Do providers of Internet of Things services view the IoT as a new revenue stream or a cost-saving exercise? This is one of the key questions Jeremy Cowan of IoT Now put recently to long-time communications industry observer Robin Kent, director of Adax.
Robin Kent: From an operator point of view, I think at the moment it’s about improving the bottom line. Unless there is something, as you say, that’s got an immediate impact for somebody else (I haven’t seen one of those yet) then you have to be driven by the revenue that application’s going to generate.
I was reading the other day about the amount of data that’s just starting to come now from connected cars. That in itself I think is an opportunity but it’s also a problem on a number of levels. It’s a problem in terms of a network level and how do you physically keep all those devices connected, receive that data and transfer it to the place where it needs to go. That’s the physical blunt end of it, which is where we (Adax) are.
The second part of that is it becomes a big data issue because you’ve got all this data that you’re collecting, but if you’re actually going to monetise it you’re going to analyse it.
Jeremy Cowan: We did a poll of a conference audience recently and I asked what the biggest challenge was that they face. They were mainly men, a mix of telco networks and the vendor community selling software and services into IoT.
The headline problem that they face is generating new revenue, it is creating the revenue. I assumed, definitely wrongly, that they were perhaps further down the line as a community, had identified the revenue streams which is why they were there and were now looking to improve the offering or find out how to roll it out efficiently. In fact, they’re several stages further back. They’re still trying to identify where it is they might make the revenue.
Robin Kent: I think there are some applications that can be pointed to that are making revenues. One company at Mobile World Congress was doing well with farmers because this IoT device on the leg of a cow seemed to be able to do everything apart from milk it.
Jeremy Cowan: Was that Vodafone and Moocall?
Robin Kent: Yes.
Jeremy Cowan: Apart from the humorous nature of the name it has proved incredibly efficient. It’s saved something like 150,000 calf lives, which is an astonishing number and that’s just the UK.
Robin Kent: It’s brilliant, they’re getting the publicity and generating revenue.
Jeremy Cowan: Or saving money.
Robin Kent: It’s a vertical application and to me that seems to be the big challenge. It’s the same with any business model, how do you scale it to make money in a sustainable way? That’s a good example of one application and there are others. I’m not saying IoT isn’t happening because it is.
All the ones I’ve seen that seem to be successful at the moment are vertical market applications. People quote smart meters and they quote connected cars and things like that. I haven’t actually seen anybody making or claiming to make big revenues or big savings from mass market applications by IoT. The ones you see referred to are some of the medical ones. They’re all very niche, very vertical market.
Jeremy Cowan: Somebody told me they’d been chatting with a well-known system integrator, who’d better remain nameless. They were talking to the SI about what telcos were doing in IoT and how, exactly as we’re saying, they were yet to achieve huge success commercially in IoT, had not yet proven a business model.
He said, “So presumably, the business prospect in the IoT is not for your telco customers, it’s for you system integrators. If they’re creating an integrated ecosystem, who is it that provides the glue? It’s got to be the integrators who bring all of those different partners together and make the service actually work.”
There was a sort of in-drawing of breath by the SI and then he admitted, “Well, yes. We don’t shout about it but we see this as a great opportunity for us in five years’ time because we don’t think these operators are actually going to be the ones to make a success of it.”
Given that we’re now two or three years’ further down the line, who’s to say he’s wrong?
Robin Kent: I’d totally agree with you. This goes to the point I made earlier about, “Is the ultimate business model for this the larger operator or is it the MVNO (mobile virtual network operator)?” If it’s an MVNO, then the tier one operator has to be careful that they don’t end up eating the lunch of their wholesale customer, the MVNO.
From what I’ve been seeing in some markets, where we’ve been working with the operators to provide 4G core networks which they wholesale to multiple MVNOs, certain operators are making money, and more money perhaps from those wholesale services than they are making from their individual subscriber services.
Jeremy Cowan: Why do you think that is?
Robin Kent: If you’re an operator and you are struggling to identify the revenue opportunity from your individual subscribers, and you have an opportunity that says, “Well, instead of having my entire business model focused on how many subscribers I keep, what the churn is, what services I can sell them, if I can identify a number of successful vertical market MVNOs I can wholesale my services to it’s a more effective business model.”
EAT THEIR CUSTOMERS’ LUNCH
Jeremy Cowan: So why aren’t the network operators setting up more MVNOs themselves? If they see that as the market, whether they’re eating their customers’ lunch or not, they have to survive. So either they eat somebody else’s or they eat no lunch, to use your analogy.
They either go after that market that is starting to prove itself, with MVNOs targeting individual verticals like healthcare, retail or automotive, or they don’t go after it at all.
Robin Kent: I think the reason for that is that the successful MVNOs appear to be the ones with the good applications or good services for those markets, which they have to develop. If, as an operator, you decide you’re going to set up those individual MVNOs, it’s not just about providing your infrastructure, which you’ve already got, you’ve then got to start developing competitive services, and plenty of applications to deliver into that vertical market.
(Also see: The MVNO roll-up begins now!)
Jeremy Cowan: That suggests a quick way of solving that problem is a Vodafone-style series of acquisitions, doesn’t it?
Robin Kent: Yes.
