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IoT is a piece of a larger IT strategy and should not be treated as a unicorn

Let us begin with the bad news: Many IT and operational technology (OT) vendors were disappointed — and some incurred damage or had to scramble to realign — as the IoT opportunity failed to live up to inflated expectations prevalent between 2015 and 2017. Many anticipated far more rapid growth than was reasonable, given that IoT is neither a technology nor a market, but a technique or a class of solutions. Many also thought that version 1.0 of horizontal IoT platforms was a fast and easy sell. An early victim was General Electric (NYSE: GE), but TBR expects other large names to narrow their IoT businesses and investments, if they have not already, and several smaller names to disappear or get eaten by bigger fish as they find themselves spinning their wheels in the mud with nondifferentiated portfolios.

The good news: Starting in late 2018 and continuing into 2019, TBR has observed the IoT opportunity recovering as lessons from the difficult times have led to increased sanity and smarter messaging around IoT. We believe that the pace of IoT project implementation is increasing, but that the mix has shifted to smaller projects. Over time, however, the number of active projects will grow and the amount of data they produce will also grow, leading to an accelerating growth curve.

TBR believes a few significant realizations and realignments are driving acceleration:

  • IoT really is not a market (although that is the easiest way to describe it) nor a technology. It is a technique for applying technology. It is not a very novel technique, but rather an evolution of IT solutioning that includes sensors. More vendors and customers are coming to understand what IoT is and are avoiding the perception of IoT as something that is new, novel and complex, making it easier for vendors to leverage IoT to help customers overcome business challenges. With IoT being treated as one tool in the larger IT solutioning toolbox and the focus turning to solving the end problem, rather than defining the technology needed to get there, vendor-customer relationships are back to business as usual. Vendors do not have to get bogged down in education cycles as much because customers understand IT solutioning, and vendors can focus on delivering solution components instead of getting embroiled in discussions on the perception of IoT as a discrete and transformational technology and the complexity, hesitation and perceived risk that stem from that.
  • IoT is not easy. This is true for two reasons: because customer organizations are complex and have numerous stakeholders with differing priorities, visions and systems, and because IoT is rarely implemented in and of itself. IoT is more often tied with existing or new systems, such as product lifecycle management, supply chain management, enterprise resource planning software, or a multitude of specialized software from ISVs. Adoption is largely from the bottom up in organizations, but customer IoT champions and vendors are realizing that adoption must be supported from the top down to extract maximum value from IoT. Customers are increasingly adding CIO and chief digital officer (CDO) roles to guide holistic, consistent transformation, and vendors are investing in sales strategies targeted at the C-Suite, such as innovation centers and improved messaging. To answer the second challenge, vendors are learning that they cannot address everything alone and must partner to tackle the variety of interconnected systems and build best-in-class solutions.
  • Being the best at a few select components of IoT is better than being OK at everything. Thousands of vendors are attacking the IoT opportunity, culminates in a busy, confusing and hypercompetitive market for customers. Winning vendors are finding their swim lanes and exploiting their niches, such as self-service Amazon Web Services (Nasdaq: AMZN), application-focused Oracle (NYSE: ORCL), embedded-driver Dell Technologies (NYSE: DELL) and things-focused Bosch. These vendors are increasingly known for being the strongest in their chosen niches, and their narrower focuses not only make them prime targets for systems integrators to pull into solutions but also make partnerships easier, with joint go-to-market efforts proving to be a winning strategy for vendors to employ beyond their legacy customer bases. 
  • Packaged solutions are emerging. With customization comes cost and complexity, anathemas to the customer base, especially large customers. As vendors begin packaging components together for shared applications or to address common challenges, costs are beginning to develop boundaries, helping customers understand exactly how IoT can be used and what to expect in terms of ROI. TBR expects packaged solutions to drive steady market growth moving forward. Each solution has its own growth curve, with some being quite rapid—but taken together, these solutions are delivering accelerating but moderate growth.

The 3Q19 Commercial IoT Market Landscape looks at technologies and trends of the commercial IoT market. Additionally, TBR catalogs and analyzes more than 520 customer deals by vertical, uncovering use trends, identifying opportunities, examining maturity, and discussing drivers and inhibitors.

