Author: Matt Hatton, founding partner of Transforma Insights.
A sort of Previous In the Internet of Things business news, Transforma Insights’ recent assessment of “trends” was shared1 dollar Internet of Things‘, that is, the price drop means that, at least for low-bandwidth IoT devices, the universal pricing model of $1 per year for cellular connections has very realistic prospects. Faced with this trend, connection providers need to adjust their strategies.In october CSP IoT Peer-to-Peer Benchmark Report Most of the focus is on mechanisms to address, mitigate and perhaps take advantage of this trend. It pays particular attention to how CSPs can streamline their operations and turn to become a hyperscale IoT connectivity provider. However, other strategies can be used to find new sources of income. This article focuses on one of them: moving up to sell vertical solutions.
There are many industry commentators, including many of my fellow analysts, who will claim that the shift to sales vertical solutions is a panacea for CSP. The logic is inevitable: if only 5-10% (and decline) of a solution’s revenue is in connectivity, and 50-80% is in the application above it, then the obvious thing is to pursue that piece Bigger cake. Logical but flawed. The reality is that the suggestion to move the stack up is easy to come up with, but it is 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. For example, consider fleet management. There are hundreds of solutions from mature suppliers on the market. Compared with the connected part of IoT solutions, any single CSP must compete with a small number of peers, and usually at least on an equal footing. In such a market, most CSP products will be “me too” products and face all the related challenges of establishing market share.
In order to succeed in this strategy, CSPs need a sustainable differentiating factor to give them “participation rights” in specific markets. This usually comes from mergers and acquisitions, that is, the acquisition of solution providers in the field. The work of the CSP IoT Peer Benchmarking Report has marked several CSPs that have successfully established vertical capabilities through acquisitions. Including Vodafone in a series of industries such as Cobra Automotive, fleet (Evotracking and Zellitron), industrial (Grandcentrix and IoT.nxt), agriculture (Mezzanine) and payment terminal (Xlink), and based on the acquisition of Fleetmatics, Telogis through the acquisition of Integron And Hughes Telematics and KORE in healthcare. Through these acquisitions, CSP has won itself the right to play a role in these verticals.
However, this is not the only way. Vertical domain expertise can come from the long-term construction of internal capabilities, such as Telefonica’s retail expertise in its OnTheSpot subsidiary, which has been operating in various forms for decades, or Aeris Mobility in the automotive sector. However, these capabilities will not be established soon.
The obvious question is: where and how can CSP add additional vertical functionality to its products? The past few years have offered some possibilities. Two vertical areas emerged in Transforma Insights’ research as new targets for CSP: Smart buildings and industryBoth have been stimulated by COVID in their own way.
People are particularly interested in smart buildings due to the need to adjust the working environment to improve sanitary conditions and to encourage employees who have worked from home for 18 months to return to the office. This will be a challenging market for CSP to develop a niche market. There are mature participants in the field of building automation, and unless they build reliable differentiated products, CSPs will find difficulties. Each building has a line, business relationships with each company, and on-site personnel who install the equipment will help.
The focus on industry is slightly more complicated, largely because of the need to find market opportunities for 5G. In the Internet of Things, the main interest of 5G lies in the deployment of mobile private networks (MPN) in factories, ports and other industrial sites. This is partly triggered by the availability of technology and spectrum, such as CBRS in the United States and similar situations elsewhere in Europe. Today, approximately 50% of MPN sales are handled by CSPs (the other 50% are handled by infrastructure vendors such as Ericsson and Nokia). Almost every CSP, including a surprising number of MVNOs, has MPN products. In many cases, CSP has reached cooperation agreements with industrial participants, including companies such as Orange and Lacroix, Schneider Electric, and Siemens. This park and hybrid private network market is new enough and differentiated enough that it provides CSPs with the potential to find another niche market. However, we at Transforma Insights predict that the MPN market will soon be vertical, with products targeting interconnected factories, hospitals, ports, etc. In order to flourish in this field, CSPs need to open up a niche market for them in a specific field, otherwise they will fight with professional service providers.
