Table1: IoT Companies sold in 2014 (Estimated Total $4 -$5 Billion)

Company Sold Acquired by Company Price Date
Thingworx PTC $130 Million6 January 2014
Axeda PTC $170 Million7 August 2014
Smart Things Samsung $200 Million8 August 2014
NEST Labs Inc. Google $3.2 Billion9 February 2014
Raco Wireless Kore Not Available November 2014
Cobra Automotive Vodafone ~ $180 million10 June 2014
Qolsys (Investment) Tyco Not Available11 November 2014

 

Enterprise and Government Sales

Many of the IoT deals with Enterprises or Governments to date are small with the exception of a few like Telefonica’s deal to deliver Smart meters to the UK market. This deal is valued at €1.78 billion but that is spread over 15 years. The fact is Enterprises are still uncertain about IoT and are more willing to do Proof of Concepts (POC) to test out solutions versus making large upfront investments. POCs typically cost hundreds of thousands versus millions until they are proven. Once the solution is proven they may be willing to expand their commitment to larger multi-million deals over several years.

Large Enterprises with their own IT staff are developing and deploying IoT solutions but not much is shared outside of these organizations in terms of the revenue or cost savings generated. They are using IoT to improve their offer. For example, a large Agriculture chemical firm is using IoT to improve planting prescription by integrating real-time data from fields with previous year’s crop data. This helps to increase crop yield and quality. Generator companies are using real-time data from deployed units to optimize service offers or reduce warranty risk as well as improve the materials used in the product to lengthen service life and uptime. Companies like GE are using IoT to optimize turbines to improve performance by 5% to 15%12 and more.

Network Operators IoT Revenues

It may take years for network operators to see this large projected revenue from IoT. The truth is that most operators are still making the majority of their revenue from connections and that is few hundred millions versus billions projected. Based on an educated estimate for the US market, the actual revenue is under $1.7 Billion USD for the top players (see Table 2). In its latest quarterly report, Verizon reported M2M and Telematics revenue of $400 million year to date with most recent quarterly revenue of $150 million13. Based on this information, Verizon’s 2014 M2M and Telematics revenue is estimated at $550 to $600 million.

The IoT revenue stack starts with connections but software and services are larger components of the overall revenue. Operators are moving up the revenue stack by purchasing end to end solutions in key vertical segments. For example, Verizon’s acquisition of Hughes Telematics in 2012 for $612 million14 enables the company to offer comprehensive Telematics solutions and Vodafone’s purchase of Cobra Automotive provides the similar ability to offer complete solutions. These acquisitions enable the mobile operators to move beyond connectivity revenue and into the application and services revenue. Since M2M average connection revenue per user is approximately $7 to $9 dollars, additional revenue is needed to reach the billions of dollars being forecasted.

Table 2: Estimated IoT Revenue US Operator Market 2013 (Manjaro’s estimates)

Solution Provider IoT Revenue 2013 Connections (2014)
Verizon Est. $350 -$400 million 13,000,000
AT&T Est. $500 – $700 million 17,000,000
Sprint Est. $200 million 3,200,000
Kore w Raco Wireless Est. $100 million 3,000,000
Aeris Est. $50 million
T-Mobile(Raco) Est. 2,000,000
Wyless Est$25 million 1,500,000
Numerex15 Est. ~$100 million 2,416,000
Total $1.52 Billion

 

Growth Segments

Most commercial IoT solutions with real traction will start in the Connected Home or Telematics segment. In Telematics, there is significant traction in In-vehicle entertainment, vehicle diagnostics, vehicle data collection, and driver behavior for Usage Based Insurance. Most of the top auto original equipment manufacturers (OEMs) (GM, Toyota, BMW, Honda, and Hyundai) have a telematics program. GM was one of the first to the market. Telematics accounts for the majority of M2M connections to date. The traction in telematics is also the reason for operators’ acquisitions in this segment. Auto OEM revenues come from monthly service charges to end customers for in vehicle communication, emergency services and entertainment. Auto OEMs also gain valuable insight from the vehicles to improve materials and optimize vehicles warranties. GM’s revenue for in vehicle connectivity is estimated at over $1.5 billion16.   Insurance companies leverage Usage Base Insurance (UBI) to assess and reduce risk by charging higher premiums for higher risk drivers. Most tier one insurance companies, State Farm, All State and Progressive, all have UBI programs. Insurance IoT business model is more focused on reducing risks to improve the bottom line.

In the Connected Home segment, there is strong competition from new entrants such as Apple, Google, GE, Samsung and Home Depot. They are competing against the embedded base of telecom operators (CenturyLink’s High Speed Internet (HIS), Verizon FiOS, and AT&T Uverse and Digital Life Home Security and Automation) and cable companies (Comcast Xfinity, Time Warner) who currently provide broadband and video services to homes. Comcast, Verizon and AT&T expanded their offers to include Home Security and Automation. AT&T solutions include video, door, energy and water monitoring which can be combined for $54.97/ mth while Comcast offers light, door and thermostat monitoring for about $30 USD per month. Verizon’s offers similar services: video monitoring, home security, and remote temperature control. Home automation and Security services can increase average revenue per user to over $50 which is very high for IoT ARPU. Operators can charge $5 to $10 for each component or package the components for $35 to $55USD. The Security and home automation solutions will definitely increase M2M revenue for the providers.