CSPs focus on supporting advanced use cases and network technologies to maximize IoT revenue

Industry 4.0 will spark the adoption of advanced IoT use cases as well as the integration of network slicing and private 5G networks

TBR projects global CSP IoT revenue will increase at a CAGR of 24.9% through 2023 as the launch of mobile 5G services contributes to revenue growth acceleration starting in 2020, and operators, particularly in China, begin capitalizing on advanced use cases. As the 5G and digital ecosystems develop, advanced IoT use cases will emerge that can leverage the unique performance characteristics 5G offers, specifically high bandwidth and low latency. Connected transportation, AR/VR, and mission-critical IoT are all likely to be preliminary use cases for 5G technology, but the commercialization of these use cases will take a couple of years to unfold.

Though advanced IoT use cases that require the precision promised by 5G, such as remote surgery, are being explored, many of these services will not become commercially available until the mid-2020s at the earliest. Additionally, solutions such as remote surgery and V2X (vehicle-to-everything) automotive services will be burdened by significant regulatory and societal challenges.

TBR anticipates Industry 4.0, which includes mass 5G adoption globally, will ramp up around the 2022 to 2025 timeframe and result in heightened spend on ICT infrastructure as demand for new use cases, including advanced IoT solutions, increases. As Industry 4.0 progresses, leading enterprises in certain verticals such as manufacturing, logistics and warehousing will likely opt for private 5G networks that they buy, own and control. Private 5G networks will provide enterprises enhanced data security and the precision needed to support advanced IoT solutions. Private 5G networks will provide new revenue opportunities as customers will in many cases be purchasing these networks directly from telecom vendors rather than CSPs.

Though some larger enterprises will opt for private 5G networks, TBR expects most smaller companies will need to support advanced IoT solutions via a slice from a CSP. Though network slicing solutions will provide revenue opportunities for telecom vendors, adoption will be limited initially as most global operators will delay migrating to 5G core networks, which is essential to support network slicing, for another several years. Though many operators outside of China and South Korea will delay upgrading the 5G core because the system will be costly to install, early adopters will gain a time-to-market advantage capitalizing on advanced IoT use cases requiring the accelerated data speeds and ultra-low latency enabled by network slicing.

TBR Weekly Preview: March 25-29

We’re in a slower earnings period, which means fewer vendor-centric reports and more benchmarks and market landscapes. And at the end of the week, Accenture gets the early jump on 1Q19, as we analyze the company’s cloud-centric portfolio and overall performance.

Thursday

  • Accenture will kick off the 1Q19 earnings season for services companies. While we expect Accenture’s revenue growth to taper compared to the company’s year-ago performance, investments in platforms such as SynOps, which addresses key pain points such as augmentation of human labor through automation across IT operations processes, strengthen the company’s position for long-term digital transformation opportunities. Additionally, we continue to closely monitor Accenture’s relationship with its Big Six partners, such as the recent launch of Accenture Microsoft Business Group (AMBG). While AMBG is a natural extension of the relationship between Accenture and Microsoft, it raises questions about the future of Avanade. (See Boz Hristov for additional details on Accenture.)
  • In TBR’s 4Q18 Devices and Platforms Benchmark, we found that total benchmarked revenue declined 2.4% year-to-year to $142.6 billion as the device market ran up against global economic challenges, increased device saturation, and reduced consolidation opportunities. The biggest driver of devices revenue decline was sluggish sales for legacy smartphone vendors Apple and Samsung as the Western premium market becomes saturated and device life cycles lengthen. Outside Western markets, legacy smartphone vendors are being pressured by aggressive, more recent market entrants such as Huawei and OPPO, which are eroding share by offering aggressively priced midrange devices with premium features. Outside smartphones, the PC market grew despite silicon shortages. However, TBR predicts the Windows 10 refresh opportunity will begin to wane as PC vendors exhaust worldwide opportunities. Read more about the smartphone, PC, tablet and smart device markets, as well as the impacts of platform and solution trends, such as DaaS, in our full report. (See Dan Callahan for more.)

