The Internet of Things Revolution Has Only Just Begun

We are in the early days of another transformative technology revolution.  The consultancy McKinsey estimates that the Internet of Things - a world where up to 50 billion things (or devices) will be connected to the Internet – could create up to $11 trillion per year of new economic value to business and society.  The term Internet of Things traces its origins to 1999, but it is only over the last year or so that the realization of its transformational potential has reached the business community and the general population.  The number of research reports, conferences and media articles devoted to the topic has exploded.  With the media making the connection between the smart home and the connected automobile IOT has begun to become part of the popular parlance.  In fact, a Google search for Internet of Things reveals 725 billion results.

Google Trends also reveals that 2014 and 2015 were pivotal years in the dawn of the IoT revolution, as evidenced by the explosion in the number of IOT related seraches.  Over the past two years there have been big announcements from all of the major car manufacturers of their connected car initiatives, lots of M&A activity in the technology industry as they race to supply the revolution, and major global alliances of telecom providers being formed, to provide the underlying connectivity and infrastructure.  But, most of all, we are actually starting to see some of the promised transformational benefits of the Internet of Things becoming a reality.

Companies like GE have connected sensors to their jet engines to provide near real-time monitoring of the health of their engines, reducing airline spending by 10-40%.  In shifting from rules-based maintenance to more predictive driven intervention, GE has fundamentally shifted its business from one of selling jet engines to airlines to providing a comprehensive, engine-as-a-service offering.  Using GPS and vehicle monitoring sensors many utility companies are now able to more accurately monitor the performance of installation and repair personnel.  General Motors uses sensors to monitor humidity to optimize painting; if the conditions are unfavorable, the work is routed to another part of the factory, thereby reducing repainting and maximizing plant uptime.  The oil and gas industry is probably one of the most advanced users of IoT technology with new production platforms containing more than 30,000 sensors, connected through a sophisticated central control and data management systems.  IoT is also creeping into our everyday lives, with home security, thermostats and monitoring connected to data analytics and all controlled through our smart phones.  With an estimated 130 million consumers worldwide using fitness trackers today, the reality of more efficient, and personal effective health care is starting to become a reality. 

It is not just businesses that are reaping the benefits of the IoT revolution.  Cities around the globe are beginning to build out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life. Real-time bus information is now available in New York City, Chicago, Singapore, and many other cities, significantly improving, not only the wait times for riders, but the operations of the transit authority.  Similarly, by using real-time data to adjust the timing of traffic lights to improve traffic flow Abu Dhabi has been able to speed traffic flow in the city by up to 25 percent.

Telecom companies have realized that the IoT revolution holds for them the promise of new found revenues in connecting the projected 50 billion things.  The number of cellular machine-to-machine connections grew 28 percent in 2014 and is estimated to reach to 1 billion connections annually by 2020.  AT&T reported that it has more than 22 million IoT devices connected to its network.  Recognizing the huge opportunity afforded by the IoT revolution, the large French telecom operator Orange recently announced that €600 million ($670 million) of its revenues will come from the Internet of Things related businesses by 2018.  Leading technology companies like Cisco, IBM and Ericsson have all realized the opportunities of the next technology revolution by creating IoT business units, new product lines and extensive marketing campaigns.  Industry analysts, consultants and other technology services companies have similarly organized to benefit from the Internet of Things.

The dawn of the IoT revolution may have begun but it will still be some time before its transformational powers will be fully felt.  There are a number of technical, business, regulatory and perception obstacles that must first be overcome.  We are still very much in the early days of the IoE revolution with many companies knowing that they need to do something but not sure, what or how.  A study by Harvard Business Review and Verizon found that less than ten percent of enterprises had deployed IoT initiatives.  And, of that small minority only 56 percent of those had an IoT strategy.  What does that say for the 90 percent of companies who have yet to implement IoT initiatives? 

Recent Cisco research of enterprise IT and business decision makers revealed that their top 3 challenges with implementing IoT initiatives in their businesses were: 1) security of business data; 2) standardization of IoT infrastructure and compatibility with business systems; and, 3) cost of implementation.  The critical issues of security and data privacy are critical elements that are being addresses, but we still have a long way to go to allay these justified fears around IoT implementations.  Equally, there are organizations and committees that are working hard on establishing IoT standards to ensure compatibility between all of the different IoT components.  However, the current IoT technology and solutions environment is very much a Tower of Babel when it comes to interoperability and compatibility.  Government regulation will no doubt play an important part in shaping security and privacy, driving standards and forming the legal framework for such leading-edge innovations as self-driving cars and autonomous machinery.

