Author: Matt Hatton, founding partner of Transforma Insights.
The cellular connectivity of the Internet of Things has seen and will continue to see significant price drops. Transforma Insights analysts recently released a report, which puts forward a very realistic scenario that we will see in 5 years “1 dollar Internet of Things‘, we mean The median price paid for a cellular connection is only $1 per year.
The idea of paying only Low data connectivity $1/year It’s not far-fetched. 1NCE shined in 2017, with a 10-year connection fee of 10 Euros ($11.54), despite being limited to 500MB of data during the entire life cycle of the device. Blues Wireless offers a 10-year connection discount of $49 in the United States. However, compared to the average revenue per connection of the existing user base, it represents a significant drop. Currently, the average revenue per connection of cellular-based IoT devices around the world is usually between US$0.5 and US$1 per month. Some operators, such as Telia or Telstra, are much higher (usually due to revenue generated from vertical solutions). Other countries, such as China, are much lower.
Of course, some of the effects of falling prices are positive. Lowering the barriers to entry for the use of cellular networks should open up new opportunities for new IoT use cases and the replacement of cellular networks with short-range technologies such as WiFi, Bluetooth, and Zigbee. The average cellular income per device in China is between US$1 and US$2, and the average person has about 0.4 cellular connections. For the rest of the world, the equivalent number is 0.1.
However, the risk is that if the migration is slow and the market shifts to a pricing specification of $1 per year revenue, the total connection revenue may be static, and it is likely to decline. For the Internet of Things, this is not an unusual market dynamic. Over the years, the price drop in the cellular module market has been comparable to the (healthy) market growth rate. The result is that the revenue market is static.
The biggest question is: What do communication service providers need to do to deal with this general market trend?
A simple suggestion is to “stack up” and pursue vertical solutions such as fleet management, building safety or retail. Most of the revenue of any IoT application comes from this solution element, usually 50%-70%, while connectivity is 5%-10%. The argument is that the obvious thing for CSPs is to enter this part of the value chain and sell vertical solutions. This is a proposal that is easy to make but difficult to implement. Any vertical solution market is usually subject to fierce competition from professional service providers with years of experience and highly developed products, channels, and market entry strategies. In such a market, most CSP products will be “me too” and face all the related challenges of establishing market share. In order to succeed in this strategy, CSP needs a sustainable differentiation advantage. This may come from mergers and acquisitions, usually the acquisition of solution providers in this field, such as Verizon in the field of fleet management, KORE in the field of healthcare, and Vodafone in various fields. Or, it can come from the long-term building of internal capabilities, such as Telefonica’s retail expertise in its OnTheSpot subsidiary, which has been operating in various forms for more than 50 years. CSPs can also expand their scope of services by, for example, selling hardware or providing consulting services.
Other strategies focus on improving the efficiency of service delivery. This may include integration. In the past 5 years or so, we have seen a lot of integration in the MVNO world of the Internet of Things. For mobile network operators, the Internet of Things is too insignificant in their income to become a driving force for integration. Another option for mobile network operators is to refocus on simply providing wholesale connections. The associated profit margin is lower, but the cost is greatly reduced. There is evidence that some major mobile network operators today are adopting this approach.
However, the most effective method is to expand the delivery scale of the Internet of Things to reflect the new economy and new scale. Only by lowering startup and continuous connection costs can connection providers provide scalability to support the expected billions of devices at the expected price point.Position yourself as Hyperscale IoT connection provider (As we said), they will particularly need a connection management platform that provides appropriate pricing.
