Jeff Zucker of NBC Universal
coined the prescient expression “Trading analogue dollars for digital pennies”
in 2008 to describe the huge gap that he was observing between the lucrative
promises of online and digital advertising and the reality of the meager
revenues that it was in fact producing.
Could the same be true of the Internet of Things revolution? Are we trading the hundreds of dollars that
we are generating from mobile users for the pennies that providers get for
connecting “things”?
Connecting the 50 billion
projected devices, or things, to the Internet is the cornerstone of the
Internet of Things. Given the challenges
of remoteness, mobility and the cost of wiring up these devices, many of these
connections will be made over mobile networks.
In fact, Beecham Research estimates that the number of cellular machine-to-machine
connections will grow to 1 billion by 2020, up from 172 million in 2013. It is no wonder that the mobile operators are
salivating at the prospect of all this new revenue to be earned from connecting
inanimate objects. This windfall is especially
at a time when there traditional mobile business is under attack. Changes in voice usage and bundled minutes
are causing voice revenues to decline and data revenues are under attack from Wi-Fi
connections and over-the-top providers (see The Mobile Paradox).
Like the analogue to digital
advertising shift, the shift in IoT connectivity is not a straight
substitution. Let’s look at the
economics. The average mobile user in
the U.S. spends $589 annually for his mobile phone service ($381 per year in
Europe). Connecting things is a lot
different than connecting chatty or data hungry mobile users. In the IoT world, many devices simply convey
their status on an occasional basis and then remain dormant until this status
changes. For example, I am familiar with
an interesting company that provides a compelling solution to cities to better manage
their public trash. Each of the trash
bins that are located on sidewalks, parks and other public venues is connected
to the Internet, communicating its status to the city operations so they know
when the bins need emptying. As a
result, the city only has to empty them when they are actually full, saving
considerable money from not having to send out crews to collect half-empty
trash bins.
Because these bins are
conveying very little information (“I am full; “I am empty”), at infrequent
intervals they do not require the fast 4G LTE connectivity that allows us to
quickly browse the web and stream videos on our smartphones. In fact, they get by with a decade’s old
technology – SMS. The same technology
that we use to send each other messages on our phones. For that, the mobile operator charges the
company 50 cents per bin; or, annual revenues of just $6. That means that a mobile operator would have
to connect close to 100 bins to equal just the revenue of one mobile user.
Of course not all devices
will require simple mobile connectivity.
But, when we talk about IoT the majority of the use cases are like my
trash bin example - sensors monitoring the temperature of transportation cargo,
parking sensors alerting when a spot is free, or smart meters communicating
daily energy consumption. This would
mean that these 1 Billion new M2M connections could represent just 1 percent of
the revenue that the industry would have traditionally collected if those
connections had been to people and their smartphones, rather than to inanimate
“things”.
So, while IoT promises huge
numbers of new mobile connections, the economics are fundamentally different
than the traditional mobile business. IoT
offers mobile operators huge quantities of connections but potentially very
little new revenue. If providing mobile
connectivity is nowhere near as lucrative as it would appear, how are mobile
operators to prosper from the IoT revolution?
The obvious answer is to move up the value chain, providing a wide
variety of value-added solutions and services that are required for successful
IoT implementations and realization of business value.
In a future article I will
explore what these value-added services and solutions are and who will be the
winners in the Internet of Things revolution.
Read blog on Cisco.com
Read blog on Cisco.com
