The other day, I came across a blog post by UK-based analyst Teresa Cottam who, in sobering style, questions the ability of the communications industry to generate money from the emerging Internet of Things (IoT). The lack of a commercial model and a complex ecosystem of partners combine to make it unclear who, in the future, will pay whom for what, she said. However, the success of existing partnerships between major service providers and industry vertical players such as car manufacturers and health care providers suggest that business success in IoT will depend on being part of that complex ecosystem despite its complexity.
One the one hand, my observations of the posture currently adopted by operators vindicates, to varying degrees, Cottam's view. Some service providers, as the CEO of one Eastern European telco mentioned to me in early December, would prefer not being first to market due to the risks that entails. Others are addicted to stratospheric gross margins and can’t quite see the point of a single-digit-margin revenue stream, or, worse, a negative return venture. And still others are held back by a “not invented here” culture, preferring to believe they can do all of this themselves, rather than embrace the partnering route.
But on the other hand, commercially, the trade-off is a simple one: would you rather capture 100% of a very small market by going it alone, or a lower percentage of a much larger market by entering a wide alliance of organizations working together? The evidence so far suggests the second part of this proposition can pay off -- handsomely too.
For example, in a recent note published after the 2014 AT&T Analyst Conference, TBR’s Eric Costa predicted that AT&T will lead the connected market through 2020 at least in the U.S. One data point given by Costa exemplifies the power of partnership in IoT: AT&T already has agreements in place with eight of the top 15 car manufacturers in the U.S. This ecosystem puts them ahead of the pack. It also means over two million vehicles are, by now, using the AT&T network.
In addition, many other service providers have taken to the partnership trail, across a wide range of vertical segments. Orange has a dedicated healthcare division working with specialized medical OEMs and the whole gamut of health actors. Deutsche Telekom, in conjunction with Allianz, has entered the connected home market. Telefonica is adopting an open approach to collaboration – with academia as well as industry – which is helping their labs to create Thinking Things faster.
But it's not just vertical partnerships that are important. In my experience, horizontal partnerships are just as critical, and connectivity and service enablement platforms are in fact the linchpin of a successful IoT strategy especially when navigating a complex partner ecosystem. Making things work, and ensuring that the flow of payments and their distribution across the partners is timely and accurate, is just as important as choosing the right partner.
— Vincent Rousselet, vice president, Market Insight & Strategy, Amdocs The New IP