The launch of Apple’s Home Kit will help to grow smart home solutions and applications by proving developers with easy access to application programming interface (APIs) for integrating new capabilities to IOS devices such as Apple TV and smart phones. It will enable developers to launch many new and interesting solutions as well as integrate features of existing solution and create new solutions for the market. Google NEST will continue to add a portfolio of smart home devices. There is also Wink home hub, a spin-off from Home Depot which enables devices from multiple manufacturers to connect. Wink provides both IOS and Android application for users to controls a variety of devices from cameras, thermostats, and door locks. Wink could be disruptive to operators monthly service charge revenue as a result of it’s Do it yourself approach. Most of the revenue for home solutions will come from hardware sales and some service revenues. In many of the IoT solutions, the hardware vendor will be the first to gain significant revenue.

Even though various components have been available in the market for some time, the lack of a unifying platform has kept the different solutions segmented. For example, there is several point solutions for healthcare such as those which monitors senior citizens for fall detection with alerting and emergency response, solutions geared toward keeping the elderly independent. Aggregation and integration of these point solutions will be essential for wider-scale adoption. Incumbent operators recognize the power in aggregation and are currently offering point home solutions as packaged deals. Mass market reach will require a common interface to various point solutions. Wide scale adoption is required to reach the trillion dollar market that analysts are forecasting and standardization is a key factor.

The Wi-Fi network will most likely be the central point of unification. Since many homes already have Wi-Fi and many devices support WPS which enables secure auto connectivity to home networks. Many of the existing IoT solutions support Wi-Fi. Apple will use Wi-Fi and Bluetooth Low Energy in the home. Apple may even use Apple TV as the center of its Connected Home strategy and its handsets for remote monitoring and control. Many of the smart appliances also support Wi-Fi. Revenue in the connected home will most likely come from hardware sale and fixed broadband connections.

Table 3: Home IoT Solutions

Parent Company IoT Name Products Connectivity
Google NEST Smart Thermostat Thread
Apple Home Kit Developer API Wi-Fi and Bluetooth LE
Samsung Smart Things Hub and devices Z-wave, ZigBee, Wi-Fi
Home Depot WINK Smart Home Hub with Android and IOS Application Wi-Fi

Conclusion

The overall IoT revenue is in the low tens of billions versus the trillions projected. However, the potential for higher revenue can be realized through standardization. Aggregation at the platform level will be the key for enterprise IoT revenue growth for mobile operators but the challenge is in determining which platform and interface should be the standard. Operators started this aggregation in home automation but will need to extend aggregation to Enterprise solutions.

The Platform as a Service (PaaS) approach is the key to integrating disparate point solutions. PaaS approach requires access to APIs or drivers of the various point solutions, then integration of these point solutions at the cloud level to enable universal access. This approach requires unified application to simplify access to each solution and provide an integrated view to the customer. Operators will be able to offer a suite of services versus a single application which will benefit customers and providers of the point solutions. This model puts more control into the hands of the operator but will increase revenue for the ecosystem of partners due to larger sales volumes.

The key to mass market adoption will be simplicity. How to seamlessly aggregate point solutions into one application accessible from any device and any location. Once standardization enables interoperability across platforms, connectivity and devices, then adoption will increase to where trillions of dollars in revenue becomes a well -grounded reality than mere hype being reported.

 

References:

  1. http://www.gereports.com/post/74545267912/analyze-this-the-industrial-internet-by-the
  2. http://www.idc.com/downloads/idc_market_in_a_minute_iot_infographic.pdf
  3. http://www.gereports.com/post/74545267912/analyze-this-the-industrial-internet-by-the
  4. http://www.bloomberg.com/news/2014-01-08/cisco-ceo-pegs-internet-of-things-as-19-trillion-market.html
  5. http://www.thingworx.com/2013/12/ptc-acquires-leading-internet-of-things-platform-provider-thingworx/
  6. http://www.thingworx.com/2014/07/ptc-to-acquire-axeda-to-expand-internet-of-things-technology-portfolio/
  7. http://techcrunch.com/2014/07/15/samsung-to-scoop-up-smartthings-for-around-200-million/
  8. http://online.wsj.com/articles/SB10001424052702303595404579318952802236612
  9. http://www.fiercewireless.com/tech/story/kore-wireless-acquire-m2m-provider-racowireless/2014-11-11
  10. http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/10902710/Vodafone-buys-Italian-car-technology-company-Cobra-Automotive-for-115m.html
  11. http://investors.tyco.com/phoenix.zhtml?c=112348&p=irol-newsArticle&ID=1992003
  12. http://www.gereports.com/post/74545267912/analyze-this-the-industrial-internet-by-the
  13. http://www.verizon.com/about/news/verizon-reports-strong-customer-additions-and-another-quarter-double-digit-earnings-growth/
  14. http://www.bloomberg.com/news/2012-06-01/verizon-to-acquire-hughes-telematics-for-612-million-in-cash.html
  15. http://press.numerex.com/releasedetail.cfm?ReleaseID=880780
  16. http://www.brandchannel.com/home/post/2013/05/28/OnStar-Expansion-052813.aspx

 

 

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Where is the Revenue in Internet of Things (IoT)?

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