Jeremy Cowan: I don’t see that happening amongst most telecom operators. Talking to some in Europe last week, they were all saying, “We don’t have enough use cases yet.” They were quite clear about that, quite open about it and they were saying, “If we come back to this event next year we’ll hope that we’ll be able to show another five or six different use cases that we’ve now brought to market.”
That’s quite ambitious if they don’t actually have the skill sets and they’re not currently showing any acquisition frenzy. How are they going to do that in 12 months?
Robin Kent: The only way you can do that in 12 months, you either build or buy. The compromise could be that you find a developer who has developed a suitable application that you can then partner with to provide the infrastructure to deliver that application. Isn’t that an MVNO in a different name?
Jeremy Cowan: Yes. I gather there’s quite a number of stealth MVNOs, not very openly owned by telcos, moving into IoT space. But I only have that anecdotally.
Robin Kent: Yes, the reason for that would be to try and maintain their current customer relations at the same time as trying to get a piece of that pie. It’s a really competitive market out there at the moment for the operators. As I said earlier, it’s difficult to feel sorry for them after the amount of money they made in the early days but it is tough for them out there.
Jeremy Cowan: It is tough. By the same token, it must, therefore, be tough for the people selling into that community. We’ve seen a lot of difficulties experienced by companies ranging from Nortel to Ericsson over the last five years, some are no longer here and some are struggling hugely with the transition with their own digital transformation from a hardware to a software company in the case of Ericsson.
Robin Kent: Yes, and that comes down to people like us as well, if the operators aren’t investing and developing those core networks and building them out with new technology then it directly impacts our revenue as well. We’ve certainly seen that.
Jeremy Cowan: Has it been a good year?
Robin Kent: This year, so far, has.
Jeremy Cowan: So, 2016 was difficult?
Robin Kent: Yes, very difficult and that’s reflected, as you say with companies like Ericsson who are big customers of ours. What they’re effectively doing is cutting back on all of the diversification and all the new areas that they were trying to go into and say, “Right, we’re going to go back and concentrate on what we do well which is to do with the core network.” I think Nokia have got to go through that same pain yet, as well to save…
Jeremy Cowan: You don’t think they’ve faced their pain enough yet?
Robin Kent: I don’t think so.
Jeremy Cowan: What do they need to do?
Robin Kent: A little bit of safety defence going on at the moment. They seem to be trying to get that separation of software and hardware model as well, with a lot of the old Alcatel-Lucent stuff that they’ve brought in being the hardware side and Nokia to be the innovative software and services side. I still think they’ve got a lot of streamlining to do there.
Jeremy Cowan: In what way?
Robin Kent: Just in terms of the way the business operates and the way it’s still too diverse.
Jeremy Cowan: This seems a rather pessimistic outlook for the industry as a whole at the moment. Why should it be like that when most people agree that the IoT holds enormous promise, in the services that they can improve and the way that IoT can create entirely new businesses. Are you optimistic?
Robin Kent: Yes, I’m optimistic about it.
Jeremy Cowan: Over what timeframe and why?
Robin Kent: That’s the issue – over what timeframe – because I haven’t seen anything yet that says, “This area’s going to make money”. If you can generate a good regular revenue stream from, say, connected car type applications, that will then fund the more innovative applications and the more niche areas.
The problem at the moment is that the ones that are being successful are the ones in the niche areas. That doesn’t provide the capital to invest and take the market forward.
Jeremy Cowan: Have we been lured away by the sexier side of IoT for consumers and forgotten the role that should be played by industrial IoT and how a few quick wins there can scale very quickly, generating revenue over a long period of time? Is that an area we should be focusing on?
NO CASH COW
Robin Kent: Yes, I think that’s a very good point. I mean the interesting applications, as we said, yes, the cow one is a good example gets a lot of coverage and generates a lot of interest and does a useful job in educating people about the benefits of IoT. It’s not something you can see scaling exponentially. I agree with you, it’s the industrial applications that will pay.
When I’m talking about this, I go back to one of the very first GSM exhibitions (before they were MWC) and we had the misfortune to have the booth next to this guy who was selling something new called ringtones. Nobody had ever heard of ringtones at this point and for four days we listened to the James Bond theme and the Flintstones because they’re the only two ringtones he had.
Jeremy Cowan: It must’ve been doing your head in by the end.
Robin Kent: I asked, “How are you actually going to make money out of this?” He said, “The operators will sell them at a dollar retail and we’ll sell them to the operator at 50 cents or 75 cents.”
I said it’s peanuts. He said, “Yes, but look how many subscribers the operators have got. You don’t need a huge take-up.”
SUN OF A BEACH
Jeremy Cowan: Is he lying on a beach somewhere?
Robin Kent: He’s got to be, hasn’t he? One can only hope he had some sort of patent on that technology and benefited from it.
Jeremy Cowan: The operators could’ve been the ones to make a lot of money out of that but they weren’t able to ringfence it into their walled gardens very effectively.
Robin Kent: If somebody could find a way of enabling a 25-cent revenue from every smart meter then it has the scale to generate revenue that drives the industry.
That’s the bit I’m not seeing at the moment. I’m sure they must be going on. Somebody with a lot better mind than mine has got to be thinking about that stuff and trying to make it work. I just wonder if it’s a similar thing with IoT.