Friday

  • TBR’s Accenture Cloud report will highlight Accenture’s evolution around key investment initiatives such as Journey to Cloud, as well as the company’s managed services positioning within the infrastructure management domain. Additionally, we continue to asses Accenture’s relationships with cloud buyers through the use of standardized, price-competitive offerings supported by highly specialized and certified talent.
  • This month’s Digital Transformation Insights report focuses on two leading vendors, Accenture and IBM. Using TBR’s extensive coverage of these companies across IT services, management consulting, cloud, software, IoT, and even telecom, we stand these companies side-by-side to examine their financial performances, strategies, investments and approaches to the digital transformation market.

Once again, we have multiple TBR analysts traveling this week, so expect special reports on PwC and Accenture as early as next week.

Pivoting to industry offerings and managing disruption: Not everyone can keep pace

Over the last two weeks, TBR has spent time with three leading IT services and consulting vendors, discussing their strategies for evolving digital transformation and hearing from their clients about what has worked and where frustrations remain. Two common themes came out of these discussions: industry-specific offerings and market disruption.

While we’ve frequently commented on the industry-centric culture and mindset of some leading IT services vendors and consultancies, we’ve typically seen their partnerships with technology vendors revolve more around horizontal solutions and emerging tech capabilities. One substantial shift of late has been a new focus on coinnovating, developing, and taking to market offerings and solutions designed specifically for industries, or even subverticals within an industry. This isn’t completely new, although the emphasis may be, and a sustained investment would solidify this trend. But the real implications, we think, will come for the IT services vendors amid their pivot to an industry focus. One of the leading vendors, a company as deeply ingrained with industry expertise as any of the Big Four firms, discussed its plans to roll out new industry-specific offerings with a leading software provider, noting that the companies together chose industries best suited to match their combined strengths. In contrast, we understand other large IT services vendors continue to struggle in pivoting to an industry-centric organization (never mind an industry-expertise culture). If these large vendors cannot identify their strengths and opportunities as well as their best-match software partners, they’ll fail to differentiate as the market moves to industry-centric digital transformations.

The second theme, disruption, is something that everyone is talking about. No analyst event, client meeting, or tour of an innovation, immersion or experience center passes without the discussion turning to how disruption in the market forces quicker decision making and faster actions. What emerged during my discussions with all three vendors these past two weeks was the clear distinction between internal and external disruption and the role an IT services vendor or consultancy can play in assuaging one and stoking the other. Clients spoke at length about the role their IT adviser played in ensuring core systems and operations would not be disrupted, even as the enterprise itself, including IT, went through a digital transformation. The three companies we met with described their role in providing trust, assurance, hyper-care attention to issues and problems, and everything from the road map to the running-at-speed implementation for clients both ready to change and nervous about the risks involved. Clients also expressed their fears of external disruption from traditional and nontraditional competitors, technology partners unable to deliver, and market forces moving faster than their systems can manage. While IT services vendors and consultancies haven’t created these fears, TBR can appreciate that a little uncertainty isn’t such a bad thing.

We will explore both issues in greater detail in our upcoming Management Consulting Benchmark as well as in the monthly deliverables in our Digital Transformation Insights portfolio. Stayed tuned.        

TBR Weekly Preview: March 18-22

In addition to this week’s vendor analysis, TBR Senior Analyst John Caucis will host a webinar Wednesday, March 20, sharing his insights on the state of the healthcare IT services market and the 2019 HIMSS mega-event. 

Furthermore, TBR analysts will be attending several events this week, so be on the lookout for special reports on Accenture, SAP and Oracle as early as next week.

Monday

  • Despite its top-tier innovation and optimistic messaging, Oracle struggles to find incremental growth outside its cloud ERP portfolio. While traction around autonomous database builds, these ERP inroads present an opportunity for Oracle to more effectively craft a story across its integrated cloud applications and platform capabilities. TBR’s initial findings can be accessed today, but read more on the subject in our 1Q19 Oracle Cloud full report publishing in April. (Meaghan McGrath leads TBR’s analysis of Oracle.)

