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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.

2018 5G Americas Analyst Forum

5G will provide network efficiencies for telcos as they anticipate next-generation use cases

Given the introduction of Verizon’s (NYSE: VZ) 5G Home fixed wireless service in October, as well as the upcoming launch of AT&T’s and T-Mobile’s mobile 5G networks by the end of 2018, the 5G era is edging closer to reality after years of industry speculation regarding the technology’s capabilities. Similar to prior network eras, such as the transition from 3G to LTE, the 5G era will be a gradual evolution of existing network capabilities and will not immediately yield its full benefits or dramatically alter the global wireless market during its inception.

A resounding theme at the 2018 5G Americas Analyst Forum was that the 5G era will essentially be “more of the same” initially. LTE will remain the predominant source of connectivity for most wireless subscribers in the Americas over the next several years until 5G coverage becomes nationwide and customers transition to 5G-capable devices. The accelerated speeds offered by LTE-Advanced services, as well as the cost savings offered by IoT network technologies such as Narrowband IoT (NB-IoT) and LTE-M, are currently more than sufficient to support the demands of most consumers and enterprises.

The wireless industry is anticipating 5G will foster IoT innovations in areas including connected car, healthcare, smart cities and augmented reality (AR)/virtual reality (VR). 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 like remote surgery and V2X automotive services will be burdened by significant regulatory challenges as ensuring 100% network reliability and ultra-low latency will be essential to prevent hazardous outcomes.

Although the end-user benefits of 5G will initially be limited, investments in 5G will ultimately be viable due to the network efficiencies operators will gain from the technology. 5G, which is expected to provide between four- and 10-times greater efficiency on a cost-per-gigabyte basis compared to LTE, will enable operators to more cost-effectively add network capacity to support the prevalence of unlimited data plans as well as continued connected device additions. Offering 5G services will also be essential for operators to remain competitive against their rivals as the marketing of accelerated 5G speeds will help to attract subscribers. Lastly, the deployment of 5G networks will prepare operators to support 5G-dependent use cases when they do come to fruition and spur customer demand.

 

 

Around 70 representatives from well-known operators and vendors attended the annual 5G Americas event to talk with more than 70 industry analysts about the state of wireless communications in North America and Latin America as well as discuss challenges and opportunities presented by the rapid development of the mobile ecosystem.

The event kicked off with a presentation from T-Mobile (Nasdaq: TMUS) CTO Neville Ray regarding 5G leadership in the Americas. He discussed topics including projected use cases, the importance of 5G to the U.S. economy, the Americas’ position in the global 5G market, and the different initial approaches U.S. operators are taking to 5G. A panel of network and technology executives from operators including AT&T (NYSE: T), Sprint (NYSE: S), T-Mobile, Telefonica (NYSE: TEF), Cable & Wireless and Shaw (NYSE: SJR) provided additional insights into 5G evolution and activity around 5G by each respective operator.

Day 2 began with panel sessions featuring leaders from top telecom vendors, including Ericsson (Nasdaq: ERIC), Cisco (Nasdaq: CSCO), Nokia (NYSE: NOK), Samsung, Intel (Nasdaq: INTC), Qualcomm (Nasdaq: QCOM) and Commscope (Nasdaq: COMM), to discuss areas such as 5G regulatory challenges, 5G network and technology deployments, and potential 5G go-to-market strategies and use cases. Following these panel sessions, the reminder of the event offered analysts the opportunity to participate in a choice of 34 roundtable discussions focused on key 5G topics, including Internet of Things (IoT), edge computing, artificial intelligence (AI), 5G network infrastructure and technologies, regulatory considerations, and 5G in the automotive industry. 

IoT Customer Spotlight: Colfax survived the stormy seas of IoT after righting its ship, and its story can serve as a navigational aid for peers still caught in the squall

Colfax is an industrial conglomerate with two operating companies under it, ESAB and Howden. ESAB produces equipment and filler metals for most welding and cutting applications, and Howden delivers precision air and gas handling equipment for numerous industrial applications. Both are worldwide industrial suppliers with multiple manufacturing plants and globally distributed support apparatus.

I learned about the conglomerate during a PTC customer panel at PTC’s LiveWorx 2018, where Colfax was represented by Ryan Cahalane, the company’s vice president of digital growth. I found his story, among others, to be an intriguing view into the development and deployment of Internet of Things (IoT) applications by an actual customer of vendor IoT solutions. Often, the real stories get lost in the marketing morass of the larger IT and operational technology (OT) companies pushing solutions. Cahalane and I connected over our thoughts on the importance of solving “the business problem” (and our intriguingly similar last names), and I took the opportunity to learn about Colfax as a customer (one could argue it could increasingly be placed as an ISV) and its experience implementing IoT.

