Jun 1, 2018

A fresh look at MNOs' IoT strategy

Over the past few weeks, there have been several commentaries about IoT strategies for mobile network operators (MNOs), several of these expressed at Mobile Europe’s 2018 IoT in Telecoms conference.

Vodafone’s Director of IoT, Stefano Gastaut [1], expressed visible frustration about the ‘dumb pipe’ label attached to MNOs and the implied commoditization of connectivity. Enrico Bagnasco, Head of Innovation at TIM articulated [2] a ‘horizontal services’ view.

And, finally, Ericsson published a study [3] drawing on interviews with 20 mobile operators about the status of their IoT priorities and the strategic opportunities for growth. One highlight in Ericsson’s findings is that 70% lack a well-defined strategy. While many are testing different roles in the IoT value chain, 80% plan to move up to higher layers.

On the whole, it therefore looks as if the industry has got second wind, aiming to build on a first phase of growth, triggered by the GSMA’s ‘M2M and Beyond’ industry strategy.

So, are operators on the right track to capitalize on the opportunity or has the market passed them by?

Let’s begin by reviewing the different positions from these recent commentaries.

Vodafone IoT 

The key points from Stefano Gastaut’s interview are as follows:

  • The industry needs to get over the ‘dumb pipe’ obsession and educate the world that IoT provides businesses with valuable touch points to their customers. Connectivity is less about the price of data and more about business relevance and mission criticality. Moreover, connectivity has greater sophistication when complemented by value-added features and quality-of-service enablers.

  • The real IoT opportunity is outside the telco domain, enabling business outcomes for corporate customers. An insurance company cares about the time to process a claim, not the amount of data transferred in supporting this process. MNOs need to figure out how to play outside of telecoms.

  • Vodafone sees promise in picking a few verticals where it can go deep and become a leader. This takes time and resources. In the case of the automotive sector, Vodafone needed to make an acquisition to establish a leadership foothold and gain necessary domain expertise. 

TIM Innovation 

Enrico Bagnasco’s comments neatly captured the MNO dilemma. It contrasts a huge IoT opportunity against the real word resourcing limitations that drive operators to specialize in a few verticals. He admitted that even when it tried a segment approach, targeting end-to-end solutions in a few verticals, TIM not had much success.

His ideas for the future are to build on two areas of expertise - connectivity and managing operations at MNO scale - to pursue a ‘connectivity +’ horizontal strategy. This could be connectivity + analytics or connectivity + API, for example. The targets for these horizontal, value-added services would be go-to-market partners, primarily the systems integrators and other organizations with domain or subject-matter expertise.

Exploring IoT Strategies with Ericsson 

Ericsson’s report draws on interviews with 20 MNOs. Half of them are IoT market leaders and others have operations in fast growing mobile-broadband markets. The report paints a picture of solid achievements in providing networks and connectivity services. It also reports that MNOs desire to become service creators or service enablers higher up the value chain.

Ericsson synthesizes MNO feedback into a 4-by-4 positioning framework. Along one axis, there are four primary roles for any given MNO: network provider; connectivity provider; service enabler (using platforms to onboard ecosystem partners and launch new IOT services); and, services creator (end-to-end solutions for customers and transformation of MNO go-to-market capabilities).

Within each of these roles, MNOs can pursue four customer-facing sub-roles. These correspond to the second axis in the positioning matrix. The four sub-roles are as: a supplier (networks, SIM cards, platforms or applications); an integrator (lifecycle management of networks, connectivity platforms or applications); an operator (manage and provide services for multiple networks, devices and data or business processes); and, a transformation enabler (transform customers’ business models and operations with IoT).

Ericsson applies this framework to map a pathway for MNOs to move up the value chain from network and connectivity offers. It is a path that mirrors the ideas that TIM and Vodafone proposed about selectively targeting promising verticals.

However, Ericsson’s interpretation of the MNO feedback signals greater primacy on the part of MNOs. It puts forward the idea, for example, that MNOs can help enterprises with industry digitalization consultancy. By contrast, TIM and Vodafone articulated the challenges posed by a lack of (non-telco) domain knowledge. This is the kind of competitive advantage that rests in the hands of strategic intermediaries, such as channel partners with better established customer relationships.

Do MNOs Have the Right Perspective? 

