve to a zero-touch network that can automate performance management and maintenance functions to prevent network faults and reduce expenses. The industry is in the very early stages of this trend.”

WAN virtualization is a top priority for service providers as they implement solutions including SD-WAN and WAN optimization into their portfolios. Service provider revenue growth from software-mediated network services, particularly SD-WAN, is accelerating, but the lion’s share of WAN revenue continues to stem from traditional services such as MPLS.

The supplier landscape shows incumbent vendors, particularly hardware suppliers, remain entrenched with service providers, but face disruption within certain use cases and with respect to commoditization. The study indicates incumbent hardware providers are best-positioned for providing NFV and SDN solutions across domains, with startups, open source players and cloud-centric vendors infrequently mentioned by respondents. Still, incumbents will face disruption with respect to certain VNFs, such as vEPC and vRAN, and the most significant threat remains hardware pricing, the area in which the overwhelming majority of respondents expect to see cost savings due to commoditization and the shift in spend to the software layer.

As the software-mediated market matures, software-centric vendors will be better-positioned than hardware-focused competitors. Additionally, vendors with highly automated service delivery and remote delivery capabilities can help service providers reduce opex tied to NFV and SDN.

TBR’s Telecom Software Mediated Networks (NFV/SDN) Customer Adoption Study provides an in-depth examination of how operators are planning, preparing and executing to succeed in the NFV and SDN market. TBR surveyed 25 of the leading Tier 1 telecom service providers worldwide to gain insight into their NFV and SDN adoption plans. The study includes insight into service provider strategy, as well as service providers’ perceptions of supplier positioning and key benefits and obstacles.