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Commercial IoT benchmarked revenue increased 14.7% YTY to $11.7B in 4Q18: The prizewinners and dark horses

IoT continues to expand vendor revenue, but it is unlikely to ever contribute to explosive growth

Total commercial IoT benchmarked revenue increased 14.7% year-to-year (YTY) to $11.7 billion in 4Q18. IoT is a market that is “too big to miss” and is contributing new revenue for a large set of vendors. However, it will not offer explosive growth, and large transactions represent a shrinking percentage of the available market, leading vendors to evolve to a more agile way of doing business or face missed opportunity. 

Cloud services revenue grew 46.7% year-to-year in 4Q18 and increased as a percentage of benchmarked IoT revenue from 13.2% to 16.8% year-to-year, favoring all cloud platform vendors. Cloud services continues to be a growth leader as vendors gain customers and upsell with advanced tools as price wars wane. Efforts to extend PaaS to the on-premises edge or private cloud will further bolster cloud services revenue.

Most IoT deployments today consist of multiple-vendor solutions, and in delivering multiple-vendor solutions, component vendors are challenged to be recognized and compensated for their contributions and must target their go-to-market efforts precisely to generate margins. This is leading to an increase in “ingredient marketing,” where component vendors communicate to customers and partners the value their components contribute to solutions. Systems integrators, usually the vendors with the greatest exposure to customers, are stuck between their claims of owning differentiated IoT intellectual property and the increasing visibility of third-party components. Increasingly, solutions are delivered as bundles and sold by value-added resellers, ISVs and independent hardware vendors, posing the same challenge to component vendors.

TBR’s Commercial IoT Benchmark highlights the current commercial IoT revenue and gross profit of 28 vendors. TBR leverages financial models and projections across a diverse set of IT and operational technology (OT) components. Additionally, the benchmark outlines the major vendor drivers and trends shaping the market. Reach out to [email protected] for a deeper conversation about the findings in TBR’s 4Q18 Commercial IoT Benchmark.

The IoT market continues to stabilize, with the overall market growing at a moderate accelerating CAGR of 24.8%

4Q18 Commercial Internet of Things Market Forecast infographic

TBR projects total commercial Internet of Things (IoT) market revenue will increase from $456.1 billion in 2019 to $1.4 trillion in 2024, a CAGR of 24.8%.

Topics covered in TBR’s Commercial IoT Market Forecast 2019-2024 include deeper examinations, such as trends, drivers and inhibitors of the seven technology segments we track (e.g., cloud services, IT services, ICT infrastructure, and connectivity), the 10 vertical groupings we cover (e.g., public sector, healthcare, manufacturing and logistics), and four geographies (i.e., APAC, EMEA, North America and Latin America).

In addition to a more in-depth examination of the aforementioned topics, we also delve into the rise of “bundles” and “packaged solutions,” and how vendor partnering is lowering cost of sales for IoT implementations.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

The IoT market continues to stabilize, with the overall market growing at a moderate accelerating CAGR of 24.8%

TBR projects total commercial Internet of Things (IoT) market revenue will increase from $456.1 billion in 2019 to $1.4 trillion in 2024, a CAGR of 24.8%.

It is important to remember that IoT is a technique for applying technology components, not a technology itself, which leads to certain drivers and inhibitors. Because it is a technique, IoT has an unlimited shelf life. Vendors that invest now and solidify their IoT go-to-market strategy will benefit in the long run. Methods for connecting equipment and solutioning may evolve, but the overarching technique is not going away. However, IoT growth is limited by the components and solutioning that compose the technique, including capabilities, standards and cost. This leads the numerous submarkets and sub-technologies of the IoT ecosystem to experience varied growth.

IoT revenue will accelerate as technological capabilities and standards mature and common solutions appear, culminating in lower cost and complexity.

Graph showing commercial iot market forecast alternative market performance scenarios 2019-2024

TBR believes an emerging growth accelerator is the fact that IoT offerings have evolved from the initial DIY stage to easily integrated components to component kits to, finally, almost complete solutions. At each point in this evolution, IoT becomes less expensive, less burdensome and less risky to customers, while still delivering business benefits. This greatly broadens the market, resulting in market growth and revenue growth for vendors that participate in this evolution.

However, customers remain concerned with the cost of IoT solutions, including the expense associated with transmitting, processing and storing data. The amount of data stored increases as IoT projects remain in operation, and a thoughtful data collection and storage policy is key to maintaining positive ROI.