Wednesday

  • HP Inc. delivered corporate growth of 1.3% year-to-year, a significant slowdown after five quarters of double-digit growth. During the company’s 4Q18 earnings call, executives discussed challenges within HP Inc.’s profitable print supplies business, but slowed growth in its commercial printing and overall PC businesses indicates the problem is broader. Slowing consolidation opportunities and rising opposition from its peers in the PC market will increasingly challenge HP Inc., whose PC business composes most of its top line. In addition, the CPU shortage has been more impactful to HP Inc.’s wider portfolio. Read our full report to find how HP Inc. will navigate these challenges throughout 2019, including growing its Device as a Service portfolio and supporting its sales channels to build a bulwark for upcoming PC share wars. (See Dan Callahan for more analysis.)

Thursday

  • According to TBR estimates, Dell Technologies achieved $23.8 billion in revenue, up 8.6% year-to-year in 4Q18. Gross profit increased 20.7% year-to-year, highlighting Dell Technologies’ successful improvement in overall profitability. In TBR’s 4Q18 full report on the company, we will dive into the performance of key business units. Within Infrastructure Solutions Group (ISG), TBR believes aggressive market share expansion in both servers and storage will be a key focus for at least the first half of 2019, which will result in investments in direct sales, ISG’s channel partner program and portfolio enhancements. In Client Solutions Group, Dell Technologies will continue to benefit from shrinking memory prices as well as the CPU shortages, which will drive profitability up during 2019. From a corporate perspective, 2019 will see tightened integration between the vendor’s strategically aligned companies. (See Stephanie Long for more analysis.)
  • In this quarter’s analysis of Dell EMC Services, TBR will highlight how Dell Technologies integrating preconfigured services solutions around core infrastructure technology competencies enables Dell EMC Services to attach profitable and recurring services revenue streams. (Kevin Collupy leads TBR’s analysis of Dell EMC Services.)
  • In 4Q18 Hewlett Packard Enterprise (HPE) reported corporate revenue of $7.6 billion, down 1.6% year-to-year. TBR estimates total cloud revenue reached $1.9 billion, up 3.1% year-to-year, as HPE continued to invest in its cloud portfolio and capitalize on customer demand for hybrid IT solutions. HPE’s leaner business and ongoing restructuring efforts through HPE Next allow HPE Cloud to focus on and invest further in its core areas of strength, namely hybrid infrastructure and edge computing for IoT and telecommunications use cases. (Cassandra Mooshian leads TBR’s coverage of HPE Cloud.)
  • VMware’s top-line growth continues to outpace that of its software peers in TBR’s Infrastructure Management Software Vendor Benchmark. In 4Q18 VMware experienced its strongest quarter since 3Q14, with revenue growth of 16.4% year-to-year to $2.6. Revenue growth was buoyed by strong adoption across VMware’s emerging product lines, with vSAN revenue growing 60% year-to-year and Hybrid Cloud and SaaS revenue growing 35% in the same time period. Further, the company is successfully packaging solutions around hybrid management to increase deal sizes and reported a company-record 23 deals in excess of $10 million during the quarter. (Cassandra Mooshian leads TBR’s coverage of VMware.)
  • Huawei is taking a prominent role in setting standards for 5G and launching solutions to help operators implement 5G services, which has led to key early commercial 5G-related contracts in EMEA and APAC. While security concerns around 5G will persist, Huawei will continue to grow revenue in 2019 largely due to its Consumer and Enterprise business units, which are taking share from incumbents.(Michael Soper leads TBR’s coverage of Huawei.)

Friday

  • According to TBR’s 1Q19 Telecom IoT Market Landscape, TBR estimates global communication service provider (CSP) IoT revenue rose 25.6% year-to-year to $22.3 billion in 2018. Despite sustaining strong revenue growth, TBR estimates global CSP IoT revenue accounted for only 1% of consolidated global CSP revenue in 2018, which is insufficient for most service providers to offset erosion within challenged segments such as legacy network services. To maximize IoT revenue opportunities long term, CSPs are focusing on attracting customers by implementing more cost-efficient network technologies such as NB-IoT and LTE-M, targeting high-value contracts in areas such as smart cities and healthcare, and by positioning to support next-generation IoT solutions integrating technologies such as 5G and edge computing. (Steve Vachon is TBR’s lead analyst covering the Telecom IoT space.)