There is a consistency to the different MNO viewpoints that starts from a base of cellular connectivity and seeks to build on top of it. Building on one’s strengths is entirely conventional thinking. But, will this perspective drive MNOs to the full IoT opportunity? And, does it address the needs of prospective customers?

Try looking at it this way. The GSMA estimates [4] that there will be about 26 billion IoT devices by 2026. Of these, 6 billion will reply on cellular connectivity. That means a cellular-centric strategy will miss almost 80% of the market potential. Some organization has to provision, remotely manage and gather data from those non-cellular devices. Who might that be?

One clue about the future of IoT comes from SK Telecom whose strategy [5] targets IoT data from a vide variety of devices. Data is what drives insights, intelligent decision making and, eventually, business outcomes. Might it make sense to build an IoT strategy around the management and use of high-volume and wide-diversity data?

Another way to look at the challenge is to place yourself, metaphorically, at the mouth of a river estuary. From there, you start paddling upstream, looking for promising tributaries. This is analogous to MNOs starting from a large addressable base of connections and moving up the value chain, looking for niche verticals where they can capture a meaningful slice of the addressable IoT opportunity.

An alternative approach is to twist the challenge through 180 degrees. Think about Amazon, the company, starting at the head of a tributary (i.e. selling physical books online). As it moves with the current, it grows organically and gradually joins the flow from several other tributaries (i.e. expanding the portfolio of offerings and eventually leveraging scale to offer the marketplace platform as well as hosting capabilities for third-parties). Moving with the current is a lot easier than going against it. What might this look like when applied to IoT?

Expansive and Open Eco-system Platforms

One approach MNOs can take is to start with cellular IoT connectivity for enterprises and then expand the portfolio with other forms of connectivity. Afterwards, applying the advice from TIM about horizontal capabilities, an MNO might add a new service category such as analytics, for example, to the portfolio. This might include the MNO’s internal analytics capabilities but packaged as a general-purpose tool kit. Later, it might add analytic capabilities from third-party specialists. An MNO might even offer enterprises direct access to its analytic engines, letting customers adapt and fine-tune algorithms for their own needs. The possibilities seem endless. Platforms are essential to maximize reusability and to benefit from economic scale.

This combination of analytics providers and services is more of an open ecosystem strategy. It has the potential to scale massively as long as third parties are encouraged to participate (in the same way as Amazon the retailer fosters a long-tail of services while competing with other sellers in its Marketplace). This eco-system approach offers significant growth potential [6] and delays the decision point for making narrow, sectoral bets (disclosure – I advised on the strategy and quantitative analysis for this study).

An important lesson about growth and strategic planning from Amazon is the importance of corporate commitment. A few years ago, Vodafone’s now outgoing CEO promised an IoT entry in the consumer segment. At the time, he made it clear that this strategy could take 10 years to reach fruition. It will be difficult for MNOs to succeed in the IoT market without this kind of pledge. One only needs to study Nokia’s foray into the wellness market (Withthings acquisition and planned exit a few years later) to understand the pitfalls [7].

[1] Speaker Insight: Stefano Gastaut, Vodafone - https://youtu.be/3Sw0ZuBS6iI

[2] 2018 IoT in Telecoms Conference – The enterprise IoT opportunity - https://youtu.be/o5nJ8sCrcfQ?t=9m30s

[3] Exploring IoT Strategies, https://www.ericsson.com/en/internet-of-things/trending/exploring-iot-strategies

[4] Stephen Doyle, Technical Architect, GSMA, on the opportunities associated with IoT-based data https://youtu.be/C6oy-6Tua-4?t=1m50s

[5] SK Telecom’s IoT strategy looks beyond Connected Devices, https://www.more-with-mobile.com/2016/10/sk-telecoms-iot-strategy-looks-beyond.html

[6] Boosting IoT Revenues by up to 500%, Bearing Point, https://www.bearingpoint.com/en/our-expertise/insights/how-telcos-can-benefit-from-adopting-digital-ecosystem-management-dem/

[7] – Nokia to sell Withings health division back to original founder, https://www.cnet.com/news/nokia-to-sell-withings-health-division-back-to-original-founder/

Image Credit: Jamie MacPherson via unsplash.com

1 comment:

  1. 1 August 2018

    2018 IoT in Telecoms Conference – Vodafone keynote: How we plan to succeed in the IoT