Nokia hedges 5G play with focus on opportunities in the enterprise space

TBR perspective

The next few years will be challenging for Nokia (NYSE: NOK), and execution will be critical to ensure the company is optimized to drive profitable revenue growth when its addressable market ultimately returns to sustained growth. With its core communication service provider (CSP) customer segment, which composes 95% of Networks’ revenue, expected to remain in a cost-optimization cycle pending new, proven revenue growth opportunities enabled by 5G (which TBR’s research suggests remains several years away), Nokia’s strategic focus on opportunities in the enterprise space and its internal digital transformation are prudent and timely and will take center stage in determining how financially successful the company will be as it transitions into the next decade.

Though more CSPs are committing to deploy 5G and other advanced network innovations such as virtualization over the next few years, the reality is that these infrastructure investments are being justified because they provide significant cost efficiencies to CSPs, enabling them to build, operate and support networks in a much more efficient and cost-effective manner compared to prior generations of network technology. This reality not only increases pressure on Nokia to boost its enterprise exposure to grow revenue, but also pushes management to accelerate digital transformation to protect margins.

Though TBR generally agrees with Nokia’s stance that the world is at the cusp of Industry 4.0, the divergence in thought comes down to timing and whether this cycle will be a short-duration revolution or a long-term evolution. TBR’s research suggests the latter and that Industry 4.0, which includes mass 5G adoption globally, will not ramp up until the 2022-2025 timeframe, at which point business cases will be proved, justifying an increase in market spend on ICT infrastructure. Until that time, Nokia needs to rightsize its shorter-term expectations and focus on building a solid foundation for its fledgling enterprise business while digitally transforming its internal operations to stay competitive.

 

 

Enterprises, 5G and Industry 4.0 dominated most of the mindshare at Nokia’s 2018 Global Analyst Forum. Nokia spent much less time discussing its individual product innovations and more time discussing how technology, people and processes are coming together to enable digital transformation, not only for CSPs but also for enterprises.

The pendulum swings: Customer demands reshape how infrastructure vendors do business

Insights from TBR’s 2019 Data Center Predictions

The data center remains an evolving pillar of the enterprise ecosystem. Emerging technologies such as 5G, NVMe, quantum computing and blockchain are reshaping how these technologies work together, while rapidly rising demand for the cloud is causing data center vendors to rethink strategies such as go to market and investment.

Join Geoff Woollacott, Stephanie Long and Catie Merrill as they take a deep dive into how infrastructure vendors will support their clients’ digital transformation plans and the new strategies that will emerge.    TBR’s analyst team will provide a snapshot of how the data center market will evolve during 2019.

Don’t miss:

  • How infrastructure partnerships will enable rapid transformation
  • How R&D will shift as evolving customer demand pushes infrastructure vendors to the edge
  • What new technologies and trends will shape 2019 for infrastructure vendors

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed at anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Voice assistant volume is increasing

A survey conducted by Adobe Analytics found that 32% of U.S. consumers owned a smart speaker in September 2018, compared to 28% in December 2017. The report also projected that near half of the U.S. consumer base could own one by the end of December 2018, supported by Adobe Analytics’ finding that nearly 80% of smart speaker sales occur during the holiday season. It is just one study, and there are more conservative studies out there ― but even if the data isn’t completely on the mark, it does uncover the trend of voice-controlled devices gaining ground inside consumers’ households despite use cases and monetization still being blurry.

I own four Amazon Alexa-enabled devices myself: two Echo Dot smart speakers and two Fire TVs. Of the Echo Dots, one was given to me by a colleague to play around with, and another I bought for about one-third the list price from acquaintances who had received it as a gift from their extended family and left it unopened because they felt it was “too creepy.” In our household, the Echo Dots have been used as glorified hands-free music players in our kitchen and one of our bathrooms. The Fire TVs are used as media players first and foremost. Sometimes, we try some of the new skills Amazon sends along in update emails as a fun diversion, but usually that is a one-off activity. I am deeply invested in the Amazon ecosystem, having been a Prime member since its debut and a fan of Prime Video, but it is still challenging to find ways to use Alexa smart-home devices to enhance my other Prime benefits or drive me to Amazon’s e-commerce business.

Adobe’s research seems to align with my anecdotal experience, noting that among the most common voice activities* are asking for music (70% of respondents) and asking fun questions (53% of respondents). The only other activity above 50% is asking about the weather (64% of respondents). So yes, people are using them, but these are not skills that require much depth or complexity or that drive additional revenue for Amazon.

