Jan 4, 2015

2014 Corporate Initiatives; market rules are changing

Following several years of rapid growth, the 141 corporate initiatives in 2014 almost matched the 147 events that occurred in 2013.

In 2014, companies in the M2M eco-system were less active in several areas. As illustrated below, there were fewer recorded events of companies either: expanding into new market segments; promoting new technology; and, entering into partnering agreements. Product innovation saw a rise in activity as companies launched new products and services. In general, these addressed the needs for specific customer applications.

This pattern of activity, combined with several business-unit re-organisations suggests that management teams had turned their attention to commercial execution priorities during the course of 2014. As the M2M market continues to mature, this will be a recurring theme throughout 2015.

Compared to 2013, the overall number of corporate initiatives, investment, merger and acquisition (M&A) activities exhibited a rise. Many of these developments surprised industry executives with size and valuation multiples dwarfing previous M&A metrics in several cases. The fact that some of these acquisitions came from unexpected sources and were made by non-traditional (M2M) players is suggestive of two industry dynamics. Firstly, outsider firms are beginning to disrupt the (M2M) market. Secondly, the rules of the new (IoT) market will drive changes to existing M2M solution provider strategies and business models.

The illustration below illustrates a sample of 2014 M&A activities for which public domain data is available. Company names in the upper part of the illustration contain familiar names of companies active in M2M with Sierra Wireless and Vodafone featuring strongly in terms of their financial outlays.

NOTE: The Value of Samsung’s investment in Evrythng was not disclosed. It is included here because it complements Samsung’s acquisition of SmartThings. 

The lower portion of the illustration is notable for ‘new’ entrant companies. Specifically, these companies were not previously associated with M2M or IOT. Examples include PTC (a technology-solutions company that focuses on the discrete manufacturing sector), Samsung and Google. Their investments outstrip those from the traditionalists by significant orders of magnitude. What this means is that these new entrants view the IoT market in a completely different light; they see a profit potential that has hitherto escaped incumbent service providers.

The table below presents the full set of 28 investment transactions, mapped to a high level industry value chain comprising: investors, technology vendors, mobile network operators, M2M/IoT platform service providers, distributors, systems integrators and (enterprise) users of M2M and IoT solutions.

Events highlighted in the diagonal represent horizontal consolidation activities where companies either acquired complementary capabilities (e.g. Qualcomm’s acquisition of CSR) or combined to drive economies of scale (Kore Telematics and RACO Wireless).

Almost 60% of the initiatives involved some form of vertical integration such as the 2 transactions involving MNOs and technology vendors as well as the 7 transactions involving platform service providers and technology vendors. Technology vendors and platform service providers were the two types of business most active from an investment standpoint.

Looking across all 141 corporate initiatives in 2014, these two camps also dominate the level of activity although platform service providers were almost twice as active as technology providers.

As IoT value propositions envelop the fast maturing M2M market, incumbent service providers will have to rethink their strategies. An historical focus on wide-area connectivity (fixed-, mobile- and satellite access) is being overtaken by considerations of short-range access in lower price-point and consumer devices. What does this mean for provisioning and device management services?

In addition, silo-based platforms have delivered a wide range of operational solutions to enterprise users with considerations about technology- and vendor lock-in generally treated as secondary issues. IoT applications will drive greater demand for interoperability – across silos and across devices and applications on different platforms. How will companies evolve towards such a future? Will a further wave of consolidation in the platform service provider space suffice? Or, will interoperability technologies and (intermediary) service providers emerge to address a larger market opportunity?

2015 offers many such issues to look forward to.

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