The IoT supplier market is currently very fragmented with a multitude of big and small companies providing single pieces of the IoT implementation – devices, application, point solutions, different platforms, etc.  The same Cisco end user research found that customers are not only looking to suppliers to provide them with end-to-end solutions but are looking for a broader array of services to help them successfully navigate this new technology revolution.  Specifically, the top things that businesses are looking for from an IoT provider include: 1) full solutions; 2) services (strategic planning, install, design, technical support); 3) solutions that leverage existing infrastructure; and, 4) the ability to scale with organization’s needs.  It could be some time before a number of key IoT suppliers emerge from the current fragmented market to successfully address all of the businesses needs and help them to fully realize the promised benefits of the IoT revolution.

What does the future have in store for IoT and how will this revolution unfold?  The following are my ten predictions of what we have to look forward to: 

1. The platform is the key to success – The “things” will get increasingly cheaper, applications will multiply and connectivity will cost pennies.  The real value will be created in the horizontal platform that ties it all together – the new OS.  This platform will be composed of 3 different layers: management, infrastructure, and data analytics and insights.
2. The industry will look completely different than it does today – Like in the early days of the Internet, IoT is a greenfield market.  New players, with new business models, approaches, and solutions can appear out of nowhere and overtake incumbents.   
3. Business is the key market - While there is lots of talk about wearables and connected homes, the real value and immediate market for IoT is with businesses and enterprises.  The adoption of IoT will be much more like the traditional IT diffusion model (businesses to consumers) than the Consumer-led adoption of social media and personal mobility. 
4. It will be about much more than the “things” – The currency of IoT will be “data”.  But, this new currency only has value if the masses of data can be translated into insights and information which can be converted into concrete actions that will transform businesses, change people’s lives and effect social change.
5. The “Connected Car” will be all about the car – There is currently a lot of hype about turning your car into a mobile entertainment center – music, video, social media and all of the apps that we currently enjoy on our smartphones.  However, the real value and transformation is in connecting the car operations (e.g., service updates, advanced notifications of failures) and drastically improving safety (e.g., inter-car communications, semi-autonomous driving).  These services will most likely be paid for by the manufacturer or through new, alternative business models, rather than directly by the driver.  
6. IoT will force business transformation – Businesses which connected to the Internet saw the real value when they re-designed their businesses models and processes for a connected world, and found new online products and services to offer.  Some companies immediately embraced the Dot-Com world, many had false starts and many others took a long time to jump on, or the revolution passed them by completely.  The same will be true of IoT.  Businesses need to develop strategies and plans for how they can leverage IoT to transform all aspects of their businesses and capture the real value of this revolutionary technology.  
7. Trading mobile dollars for IoT pennies – Mobile operators are salivating at the new revenues to be earned from connecting all of these things to the Internet.  However, it is not that straight forward.  While some of the traffic will flow over mobile networks, the majority of the connections will be made over wireline or unlicensed wireless networks, and much of it will be very low bandwidth traffic. Mobile operators will need to do more than just sell mobile connectivity to inanimate objects to reap the full rewards of IoT. 
8. There will be a battle for IoT application mindshare – With billions of devices projected to be spewing out petabytes of data, application developers will have a field day launching thousands, or even millions, of new and cool apps.  But, like the smartphone world, all of these apps will be fighting for mindshare and only a few will rise to the top to be valued by businesses and consumers. 
9. All cities will be smart – With more than one-half of the world’s population living cities innovative new IoT solutions, such as smart parking, connected waste, and traffic management, hold great promise for combatting the major challenges of rapid urbanization.  We are unlikely to see many Jetson-like smart cities of the future appearing overnight.  However, like in the past with the adoption of revolutionary technologies such as sewers, electricity, traffic lights, and the Internet, mayors will slowly implement IoT solutions to save money, shape the future and make their cities better places to live.  
10. IoT will cease to exist – Terms like “eCommerce”, “the Net” and “WWW” are all quaint reminders of how the Internet has ceased to be an exciting and mysterious new thing, and, like electricity, is now just part of our daily lives.  The Internet of Things will go the same way.  One day soon, it will be hard to imagine that all things weren’t connected and that the extraordinary benefits of IoT hadn’t always been with us.

How Service Providers Can Become Leaders in the Internet of Everything

Over 50 billion “things” or devices are projected to be connected to the Internet through wired and wireless networks, generating zettabytes of data, all powered by cloud computing.  This Internet of Everything (IoE) will fundamentally transform businesses, generate enormous economic wealth and create immeasurable social value.    