Therein lies the problem for voice-platform providers such as Amazon and Google (Microsoft and Apple are also players, but I don’t believe they are as developed as Amazon and Google are in the smart speaker and voice assistant space). In an ideal world, voice assistants would provide platform companies with a wealth of consumer data as users query the devices about their everyday needs. Also, voice assistants can be a new conduit to monetization through new applications or — especially in Amazon’s case — to lowering barriers to the purchase of goods. However, most complex tasks, such as ordering a ticket for the movie you’d like to see tonight, finding out when the beach is open, or buying an outfit for an upcoming wedding, are still much easier via a smartphone or laptop interface. The Adobe study found that of the 32% of respondents with a smart speaker, only 35% and 30% used voice interfaces for basic research or shopping, respectively.

Improving the use cases, or “skills,” of voice assistants will be critical for platform vendors to increase the use of these devices for complex tasks and to elevate smart speakers from smart radios and novelties to gleaming data gems. TBR expects this to be the major battleground between voice assistant and smart speaker providers moving forward as the form factor has been relatively proved. TBR believes Google has a slight advantage due to its heritage in data mining behind the façade of services as well as its Android and Chrome cross-platform tie-ins (a lot of relevant user data is already in Google, such as contacts, schedules, and often email). Amazon is no slouch either due to its investment spend, growing media empire and robust e-commerce platform, which Google lacks. Apple could be a dark horse; however, its Siri is still weaker on an artificial intelligence (AI) basis and the HomePod’s pricing makes it an unlikely easy gift.

The next frontier for all of these platform providers is in the commercial space, an area we may see Microsoft put much of its effort into while leaving the consumer space for better-suited peers. In fact, collaboration between Microsoft and Amazon on voice and smart speakers may confirm this. Using voice assistants and smart speakers to query analytics or gain business insights or employing them as a “smart secretary” in conference rooms are areas TBR sees as avenues for commercial expansion. TBR has seen slightly different approaches from Amazon and Google in the commercial space. Amazon, likely with Microsoft support, focuses on the office with Alexa for Business, while Google seems to be positioning its voice AI and smart speaker technology to serve as an interface for a business’s customers.

However, as with the consumer space, the use case must be proved, the skills must be ironed out, and existing commercial infrastructure must be modified to support voice assistants and smart speakers. And despite furious investment in these possibilities by the major platform players, TBR doesn’t expect to see Alexa widely adopted in the boardroom for at least another two to three years. For now, I believe smart speakers will continue to find their way into homes as a novelty or curiosity for tech-excited people and early adopters, contributing to slow but steady growth, or as an easy, cost-effective tech-based gift, driving additional bursts of increased unit sales during the holidays.

*Voice activity data includes devices that are not smart speakers, such as smartphones.

Customer-centric digital transformation: What’s up with that?

An exclusive review of TBR’s Digital Transformation Customer Research and Digital Marketing Services Customer Research

Customer experience (CX) optimization remains a natural first channel for digital transformation, providing test cases for data synthesis across the organization and new methods of engagement that can inspire future initiatives. Join us Dec. 19 to discover what vendors need to know to compete effectively for CX-related opportunities in the fast-evolving digital transformation market.

Join Jen Hamel and Boz Hristov as they dig into how enterprise adoption of digital transformation solutions is evolving, with a specific focus on the CX function. Based on enterprise adoption research, TBR will give a snapshot on today’s digital transformation and digital marketing services marketplaces.

Don’t miss:

  • The state of adoption for digital transformation technology and services
  • Insights into CX as a starting point for digital transformation, including who buys or influences solutions
  • Market maturity and opportunity, as well as winning vendor strategies, in CX

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed at anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Maturing offerings, vendors and customers prompt long-term IoT vendor growth

The continued interweaving of the technology component market with Internet of Things (IoT) techniques delivers a well-defined path to long-term sustained growth for many IT and operational technology (OT) vendors, especially those vendors that are best able to differentiate their portfolio and position themselves as critical partners for a wide set of IoT solutions.

The hype surrounding IoT has only served to confuse and overwhelm customers and vendors, but efforts by both parties to cut through the hype is driving the growth of installed IoT solutions. As the hype fades, vendors are better able to rationalize their go-to-market strategies and messaging, particularly around how to assemble IoT solutions, leading customers to better understand how to apply IoT.

However, while it is becoming easier to assemble an IoT solution, it is still challenging to design and implement the IoT technique. We don’t expect a huge explosion of revenue; IoT itself isn’t a “killer app,” but it will enable moderate and slowly accelerating revenue growth for the various components involved in an IoT solution.

In our 3Q18 reports and thought leadership, TBR will focus on three topics that we believe are currently the most impactful on the wider IoT ecosystem: the increasing maturity of the IoT technique, the growing consolidation of generic platforms, and how increasing commoditization around IoT is working in favor of economies of scale and enabling the growth of installed solutions.

