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Covid-19 uncertainty to hit IT hiring in the short term

“There will not be any major spike in headcount additions. Automation in service delivery will definitely play an even larger role in vendors’ resource management strategies post Covid-19, said Boz Hristov, Professional Services Senior Analyst, Technology Business Research, Inc.” — The Hindu Business Line

Going will be tough for IT firms relying mainly on cost advantage

“Boz Hristov. Professional Services Senior Analyst, Technology Business Research, Inc, said vendors may have to demonstrate pricing agility to retain clients. If the incumbent is not offering/thinking of ‘sweetening up the deal’, there is likely a competitor knocking on the door ready to do so.” — The Hindu Business Line

Indian IT sector may take a heavy hit as Covid batters US and Europe

“Boz Hristov, Professional Services Senior Analyst, Technology Business Research, Inc, said IT vendors — especially those exposed to the most volatile sectors such as industrials/manufacturing, retail and travel — will see a challenging period. The financial services sector will face headwinds, especially banking and capital markets, and less so insurance. This will further pressure Indian vendors that are significantly dependent on that sector, he added.” — The Hindu Business Line

PTC’s innovative outlook, robust solution toolbox, and legacy in CAD and PLM make it a valuable IoT partner

Strategic findings

Shift in focus to AR/VR

In our 2018 LiveWorx EP we suggested a shift from an emphasis on PTC’s ThingWorx IoT platform to PTC being more vocal about Vuforia, its AR/VR solution, and its wider product portfolio. TBR believes that shift has continued with much of the messaging centered on the business implications of augmented reality as well as how its entire product base works in symphony, and less focus on ThingWorx as its tip of the spear into digital transformation.

This shift makes sense. The IoT platform space is saturated with established vendors, along with several smaller entrants, offering some shape of IoT platform. PTC has the key components for an IoT platform, but so do others, including the giants Amazon Web Services (AWS), Microsoft, IBM, Oracle and Google, and OT stalwarts such as Bosch and Siemens. It is hard for PTC to stand out by messaging its IoT platform alone, despite a robust offering, as the IoT platform market is busy. TBR believes the shift could also indicate IoT is not growing quite as fast as PTC hoped.

Instead, PTC has increased its messaging around AR/VR. TBR believes PTC is positioning AR as a new differentiated niche to bring customers into its wider ecosystem, positioning it as a “wow” factor and distinct from peers’ offerings, as well as enhancing the value of other products such as Creo, Windchill, and ThingWorx. Based on the compelling presentations, messaging, and customer lineup using Vuforia, TBR believes PTC has a competitive AR/VR product.

PTC’s pitch is that AR helps customers add the human element to an IoT solution — instead of getting insight from dashboards in the board room, insight is delivered in real time on the factory floor. Conversely, in PTC’s view, AR/VR helps feed data into the IoT solution. Information around what workers see, such as a fire, a faulty part, parts that need to be replaced as well as unsafe conditions, can be fed into a centralized IoT platform, much like a sensor inside a machine. Ultimately, PTC seeks to “decorate” the industrial world with real-time information, and extend the value of IoT data through AR. It remains to be seen how well AR contributes to feeding data into an IoT solution. TBR believes AR is not there yet, but believes PTC did a good job of showing how AR can provide an actionable UI and lead an IoT solution to be more operationally effective.

Key outcomes PTC messages around AR/VR include reducing complexity by allowing workers to always have information on parts and machines; ensuring quality control and compliance using step-by-step checklists; and improving efficiency through gamification. It also offers a drastic reduction in training time as the Vuforia Expert Capture (formerly Vuforia Waypoint) solution allows expert employees to transition knowledge to novice workers or a machine or solution vendor to train a new customers’ IT or OT team.

PTC has a lineup of customers leveraging its Vuforia technology as proof points. Customers seem to adopt in two ways: by leveraging PTC’s polished tools Vuforia Expert Capture and Vuforia Studio, such as Howden and Aggreko, or by building upon PTC’s foundation, such as Fujitsu and Caterpillar, which are leveraging Vuforia Engine to build a proprietary solution.

How well Vuforia is performing monetarily is still questionable to TBR. TBR expects many Vuforia customers are in the pilot and proof-of-concept stages, which could indicate Vuforia is not yet being fully monetized while in multiple trials. However, in speaking about PTC’s strategic partnership with Rockwell Automation, PTC CEO Jim Heppelmann noted 40% of Rockwell Automation’s IoT wins have included AR with joint customers particularly interested in Vuforia Expert Capture. According to Heppelmann, Vuforia contributes 7% of PTC’s current software revenue, a respectable amount compared to its larger legacy PLM and CAD businesses, with growth of 80% year-to-year (TBR expects from a very small base). He also noted the AR-IoT combo is a core growth business for the company and expects the combination to contribute one-third of its sales moving forward, with continued growth of nearly 40% year-to-year.    

