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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.   

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.

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.

HCL Technologies (HCLT): IoT NXT Summit

Working with leading technology vendors to develop emerging technology offerings in areas such as Internet of Things (IoT) challenges HCL Technologies (HCLT) to differentiate from peers. However, leveraging its deep engineering expertise integrated with vertical capabilities enables HCLT to be more competitive, driving business transformation for new and existing clients with IoT-based services solutions.

TBR perspective

HCLT’s IoT WoRKS business unit benefits from demand for IoT, primarily among existing customers. The company has some advantages in the IoT business and will continue to expand its IoT practice as it generates IP that will prove useful as IoT becomes an increasingly important part of both build and run services.

HCLT has a long history in electronics and mechanical engineering and continues to provide engineering and R&D services beyond the usual scope of IT-oriented companies. TBR has written extensively about HCLT’s engineering heritage and offerings, noting the company’s engineering and R&D expertise serves as a key differentiator within the broader IT services space. Our white paper HCLT’s Intelligent Sustenance Engineering Service Line Unit delivers data insights to extend the product life cycle discusses the impact of engineering and R&D expertise on the value of HCLT’s data analytics services through differentiation. HCLT’s history and continued use of engineering and R&D help the company navigate customers’ operations technology (OT) areas in both technical and cultural engagements, a necessity in IoT. Nevertheless, in IoT, the company engages primarily with customers’ IT organizations, and HCLT’s advantage in the IoT space enables it to efficiently implement IoT-driven solutions using more complex OT factors. However, as OT is far more diverse than IT, one type of OT expertise does not imply knowledge of another. Although HCLT’s established engineering experiences, combined with its IT services for IoT environments, provide an advantage for the company, adding OT skills would bridge any gaps within OT areas and create a simple but strong advantage. TBR believes that OT organizations will continue to initiate IoT solutions, but will evolve to integrate IT-based practices focused on security, scalability and manageability.

 

On Aug. 22, 2018, TBR attended HCLT’s IoT NXT Summit at the company’s recently opened IoT COLLAB innovation center in Redmond, Wash. The center is located on the same property as HCLT’s Lab 21, which was opened in collaboration with Microsoft (Nasdaq: MSFT) around artificial intelligence (AI) and Cortana Analytics in the Azure Cloud. The analyst event centered on HCLT’s 3-year-old IoT WoRKS business unit and featured demonstrations of HCLT’s IoT solutions and how the company works with its partners to develop IoT portfolio offerings as well as extensive discussions with HCLT’s IoT WoRKS industry leads. During the event, HCLT emphasized its focus on existing assets, enhanced by partners and vertical expertise, which, combined with growing demand for cloud-based infrastructure services, enables HCLT to transform clients’ business operations with IoT solutions, providing scale and speed at the edge.

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.

The diversity of IoT solutions and their multicomponent and multivendor nature require new approaches from vendors

The Internet of Things (IoT) market is beginning to stabilize, if not mature, and this is a good time for vendors to focus on vertical markets and use cases within those markets, especially where there is a gap that aligns well with an IT vendor’s strength, such as telecom operators’ capabilities in logistics.

“We project total commercial IoT market revenue will increase from $370.3 billion in 2018 to more than $1 trillion in 2023 at a CAGR of 24.4%,” said TBR Analyst Dan Callahan.

Commercial IoT Market Forecast Alternative Market Performance Scenarios 2018-2023

Other topics we cover in the Commercial IoT Market Forecast 2018-2023 Update include the emergence of embedded IoT solutions, the rise of independent software vendors and independent hardware vendors as paths for propagating embedded solutions, and the drivers and inhibitors for select verticals and technology segments where we anticipate the most change.

The Commercial IoT Market Forecast 2018-2023 Update highlights the current and emerging revenue opportunities in the commercial IoT market for vendors. It leverages financial models and projections across a diverse set of IT and operational technology components, verticals and geographies. In addition, the report outlines the major component and industry drivers and trends shaping the market.

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].

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

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.