IoT is growing up: Increased ecosystem maturity will lead to increased customer adoption

TBR, through discussions with vendors and customers as well as our use case databasing, is noticing growth in installed IoT solutions, whether from net-new deployments or expansions of existing IoT deployments, signaling improved maturity. IoT maturation is not so much about the components of IoT as it is about businesses developing their ability to leverage technologies and techniques that are increasingly applicable to a growing number of business problems.

A major driver of this maturity is greater clarity around IoT techniques, led largely by go-to-market realignment and improved messaging by vendors, organization around IoT by customers, shifts from competition to coopetition by vendors, and general improvements in the construction of the technology that facilitate advanced usage of the IoT technique.

Signals of consolidation appear in the cloud IoT platform space

Infographic discussing signals of consolidation appearing in the IoT cloud platform space

The cloud IoT platform landscape consolidates around largest vendors as customers seek continuity, consistency and the best tools

Cloud services revenue grew 48.2% year-to-year and increased as a percentage of total benchmarked Internet of Things (IoT) revenue from 12.4% to 15.8% year-to-year in 2Q18. Growth is driven by customers, especially those without deep legacy ties, moving their workloads to the cloud. The public cloud ecosystem is beginning to consolidate, with the top vendors competing on best-in-class tools, partnerships and business-problem-solving messaging.

Software, while still a sizable portion of benchmarked revenue, is experiencing slowing revenue growth, from 19% year-to-year in 2Q17 to 4.2% year-to-year in 2Q18. Software, along with ICT infrastructure, will continue to play a role in IoT solutions with the advent of edge computing, but as providers’ cloud platforms mature and tie-in deals with application partners are cemented, demand increases.

ICT infrastructure revenue grew 14.1% year-to-year in 2Q18 due to increased IoT deployments as well as hybrid IoT becoming an increasingly common IoT framework. ICT infrastructure gross margin rose 80 basis points year-to-year. TBR believes the increase stems from the need for more specialized or powerful hardware to handle the more advanced needs of IoT and its components, such as artificial intelligence (AI) and machine vision. Despite the increased utilization of ICT hardware due to hybrid IoT and the need for specialization, the long view for ICT infrastructure will be complicated by commoditization. TBR expects most ICT infrastructure companies to deeply invest in software and service components to buttress the profitability of customer engagements as the threat of commoditization looms.

Vendors across the technology spectrum are all fervently trying to crack the code for the “killer app” within specific verticals that can solve common business problems and be widely adopted by customers. The vendors that win with building the first widely accepted solutions will be set up for success, while others in the oversaturated market will at best become acquisition targets and at worst become history.

For more information, contact Analyst Daniel Callahan at [email protected].

Increased market clarity drives 16.1% year-to-year growth in commercial IoT revenue

Technology Business Research, Inc.’s (TBR) 2Q18 Commercial IoT Benchmark recorded revenue growth of 16.1% year-to-year, to $10.3 billion, in 2Q18, among the 28 IT and operational technology (OT) vendors we benchmark. The revenue growth is largely a result of continued implementation of Internet of Thing (IoT) and growth of installed IoT solutions.

The dousing of rampant IoT hype, which only served to confuse and overwhelm customers and vendors, is helping drive the growth of installed IoT solutions. As the hype dies out, a wave of increased clarity and maturation is forming with vendors rationalizing their go-to-market strategies and messaging, leading to customers better understanding how to apply IoT and vendors learning how to assemble solutions. Packaged solutions are emerging as vendors cooperate, focusing on their strengths, and assemble components sets that solve verticalwide challenges. TBR believes these factors are driving tactical business-focused IoT projects to supersede overambitious projects stuck in proof-of-concept limbo.

However, while easier than in the past, IoT design and implementation are still a challenge. TBR does not expect a huge explosion of revenue beyond midteen growth going forward.

Total 2Q18 commercial IoT benchmarked gross profit increased 16.6% year-to-year to $5.1 billion. Reduced complexity in IoT due to increased knowledge around building and applying IoT as well as the streamlining of portfolios as a result of increased partnering is improving vendor profitability. Also, vendors are leveraging specialized tools, such as artificial intelligence (AI), to justify higher pricing.

 

TBR’s Commercial IoT Benchmark highlights current commercial IoT revenue and gross profit for vendors. TBR leverages financial models and projections across a diverse set of IT and OT components. Additionally, the benchmark outlines the major vendor drivers and trends shaping the market.