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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.