We are discovering that successful IoE implementations require a solid technical and business platform into which different vertical solutions can be easily plugged to efficiently and effectively achieve the promised business, economic and social benefits.  The cornerstone of this IoE platform includes a robust connectivity and technology infrastructure, operational and management services, to accommodate a range of vertical and horizontal solutions.  Details of this IoE platform are outlined in Buildingthe Platform for the Internet of Everything.

The ideal IoE platform leverages common requirements across all vertical solutions to create a scalable, “build once – deploy many”, technical and business architecture. But, who is going to build and deliverable this scalable platform? 

I believe that service providers are well positioned to lead the development and implementation of the IoE platform.  Not only do they have years of experience building and running networks, operations and customer services, but many SPs now offer extensive cloud  and systems integration services.  Not to mention, their strong brands, vertical sales and solutions and a history of complex technical implementations. 

Service providers need to consider their strategic options for developing and operating the IoE platform.  Although it varies by provider, the strategic options build from an inherent, more technical, strength for SPs at the bottom of the platform, to less core capabilities in the services and management layers at the top.  A SP’s strategic options are:

1.    Core – Network Connection – extension of the core networking business.

2.    Closely Aligned – Network Access, Technology Platform – leveraging capabilities in deploying and operating network access and cloud services.

3.    Stretch – Vertical and Horizontal Solutions, Shared Operations Platform – likely partnering/acquiring to create IoE solutions; extending internal NOC and customer care operations as a service.

4.    New Areas – Professional Services, Program Management – while some SPs have some SI capabilities most will need to partner or organically grow consulting and services capabilities.

5.    Monetization – extension and growth of existing capabilities in advertising and data analytics to create vertical-specific monetization opportunities.

Our detailed analysis of the revenue potential for providing an IoE platform for Smart Cities (SmartCities Are a $7.5 Billion Annual Opportunity for Technology Providers) provides a good example of the value that can be created by providing the technical and operational requirements for successful IoE deployments.  Roughly one-half of the platform revenues come from the core or closely aligned areas – areas not very distant from a service provider’s current business.

We are starting to see SPs around the world chasing the significant IoE platform opportunity.  However, they are typically focused on their core business of providing network connectivity.  The big opportunity exists to move up the IoE platform stack to build and deliver new sources of value.  Service providers should start by expanding beyond connectivity to the closely aligned areas of network access and technology platform.  From there explore stretch and new areas by building off existing capabilities, seeking partners or considering select acquisitions.  In parallel, investigate areas where you can create new monetization opportunities in select verticals leveraging existing and new business capabilities.

Building and delivering a scalable IoE platform that can be deployed across multiple vertical solutions provides a compelling business case for SPs to capture a significant portion of the $20 trillion that IDC estimates will be spent over the next three years to realize the promise of the Internet of Everything. 

Service providers are well placed to take a leadership role as the providers of the IoE platform.  But, they better act fast.  Technology vendors, services companies, start-ups and niche players are all circling the waters to see how they can grab a piece of this tantalizing $20 trillion business.

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New Smart City Opportunities for Service Providers

Tremendous new opportunities are being created for technology vendors and service providers as cities around the world look to build out smart cities to reduce municipal costs, tap new sources of revenue, and improve the overall quality of urban life. The previous blog (Smart Cities Are a $7.5 Billion Annual Opportunity for Technology Providers) described all of the essential requirements of the smart city architecture and quantified the great opportunities for technology vendors and partners to help to create and operate these digitally smart cities of the future.  The last question to address is what are the specific opportunities for SPs and where should they play to extract the most value from the deployment of smart cities?

The potential revenue opportunities available to SPs depend upon the strategic fit to their business.  Specifically, we evaluated the opportunities across three strategic fit criteria:

1.    Core Business – How closely is the solution or service aligned with the SP’s core business (e.g., using existing assets, leveraging current business operations and expertise, in regional footprint)

2.    Stretch – To what extent would new investments or operations be required to deliver the solution or service (e.g., Capex for new assets, creation of new business operations, acquisition of new expertise, out of region play)

3.    Deal Dependent – To what extent would the nature of the deal and the governance structure influence the potential revenues available? (e.g., vendor or lead, city investment or PPP)

Assessing the smart city revenue opportunities across these criteria reveals a number of strategic options for how SPs can think about approaching the smart city opportunity:

·         Core Business – essential part of the existing SP business – Network Connection

·         Closely Aligned – typically some of these are part of the existing SP business, or not very far removed from existing capabilities – Network Access; Technology Platform

·         New Area – new investments and capabilities would be required, but typically leveraging some existing capabilities – Operational Services; Smart City Solutions

·         Stretch – these are area that are not typically part of the existing SP business and would require considerable investment and new build – Program Management, Orchestration

·         Deal Dependent – these are the new sources of monetization (subscription, advertising, analytics, etc.); the realization of which will be dependent upon the deal structure – Monetization

Returning to our example of a smart city deployment for a city like Seattle in the USA (metropolitan population of 3 million), service providers could potentially generate new revenue across each of the strategic options as shown below.

For a typically medium size city deployment, like Seattle, a typical service provider could potentially generate at least $15M in new annual revenues from core or closely aligned businesses. Or, roughly one-half of the total smart city opportunity.  A global market opportunity of $3 to $4 billion of new annual revenues is readily within the grasp of SPs to help cities to deploy smart city initiatives.   And, that number could increase considerably if a service provider is willing to make investments in creating new capabilities and expertise. 

While there is a significant upside of new potential revenue, smart cities often have a broader strategic context for service providers.  As described in How SPs Can Profit from Digital Cities, there are additional benefits, beyond the direct revenue benefits, that SPs should also evaluate when assessing their involvement and options in smart cities.  Consideration of Ancillary Benefits (e.g., rights of way for network deployment on city assets; upsell to city, local businesses and consumers; customer retention) and Indirect Benefits (branding; PR/communications; customer experience; regulatory relief; government relations), together with the new sources of revenue, can create a very compelling business case for a SP’s active involvement in smart city opportunities.

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Smart Cities Are a $7.5 Billion Annual Opportunity for Technology Providers

Cities around the globe are beginning to build out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life. The previous blog (“How to Make Money from Smart Cities”) identified the great opportunities for the technology vendors and partners to help to create and operate these digitally smart cities of the future. 

The Cisco Smart City Business Architecture identifies a set of essential requirements in a number of different business layers essential for delivering and operating a successful smart city initiative.  In order to measure this opportunity, we developed a detailed economic model based on the business architecture.  We chose Seattle in the USA as a representative city, with roughly 3 million people in the greater metropolitan area, to quantify the potential opportunity available to technology providers.  Our model smart city initiative included covering 30 per cent of the city area with a Wi-Fi network and four key smart city solutions - traffic incident management, smart lighting, smart parking, safety & security.  In addition, we included the technology platforms, operational capabilities, and services in the Smart City Business Architecture. All of the services and solutions were modelled as managed services, generating an annual revenue stream to the provider.

Creating such a smart city solution for a city like Seattle could generate approximately $32 million in new technology and services revenues for technology vendors and partners.   This revenue is distributed across the architecture categories as follows:

Network connection and access comprise over one-third of the potential revenue opportunity.  The smart city solutions equal one-quarter of the total smart city opportunity and operations and leadership a further 19 percent of the potential revenue.

There are roughly 1,900 cities throughout the world with populations of 250,000 or more.  Twenty-six of these cities have in excess of 10 million inhabitants.  Making some very conservative assumptions on potential smart city deployments based on city size, we estimate that just over one-quarter (or 27%) of the world’s cities are viable candidates for smart city solutions over the next 3 to 5 years.  That equates to a global market opportunity of $7.5 billion of new annual revenues for technology vendors to help cities to deploy smart city initiatives to create significant new value for their cities and citizens.

Cities will need vendors and partners to provide solutions and services to make their smart city initiatives a success.  There are significant sources of new revenue available to providers who can deliver compelling solutions and value in each of the layers of the smart cities business architecture.   

 

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How To Make Money From Smart Cities

As cities around the world grow in size, we are beginning to see that strained resources, infrastructure, and services are causing natural limits to urban growth, which in turn limits the economic growth opportunity.  To combat this, cities as diverse as Barcelona, Nice, Kansas City and Songdo in South Korea, are starting to leverage advanced technologies and data analysis to create smart, connected cities.  These cities, and others around the globe, are building out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life.

Not only will the creation of smart cities generate huge value for the cities and their inhabitants, but great opportunities will also exist for the vendors and partners who help to create and operate these digitally smart cities of the future.  However, the question is where and how can partners such as infrastructure providers, technology and services companies, and communication providers participate?  And, what types of revenues can they generate from helping to create smart cities?