Colfax began its journey like many of its peers: IoT was the buzz, and the company tried to react as fast as it could. Like many manufacturers or those in heavy industry, Colfax’s leadership kicked around the idea of harnessing IoT to drive new growth and differentiate from peers in a competitive marketplace, primarily via new IoT-enhanced products or digitally enabled service offerings. However, Colfax ran into challenges.

Internally, Colfax experienced the same roadblocks that plague most companies investigating IoT, especially federated ones like itself:

  • Colfax had a sizeable number of people working on IoT, but the company lacked communication and alignment across the various business units and initiatives.
  • Plenty of good ideas were being developed via shadow IT, but the company lacked cohesion and developments were technology-focused — not guided by business problems. This failed to differentiate the company, and Colfax’s messaging got lost in a crowded market.
  • Colfax initially tried to go it alone with a do-all solution, but that led to generic offerings that were not best-in-class, and handling all of the components, including design and management, was difficult for a diverse, distributed organization.

Externally, the company faced the usual challenges of the market. Its customers were interested in IoT, but Colfax found itself in proof-of-concept limbo as customers continually kicked the tires on IoT but never walked away with a key in hand. Cahalane explained that Colfax had trouble navigating customer cultures, such as garnering agreement from line-of-business, OT and IT managers from a technology viewpoint, and ultimately proving ROI for its digital solutions, from a business viewpoint, to C-level executives.

Many companies have shared the same struggles, and are now washing out, including behemoths such as General Electric, indicating no company is safe from the volatile and hypercompetitive IoT market. Colfax has persevered, however, because the company was quick to perceive the changing market dynamics. Here are my takeaways from my conversation with Cahalane around the company’s pivot:

  • I’ll begin with something that Cahalane, being humble, didn’t share with me but that I believe was an important step for Colfax: The company established Cahalane’s position of digital growth VP to coordinate IoT initiatives across the company and foster knowledge sharing, ultimately helping Colfax organize for IoT. Instead of offering a number of distributed, unfocused and perhaps competing IoT initiatives, Colfax, with Cahalane’s help, is focusing and acting on key opportunities.
  • What are those key opportunities? Colfax’s competitors would certainly like to know! Cahalane did share, however, the company’s new thought process for developing them: focus on the business challenges of its customers and narrow them down to what Colfax can best service with its technology and expertise. It’s no longer about developing fancy new technology and telling customers why they need it. It’s about listening to customers and solving their problems.
  • Colfax is going to market with the technology discussion on the back burner. Instead, the company is approaching customers with a business-problem-solving outlook, fishing for the all-important CEO buy-in and leaving the technology details to be sorted out later. As Cahalane stated, “We are staying very focused on the business message, the real value that you get from the solution. The tech is just a vehicle. A business message allows us to really spend time on bringing our knowledge to more customers. The customers finally see how it all fits together. It’s in their language.”
  • Cahalane noted that companies, such as Colfax in its early days, are often afraid of working with vendors or partners. Cooperation and coopetition among partners or working with a new vendor can be intimidating when a company knows it’s on the verge of a vertical breakthrough or solving the next use case, causing companies to keep their cards close to their vest. Laying the cards on the table and sharing technology, techniques, and customer relationships or entry points is a daunting step. Cahalane emphasized how Colfax had to shift its thinking from “How do we compete?” or “How do we keep this in-house to avoid paying for technology?” to “How could [a partner or new vendor] help?” or “How can they accelerate our goals?” Using the technology, expertise and capacity of Microsoft, OSIsoft and PTC now allows Colfax to focus on the solution components it knows best and to layer them on best-in-class platforms and tool kits provided by its vendors. This approach not only provides customer validation — for example, attaching to a well-known brand such as Microsoft for IaaS makes customers more comfortable — but also spreads out development and management. Instead of trying to support the entire load, which would be a challenge for an organization of Colfax’s size and structure, the company relies on its partners and vendors to take responsibility for their own components.
  • Finally, Cahalane emphasized the need for companies such as Colfax to remain agile in the quickly moving and erratic IoT-enhanced products market. The company constantly looks for acquisition candidates that can not only increase its expertise in its core digital initiatives and target verticals but also deliver new business models.