An interesting thread we have not seen PTC talk about, publicly or privately, is offshoots of Vuforia to the consumer market and leveraging Vuforia Expert Capture for consumer self-help applications, e.g., instead of a YouTube video on how to tie a complicated knot, a VR experience guiding people on how to tie a knot could be more impactful. This could be expanded to cooking guides, exercise guides, or sewing guides as examples within a huge pool of opportunity. Microsoft and the HoloLens team could be a good partner for these applications, such as leveraging the Xbox install base to reach consumers (if Microsoft is not already moving in this direction alone), and could help foster a content creator network. It could also be leveraged by consumer-focused businesses to educate its end customers, such as sporting goods company Coleman delivering a VR walkthrough of setting up a tent.   

Bosch is a things company at heart but will leverage new capabilities to capitalize on emerging data opportunities

Bosch takes off its tie

To achieve its current position, Bosch self-admittedly had to transform from a traditional components manufacturer to an evolutionary technology and services company. Bosch CEO Volkmar Denner characterized this transformation as the “taking off of the tie” as the company evolves from a stiffer, traditional mindset to one more like that of Silicon Valley, which focuses on agility, innovation and attracting young talent through corporate flexibility. Denner suggested that while this was indeed a technological development, the path to transformation necessitated a culture change. To help, in 2018 Bosch brought Dr. Michael Bolle on board as chief digital officer, tasked with organizing companywide digital transformation efforts, corralling shadow IoT efforts, and breaking down business silos to share resources, knowledge and capabilities.

Denner indicated Bosch has been implementing proto IoT, often termed telematics, for decades, but its evolutionary journey started in earnest in 2014 as the company began realizing the disruption IoT, AI and other emerging technologies would cause within its business and wider market. To outmaneuver peers and expand the reach of its business, Bosch began taking steps toward transformation:

  • Bosch’s journey began in 2008 when it acquired Innovations Software Technology. It was the foundation of the newly founded Bosch Software Innovations and was positioned as corporate Bosch´s IoT software and system unit and was leveraged to begin building a horizontal software foundation to link together Bosch’s vertical businesses’ efforts in connected equipment.
  • From 2014 to 2016, Bosch began focusing on enabling IoT inside its larger business. This included making strategic acquisitions to build a stronger horizontal software footing, building the Bosch IoT Suite, establishing the Bosch Center for Artificial Intelligence, and setting the goal for all of the company’s electronic products to be connectivity-enabled by 2020. By the end of 2018, 52 million IP-enabled products were sold by Bosch.
  • Starting in 2016 Bosch began to emphasize the digitization of existing ecosystems and the scaling of IoT within those ecosystems. Bosch also started leveraging its Bosch IoT Suite to corral data from a client’s entire operations and using AI to generate elevated insight.

To help speed its transformation, Bosch acquired inubit AG and ProSyst early in its journey to enhance its IT foundation in the application and platform space. But Bosch has also been investing organically in technical talent. Bosch leadership indicates the company had 69,500 associates in R&D as of 2019, a significant jump from when the company began its journey (though an exact compare was not provided); 27,000 software developers, which is a sizeable pool for a manufacturing company; and more than 5,000 dedicated IoT developers. Denner indicated AI is a cornerstone of Bosch’s IoT strategy and that the company has over 200 dedicated researchers in the field. Bosch is leveraging all of this talent to not only improve its verticalized products and services but also to grow its capabilities horizontally, akin to an IT company. The Bosch IoT Suite, which is examined in depth in this report, aims to serve as a foundational layer to support customer deployments across multiple verticals, in addition to enhancing the company’s own capabilities.

Bosch ConnectedWorld is an IoT and digital transformation conference hosted annually in Berlin. It stands out in the sea of IoT conferences due to its emphasis on operational technology (OT), with sessions often headed by industrial partners talking about industrial challenges, and its use as a platform for EMEA-based technology and industrial companies to highlight their products and strategies in a technology area that is sometimes dominated by U.S.-based messaging. Bosch ConnectedWorld has grown from 500 attendees in 2014 to nearly 5,000 in 2019, indicating customers’ increasing interest in digital transformation, as well as the power of Bosch’s messaging around connected products.

Do not concern yourself with quantum supremacy; the opportunity is in ‘economic advantage’

Economic advantage is a key, repeatable milestone for quantum computing

TBR defines “economic advantage” as the point at which there is a significant benefit, either in time to insight or the ability to obtain an insight, that makes it cost-effective to pursue a given problem with the help of quantum computing. This does not mean that the benefit needs to be achieved exclusively with a quantum computer. In fact, TBR believes that initial economic advantage will be achieved by disaggregating a complex problem from classical computing to quantum computing and then back to a classical computer to maximize the cost efficiencies of gaining a given insight. Just as quantum computing will hit the market algorithm by algorithm, so will economic advantage.

It is not necessary for quantum computing to reign supreme across the IT space in order for value to be abstracted from the technology. It is also not necessary for quantum computing to take the place of a classical computer in order to provide value. This is a key factor that many vendors in the market are overlooking. Just as cloud is not all or nothing, neither is quantum computing. Cloud, as it currently exists, works in partnership with on-premises environments. In fact, customers prefer the consumption of cloud in this hybrid manner. This is a similar consumption-type model we foresee quantum computing taking, in which classical computing and quantum computing work together to fully harness the power of quantum computing.