Competition from MVNOs and smaller rivals limits subscriber growth for Tier 1 U.S. and Canadian operators

Wireless revenue rose 2.2% year-to-year to $64 billion among U.S. operators covered in Technology Business Research Inc.’s (TBR) 4Q18 U.S. & Canada Mobile Operator Benchmark, driven by continued subscriber growth and adoption of premium smartphones. All benchmarked U.S. operators except Sprint were able to gain postpaid phone net additions in 4Q18 as opportunity remains to target first-time wireless customers in the country. Postpaid subscriber growth is also fueled by prepaid migrations as many subscribers are moving to postpaid plans for benefits such as bundled streaming services and increased LTE data limits for mobile hot spots.

4Q18 Wireless Revenue, OIBDA Margin & Year-to-year Revenue Growth

Subscriber growth for U.S. Tier 1 operators is, however, threatened by the growing momentum of new mobile virtual network operators (MVNOs) entering the market. Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile are attracting wireless customers via low price points and the convenience of being able to enroll in multiple services through a single provider. Altice also plans on providing wireless services in 1H19, giving the company the opportunity to cross-sell mobility services to its current residential base of over 4.5 million customers. TBR also anticipates Google Fi, which was rebranded from Project Fi in November, will gain further traction in 2019 as the brand is launching new incentives to attract customers including bring-your-own-device options for most Android and iPhone smartphone models.

Combined wireless revenue among Tier 1 Canadian operators rose 6% year-to-year to $6.9 billion due to continued subscriber growth spurred by shared data programs and expanding LTE-Advanced coverage. However, subscriber growth for Tier 1 Canadian operators is limited by mounting competition from smaller competitors. Tier 2 Canadian operators, most notably Shaw Communications’ Freedom Mobile and Quebecor’s Videotron, which now have a total of about 1.5 million and 1.1 million customers, respectively, are accelerating subscriber growth via their pricing promotions and network investments. TBR anticipates Freedom Mobile will further disrupt the Canadian wireless market in 2019 as the company will expand LTE coverage to an additional 1.3 million Canadians throughout the year in markets in British Columbia, Alberta and Ontario.

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].

Key to Internet of Things market growth? Here’s a look at crucial players, customers

Commercial Internet of Things has received substantial press over the last three years. It started in 2015 with hyped claims of IoT’s ability to deliver total transformation, but expectations around the technology have matured and IoT is now viewed as a reasonable technique for solving business problems.

However, one thing has not changed: When it comes to IoT market participants, the focus of the discussion remains on larger IT vendors, SIs [systems integrators] and customers. The missing story is the involvement of the distributors, VARs [valued added resellers]  and smaller SIs, and the current needs of the small to midsize customers.

— Daniel Callahan, Analyst

TBR Weekly Preview: March 11-15

We’re going all over the technology space this week, with reports spanning U.S. federal government IT services to long-established hardware and data center providers, plus a couple of European-centric companies.

Wednesday:

  • Talent continues to be the constraining factor on ManTech’s bright revenue growth outlook. Focus in defense and intelligence segments of the U.S. federal market on innovation creates healthy demand for ManTech’s labor-based technical services offerings, such as R&D, testing and evaluation of emerging technology. As a smaller competitor compared to many of its large prime peers in the federal sector, ManTech acutely feels the resource impacts of the security clearance backlog and overall tight labor market. TBR’s 4Q18 ManTech report, written by Senior Analyst Joey Cresta, will explore how ManTech uses adaptive learning, continuous monitoring software and new leadership hires to address the human capital challenges associated with scaling up its labor base to meet robust client demand.