What is next for Colfax? Cahalane noted that there is still a lot of work for Colfax and its partners to do to develop, and educate customers about the power of data. This means not only tying data together inside one organization but also sharing data across organizations. For example, Colfax’s welding solutions could be used by customers to apply predictive and prescriptive analytics to real-time operational data to have alerts sent to supplies manufacturers for automatic resupply. Cahalane also hinted that Colfax sees the importance of shifting toward prepackaged solutions, which reduce customization costs and complexity and are built around proven ROI, to induce more customers to buy Colfax IoT solutions.

That’s the Colfax story. Why is it important? Not only does it validate concepts we have been sharing since we began our IoT coverage, but more importantly, it serves as an example to companies similar to Colfax across all verticals that may still be spinning their wheels with IoT. As Cahalane explained, true IoT success stories can be few and far between, with numerous IoT projects stuck in the mud due to vagueness, overambition, immature IoT, or lack of organization or maturity among vendors and customers to apply IoT.

However, TBR’s survey work and the insight gained from my discussion with Cahalane, among others, suggest that many projects that start with a specific business challenge, are smaller in scale or divided into digestible parts, and are led and received by companies mature in IoT, are working and delivering actual IoT revenue. TBR believes vendors and customers should take lessons from companies such as Colfax: focus on the business message, organize your business’s digital and IoT efforts around key opportunities, and use vendor partners to fill gaps while focusing initiatives around core strengths. While Colfax, as Cahalane noted, isn’t gaining explosive IoT revenue, TBR believes it’s certainly on the right path.

Telecom operators drill down on IoT opportunity in logistics

Despite the hype to the contrary, in commercial Internet of Things (IoT), not all verticals are created equal in terms of opportunity. There is near-term opportunity in some verticals, while opportunity in other verticals will take a few years to mature. The verticals with the longest and deepest histories of using IoT are oil and gas, utilities, manufacturing (including automotive), and logistics. Because these verticals have a long history of using primitive IoT, mostly in the form of telematics, customers in these areas are more familiar with what IoT can offer, how it can be applied to their businesses and where measurable ROI can be found. Unsurprisingly, segments that have most experience with IoT continue to generate the greatest amount of IoT-related revenue.

Telecom operators were early to advertise that they were leaders in the verticals mentioned above. However, now that the chips are down, TBR believes operators are focusing on real, mature IoT opportunity, leading to them drilling down on logistics. Logistics aligns well with telecom operators’ capabilities due to the mobile and distributed use cases. Verticals such as manufacturing provide less opportunity to telecom operators due to the more static and condensed nature of factories. Here are some examples of commercial logistical moves from leading operators:

  • In March 2017 Verizon announced the combination and rebranding of its Verizon Telematics, Fleetmatics and Telogis acquisitions into Verizon Connect. Verizon notes that the rebranding completes the integration of its connected vehicle division with its acquisitions of fleet and mobile workforce management companies Fleetmatics and Telogis. TBR believes the rebranding of Verizon’s telematics businesses into Verizon Connect was a smart move because focusing its IoT business around connecting mobile workforces differentiates Verizon, letting customers clearly know what they can use Verizon Connect for, highlighting its expertise and also making it more partner-friendly. Verizon Connect is now a module that can enhance a broad IoT platform such as Azure IoT.
  • In May 2018 AT&T entered into a partnership with operational technology (OT) behemoth Honeywell to develop IoT solutions for aircraft and freight deployments worldwide. AT&T delivers Honeywell worldwide connectivity, and Honeywell gives AT&T a larger door into industrial engagements.
  • In February AT&T launched two comprehensive solutions with Geotab’s fleet tracking platform, AT&T Fleet Management for Enterprise and AT&T Fleet Management for Government, to provide customers with a holistic view of their transportation assets to improve costs, productivity and safety.
  • TBR believes Telefonica, Vodafone and Orange are also competing for logistics engagements using well-populated landing pages touting their ability to provide logistics-based IoT solutions. Orange, for example, signed a three-year multimillion-euro agreement with Finland-based Cargotec in 4Q17 to codevelop an IoT-based cargo solution.

While vendors will compete for logistics business opportunities worldwide, TBR believes Verizon will try to consolidate and win share of the field service and trucking industries in North America; AT&T will focus on air and sea shipping or asset tracking worldwide and leverage its advantage in connected car gained through multiple contracts with leading automakers; and Telefonica, Vodafone and Orange will battle it out for EMEA and LATAM share.

 

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.