As the prevalence of quantum computing continues to increase in the IT realm, there are many different views on the technology. Some believe the technology is so far from being relevant that it is not worth worrying about. Others believe the technology is already here, while still others believe the technology is on our doorstep and the wealth of knowledge it will release for society is almost upon us. Here is one thing we all can agree on: Quantum computing has not achieved quantum supremacy. However, TBR believes there is a far more important metric to concern ourselves with as a society that is much closer than we think: economic advantage.

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.

Distributors and VARs: The unsung heroes of the IoT market

The background

Commercial IoT 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 and customers. The missing story is the involvement of the distributors, VARs and smaller SIs, and the current needs of the small to midsize customers.

What are distributors?

Distributors sit between IT vendors and VARs or SIs, procuring equipment or software from the former and distributing it to the latter two. Because distributors generally have a very large customer base, they can help vendors reach more customers or provide a channel for vendors that cannot afford to build their own, such as smaller ISVs. Because distributors procure equipment from vendors and stock it themselves, they are incentivized to educate VARs or SIs about vendor products and help market them as well as to deliver sales training, demos and exhibitions. Distributors are masters of the supply chain, bundling and contract negotiations.

What are VARs?

VARs, along with SIs, serve on the frontline of IT and offer a more tailored storefront to customers than a larger vendor. VARs will seek to build and deliver turnkey solutions by mixing and matching technology and software, as well as layering on services of their own, such as integration, customization, consulting, training and implementation. VARs are often organized by customer type, from those offering general IT services to those specializing in education, the public sector, heavy industry and other niche areas. VARs, along with SIs, often have the keenest grasp on customer challenges, making them well positioned to package IoT components, build applications or offer services.

The IoT market has begun sorting itself out in 2019 — a vast improvement from its disorganized past

It has been a wild and chaotic ride for Internet of Things (IoT) vendors, with many placing big bets on IoT in the past and entering 2018 largely disappointed by the results. While IoT will likely never meet the expectations placed on it in 2015 and 2016 — the peak of hype — IoT’s contribution to IT vendor revenue will increase, with IoT ultimately becoming a core revenue driver. IoT, as a technique to solve business challenges through the assembly of technology to drive results, such as predictive maintenance, resource efficiency, value-added services or generally, increase insight, is not going anywhere.

The good news for vendors is IoT is getting a lot easier as the ecosystem sorts itself out. The increase in portfolio focus and partnering is making the market easier to navigate for vendors and customers. Offerings are becoming easier to implement and integrate as vendors begin to converge on architectures and standards, as well as orient go-to-market strategies toward coopetition rather than “winner takes all.” Customers are coming to market with a greater understanding of what they are looking for thanks to efforts by vendors and early adopters educating the market and cutting through the hype pays off. TBR believes 2019 marks the emergence of “go-to-market 2.0” as an evolved strategy for both IT and OT vendors seeking to better profit from IoT.

 

The 1Q19 Commercial IoT Market Landscape looks at technologies and trends of the commercial IoT market. Additionally, TBR catalogs and analyzes by vertical more than 450 customer deals, uncovering use trends, identifying opportunities, examining maturity, and discussing drivers and inhibitors.

2019 Public Sector Predictions: Ethics compound complexity as federal agencies rush to embrace commercial IT innovations

The march of technology challenges humans to keep up, leading to difficult conversations for the many technology firms clamoring for a slice of federal IT modernization spend

In 2018 U.S. federal government policy and budget aligned to amplify excitement around the long-promised application of private sector IT innovations to public sector missions. We began to see action as government policies such as the President’s Management Agenda and National Defense Strategy combined with a bipartisan budget agreement to send a clear message that government agencies need to embrace cloud operating models and explore new technologies to reduce costs, move faster and serve constituents more effectively.

In a prevailing movement TBR calls Wallet vs. Will, the federal market’s pursuit of commercial IT represents a fundamental shift from traditional procurement models predicated on bespoke, costly and difficult-to-replace proprietary technology to a more agile model leveraging configurable off-the-shelf solutions enabled by open standards. In the old model, prohibitive cost was the primary impediment to moving technology forward, driving top-down commercialization models out from the Pentagon, or the wallet holder. In the emerging model, the axis has flipped as technology is no longer the problem but rather the will of the humans interacting with technology has become the main obstacle to keeping up with technological advancement.

As technology moves forward at breakneck pace, government policy and regulations will struggle to keep up. Law as the codification of an agreed-to set of ethical standards remains woefully behind as society struggles with the implications of technology development on myriad issues, from a citizen’s right to privacy to warfighting. In 2019 familiar market trends such as transformative M&A in the IT industry broadly and in the federal services market specifically will continue to reshape the market and create new disruptions. However, we believe that the continued ethical debate around emerging technologies, as much as who holds the innovative IP around those technologies, will help shape the competitive landscape in the years ahead.