Based on our extensive experience in creating and supporting smart cities around the world, Cisco has identified a number of essential ingredients required to deliver and run a successful smart city.  The Cisco Smart City Business Architecture categorizes a set of requirements in a number of different business layers, with each layer supporting the layer above and increasing the potential business return as we move up the stack. 

 

Starting from the bottom, the layers comprise:

 

1.    Network Connection – connecting all of the solutions, data and applications through fiber backhaul or licensed cellular.

2.    Network Access – a managed Wi-Fi, or other unlicensed wireless network, to connect all of the sensors and applications.

3.    Technology Platform – a platform to allow new devices and solutions to readily and securely “plug and play” into the overall architecture, and to connect to cloud storage and compute services.

4.    Smart City Solutions – the combination of devices and applications that deliver the specific solutions, such as smart lighting, parking and traffic management.

5.    Platform Monetization – opportunities to leverage the platform and network create new sources of revenue in areas such as advertising, data analytics and subscriptions

6.    Shared Operating Platform – a shared platform to consolidate the management, customer care and service issues across all of the solutions.

7.    Professional Services – services to support areas such as systems integration, planning and design.

8.    Program Leadership – services to program manage the entire implementation, operations and partner ecosystem of the smart city initiative.

Cities will need vendors and partners to provide solutions and services in each of the different layers of the business architecture to make their smart city initiatives a success.  Future blogs will explore how much revenue is available in each of the layers of the business architecture and how providers can best capture it.

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How Service Providers Can Profit From Smart Cities

The UN estimates that at some point between 2008 and 2009 the world’s urban and rural populations became equal in size for the first time in human history.  Urbanization is set to continue as the rural population seeks the wealth and social opportunity that cities offer. In the period from 2007 to 2050, the UN estimates the urban population will grow from 3.1bn to 6.4bn.  As cities around the world grow in size, we are beginning to see that strained resources, infrastructure, and services are causing natural limits to urban growth, which in turn limits the economic growth opportunity. The challenge of managing sustainable urban growth is one of the defining challenges of the 21st century. In parallel, city leaders are looking for ways to establish clear identities for their cities and to use the growing connectivity of everything to improve urban life for their citizens.

Cities as diverse as Barcelona, Nice, Dallas and Songdo in South Korea, are already starting to leverage advanced technologies and data analysis to create smart, connected cities.  These cities, and others around the globe, are building out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life. Not only will the creation of smart cities generate huge value for the cities and their inhabitants, but there are great opportunities for the vendors and partners who help the cities to create and operate these digitally smart cities of the future.

Connecting all of the sensors, devices, people and data is critical to making a city smart.  With highly developed wireline and mobile networks, Service Providers are at the center of providing this network connectivity.  However, Cisco believes that the SPs have a much greater role to play beyond simply providing the connectivity.  There are numerous opportunities for them to move up the stack to extract a much greater portion of the more than $1.5 trillion that Cisco estimates will need to will need to be invested in ICT and “smart” urban infrastructure worldwide over the next decade.

To understand the best role for a service provider in smart cities and how they can make money, we need to consider three strategic dimensions – benefits, role and finance/governance.

1.    Benefits to the Service Provider – Different types of potential benefits include:

·         Direct – network access; network management; services (e.g., location-based, cloud, security); solutions (e.g., smart parking, traffic, lighting); technology/business platform (build and operate)

·         Ancillary – rights of way for network deployment on city assets; upsell to city, local businesses and consumers; customer retention

·         Indirect – branding; PR/communications; customer experience; regulatory relief; government relations

2.    Service Provider Role – We view the potential SP smart city roles as a pyramid, or set of layers with each layer supporting the layer above and increasing the potential business return as we move up the pyramid.

 

3.    Financing/Governance Models – Range of financing and ownership models:

·         City Funded and Owned – City buys and owns the equipment and services and funds through budget or bond issue

·         Vendor/SP Funded – Vendor/SP finances and owns the infrastructure and leases it to the city with services

·         Public-Private Partnership – Funded and operated through a partnership of City and one or more private providers

·         New Separate Entity – Create new legal entity of key ecosystem partners, finance and operate as a separate business with profitability/break-even goals

By carefully assessing their options and opportunities along these three dimensions service providers can define a successful strategy and operating model for profiting from smart cities.  SPs are in a unique position to deliver Internet of Everything enabled, smart digital city services to key urban areas by providing a combination of connectivity, Wi-Fi network, platform, operations, implementation and integration, and specific applications and solutions.

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