Thursday:

  • As detailed in our initial response, Lenovo achieved its sixth consecutive quarter of year-to-year revenue gains, reporting $14 billion in revenue in 4Q18, up 8.5% from the year-ago compare, even as consolidation opportunities cool in the PC market. Despite these high notes for Lenovo exiting 2018, the company will still face hurdles over the next two years. Its PC and Smart Devices businesses will have to deal with challenging and shifting PC environments. Data Center Group continues to deliver on its promises, but it remains in the red despite improvements to its bottom line. Lenovo’s Mobile business is still teetering in profitability. Read our full report by Analyst Dan Callahan to find how Lenovo will navigate these challenges and tee up for a seventh consecutive quarter of revenue growth in 1Q19. 
  • Our detailed assessment of Atos will note that the company’s Digital Transformation Factory portfolio accounted for 30% of revenue in 2018, up from 23% of revenue in 2017, positively affected by increased activities with clients in areas such as orchestrated hybrid cloud, Digital Workplace and cybersecurity. As Senior Analyst Elitsa Bakalova will report, Atos’ efforts to position as a trusted partner for clients’ digital journeys are starting to pay off, and the new digital services strategy will shape the company’s activities over the next three years.
  • As reported in our initial response, Hewlett Packard Enterprise’s (HPE) revenue fell 1.6% year-to-year to $7.6 billion. While revenue growth is always a goal, TBR believes HPE is more focused on improving profitability in the near term before it shifts to boosting revenue growth. In our full report Analyst Stephanie Long will dive into the long-term strategy of CEO Antonio Neri and how it will impact 2019. Key cost-cutting initiatives and strategic investments, such as in high-performance computing and the edge, will be likely highlights in 2019.
  • Analyst Kelly Lesiczka will be reporting that T-Systems’ portfolio and organizational investments continue to improve its ability to gain wallet share in newer areas and stabilize revenue growth in 2018. Building out its emerging technology portfolio offerings, such as for IoT using DT’s product offerings, enables T-Systems to provide more comprehensive and personalized solutions to clients and generate larger-scale engagements to accelerate growth.

As promised, we published a new report last week by Senior Analyst Boz Hristov on Accenture Technology, and today published a report on TELUS International from Boz as well as a report on Mobile World Congress Barcelona 2019 by Principal Analyst Chris Antlitz.

While we do not have a webinar scheduled for this Wednesday, the next one will be on March 20 featuring Senior Analyst John Caucis talking about healthcare IT services.

Cost of ‘intelligent connectivity’ must decline significantly for intelligent world to unfold

TBR perspective

Realizing the intelligent world presented by the mobile industry at Mobile World Congress Barcelona 2019 (MWC19) will require a fundamental change in how networks are architected, including a radical reduction in the cost of providing connectivity. It will also require business transformation for companies tied to the old world, namely communications service providers (CSPs) and their incumbent vendors.

It was readily apparent at the event that technology is advancing at a much faster pace than the establishment of business cases that economically justify deployment of the technology. The reality for the mobile industry is that the cost of building, owning and operating networks is too high and networks are too inflexible to support the business realities of the digital era, whereby connectivity is relegated to a commodity service and the value lies in the platforms and applications that run over the network. The industry has known this for years, but changes have been minimal, until maybe now.

The entrance of Rakuten to the mobile industry could be a game changer and provides a glimpse into what a digital service provider will look like. In what could arguably be the most important takeaway from the entire event, Rakuten’s approach to building and operating a network could signify a paradigm shift in the industry. Not only will Rakuten’s network be agile, flexible and dynamic to provide digital services, it will also enable a dramatic reduction in the cost of connectivity.

The theme of MWC19 was “intelligent connectivity” and centered on how 5G, IoT, AI and big data are coming together to enable the intelligent world. Against this backdrop, Rakuten stole the show with the evangelization of its end-to-end virtualized and cloud-native network, which is being deployed across Japan this year. Rakuten’s network provides a glimpse into what the intelligent network of the future will look like.

Technology Business Research, Inc. announces 2Q19 webinar schedule

HAMPTON, N.H. (March 4, 2019) — Technology Business Research, Inc. (TBR) announces the schedule for its 2Q19 webinar series.

April 10        Progress report: State of the NFV/SDN telecom market

April 17        Channel partner ecosystems will evolve to support digital adoption

April 24        Evolutionary IoT: Starting small and controlling costs

May 1           Obstacles and triumphs on the journey to cloud

May 8           Health IT converges around consumerization, value and ROI

May 15        30 minutes, 3 months, 3 years: Evolution of digital transformation

May 22        Bringing the best: Talent and technology in management consulting

June 12        The makings of the telecom edge compute market

June 26        Where will hyperconverged infrastructure fit in the modern data center?

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

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