Smart city solutions have to think outside the trash bin

The “Connecting Your Business to the Smart Cities We All Live In” panel during PTC’s LiveWorx event included ideas consistent with TBR’s previous views on smart cities. One of the most interesting speakers was Nigel Jacob, the co-founder of the Mayor’s Office of New Urban Mechanics, an R&D organization within Boston’s City Hall. Jacob gave a presentation on the “Boston Smart City Playbook,” compiled by his organization, which lists the following rules for vendor engagement:

  1. Stop sending sales people.
  2. Solve real problems for real people.
  3. Don’t worship efficiency.
  4. Better decisions, not (just) better data
  5. Platforms make us go ¯\_(ツ)_/¯.
  6. Toward a “public” privacy policy

All of these points align well with TBR’s view of how vendors need to improve their go-to-market strategy, but a few stood out. “Stop sending sales people” translates well inside and outside smart city applications. Internet of Things (IoT) is a complex technology, and it is difficult for end users to really understand what IoT can do for them. Public sector officials, just like the CEO, CIO or CTO of any private organization, do not want to listen to a sales pitch about why a technology is great. Instead, in the example of Boston, decision makers desire vendor engineers or consultants to be on-site to explain why IoT is good for their city’s particular challenges, how it can be implemented and how it has worked for others, as well as to provide concrete evidence of what Boston can expect to gain in the long run. Only then will a vendor’s solution be taken seriously.

“Better decisions, not (just) better data” is a point TBR believes vendors should take to heart. Data is a building block to insight, but piles of data with no feasible way to turn the data into actionable insight is little more useful than no data at all. Customers seek insight through data, but if there is not an easy path to achieving insight, its value is significantly reduced. Customers believe that to get value out of IoT, they need to bolster their IT, operational technology (OT) and data scientist staff. TBR believes incorporating artificial intelligence and improving user interfaces to simplify IoT products is a path to unlocking value for business decision makers, enabling them to make better decisions without incurring huge selling, general and administrative expenses.

“Platforms make us go ¯\_(ツ)_/¯” is also parallel to customer concerns recorded by TBR. Platforms are exciting to techies, but they do not mean much to customers. Instead, they generally raise fears of platform lock-in, where customers will be unable to access outside technologies or risk becoming a member of a dying standard. Also, the platform level is often too high for customers to understand how IoT will benefit them. Vendors must continue to boast interoperability and focus on use cases or small deployments. Small deployments that solve immediate problems — not technical and platform-based discussions — will be vendors’ gateways to customers. After a few successful small projects, vendors can introduce customers to the grander view centered on a wide platform.

Bigbelly vice president of North American Distribution and Global Marketing Leila Dillon, another presenter during the panel, explained how Bigbelly solved multiple problems for individual cities by thinking outside the box. The company sells solar-powered waste systems, mostly bins, that automatically compact trash and alert waste management when they need to be picked up. This granted cities substantially increased efficiency not only because automatic compacting eliminated waste buildup but also because the alert system saved wasted time having trucks on routes checking all bins instead of only those that are full. Additionally, Bigbelly observed that by thinking creatively, it could further cities’ smart city goals. It started working with cities to equip waste bins with small-cell technology to enable ubiquitous citizen connectivity. In other cases, the company equipped cameras or sensors to track foot or street traffic to help cities understand congestion. Bigbelly is a great example of a company helping to solve a pointed problem — in this case, making waste collection more efficient — and then working with the cities to build additional IoT use cases one success at a time.

‘Popcorn market’ and ‘shrink-wrapped’ IoT: TBR gets creative with industry terms

Observers of emerging tech trends often seek the “hockey stick” moment, or that period when the market takes off following an explosion of activity. However, as TBR Principal Analyst Ezra Gottheil explains in his special report ‘Shrink-wrapped’ IoT will drive accelerating growth; an explosion of activity, or huge moment of growth, will likely never occur in the overall commercial IoT market. Gottheil writes:

Each IoT [Internet of Things] solution comes to market at a different time, meaning that as more packaged solutions become available and as some experience rapid growth, the total growth accelerates. The IoT market has been described as a “popcorn” market, in which each submarket “pops” at its own pace — some smaller markets grow explosively, but the total market (the “pot of popcorn”) expands more uniformly.

A popcorn market leads to slowly accelerating overall growth, generating frustration for companies that had anticipated rapid adoption. This is especially true in the IoT market for horizontal IT companies such as Hewlett Packard Enterprise (HPE) and Dell EMC that are finding themselves selling into new markets, including product development, operational technology (OT) and data science organizations, instead of traditional IT department constituencies. Gottheil notes that for organizations that are seeking to benefit from IoT, the key to accelerating growth is developing packaged “off the shelf” — or “shrink-wrapped” — IoT solutions. The increased availability of IoT solutions targeting specific use cases and business processes in industry subverticals will be key to generating IoT-driven vendor revenue for the foreseeable future.