It’s clear that companies are keen to capitalise on the IoT opportunity. This should be no surprise given the drum-roll of multiple billions of connected devices from different analyst firms. What holds companies back is their relatively incomplete grasp of:
- how the market will develop along different dimensions,
- where the innovative commercial opportunities are crystallizing,
- and, what strategic initiatives will help companies to position themselves to capitalize on market opportunities (as distinct from worrying about where the next tranche of connected device sales will come from).
Just like the countryside below our strategist on top of the hill, it’s useful to think of the IoT map in terms of a cube to illustrate three avenues of growth.
- Move up the value chain getting closer to the business need and the (paying) end-customer
- Support more connectivity technologies which underpin the massive addressable-market forecasts
- Support interoperability across application silos to monetize data trading and (silo) application interaction opportunities.
This strategy had the merit of getting MNOs into the market quickly but at the risk of introducing a new intermediary into the revenue distribution waterfall. The ensuing commercial squeeze has meant that enterprise customers in need of M2M solutions now benefit from lower barriers to adoption thanks to competitive data prices, lower module prices and standardized provisioning processes.
Companies in the lower tiers of the M2M value chain are now eyeing new value propositions in the areas of application enablement platforms (to automate and manage the applications that run on connected devices) and applications themselves.
Moving much higher up the value chain, however, has rarely featured on MNO agendas. MNOs explain that “they lack the domain expertise” to offer M2M/IoT applications directly to enterprise customers. To some extent, MNOs have dealt with this hurdle by partnering with systems integrators and some of the more forward-thinking companies that recognise the value of connected-devices and -services.
MNO unwillingness to move up the value chain is changing. AT&T, the long-time pioneer in the M2M and now IoT market, recently announced its plans to test a few direct-to-customer applications in four areas: vehicular solutions (e.g. connected cars, usage-based insurance, and fleet management); smart cities and utilities; supply chain solutions; and, management of industrial assets. Where AT&T leads, the rest of the industry generally follows with a few years’ lag.
The service providers’ journey up the value chain is making a detour to address the current market vogue of expanding into new access technologies. Smartphone and home appliance manufacturers (i.e. the OTT players) are actively focusing on the smart-home market and low-power devices, a segment that does not play to the strengths of mobile. This is changing as MNOs and technology providers turn their attention to next-generation modules that address the data transmission characteristics of IoT applications. Under the stewardship of the GSMA for example, a group of 26 MNOs, OEMs, chip-set, module and infrastructure companies recently launched a Low-power, Wide-area network initiative  focusing specifically on the IoT growth opportunity.
While this development will increase the addressable market for MNOs and M2M service providers, a word of caution is necessary. Front-runner companies, such as SigFox, have set revenue expectations  of between EUR1-2 per connected device per year. This is roughly one-tenth of what M2M service providers typically earn for most of their existing M2M devices (excluding high data rate applications such as video-security, for example).
Most of the discussion up to this point has centered on silo applications (the historical domain of M2M). There is a growing recognition in the business consulting, communications and IT industries that silo applications are sub-optimal. In other words, while it is common to come across cloud-hosted M2M/IoT applications (i.e. infrastructure sharing), it is rare to see applications being designed to reuse common application enablement functions (e.g. application design tools, data management, security etc.). This results in duplicated infrastructure and repeated systems integration interventions which is ultimately costly to enterprise customers and their service end-users.
A different interoperability value proposition stems from the opportunity to share data across application silos. Think about the potential to combine data from home appliances and security monitoring devices in a smart home to create an assisted living application. In a recent assessment  of the IoT market McKinsey & Co, the consulting firm, introduced the concept of ‘settings’ to illustrate a range of IoT service scenarios. A ‘setting’ could be a (smart) home, a (connected) car or an (intelligent) manufacturing plant, for example. Each of these ‘settings’ hosts a range of connected devices and sensors. The interoperability potential between the applications that use these devices and services accounts for almost 40% of the value potential from the IoT application service scenarios in McKinsey’s analysis. Businesses that do not factor this mode of operation in their strategic product and service roadmaps are effectively capping their long-term business prospects.
Interoperability will be one of the toughest challenges for MNOs and M2M service providers because many of them prioritise customer-control over open innovation and multi-sided business models. Interestingly, any success in creating large user bases via low power, low unit-revenue devices will set up an interesting tension within service providers to capitalize on the commercial upside of interoperability and the need to invest in platforms higher up the value chain.
So, do MNOs and service providers have a role in the emerging IoT market? For the large businesses, the answer is a definite yes; smaller service providers may have fewer real choices because of expertise, financing or resource constraints. All is not lost however because even these service providers will have a role in supporting interoperable IoT applications.
 MNOs will not make the IoT connection - http://telecoms.com/163802/mnos-will-not-make-the-iot-connection/
Operator Business Models & Future Networks for IoT at the IoT Europe Conference in Berlin (Oct 2015) http://iotworldeurope.com/pre-event-focus-day/
 McKinsey Global Institute, The Internet of Things: Mapping the Value Beyond the Hype (June 2015) http://www.mckinsey.com/insights/business_technology/the_internet_of_things_the_value_of_digitizing_the_physical_world