For Service Providers, the key to success in the IoT is revolution, not evolution.
Much has been written about the IoT, and the forecast growth has every business racing to stake a claim. It’s creating new opportunities for telecom companies to grow both their enterprise and consumer businesses. However, it could be argued, that telecom companies are making a strategic mistake when they view the IoT as simple, evolutionary growth of the internet rather than a revolutionary step change.
The IoT is new phase of the Internet’s growth and it has the potential to dwarf all that has gone before and be a game changer for many industries. The proliferation of data from devices will change the way consumers interact with their environment, and there will be a shift in focus from the physical attributes of a product with buying decisions shaped by the services that connectivity and apps enable.
In the US, everyone now has a play in the IoT with their smart home offerings. Major retailers like Lowe’s, Home Depot, Best Buy, Amazon and others, have started to offer their own solutions and compete with the major service providers such as AT&T, Comcast and TWC. More significantly, Apple, Google and Microsoft have made big bets with different consumer strategies. These moves are a clear sign that the market has arrived for telecom companies. In Europe, the market is less developed with exceptions such as Deutsche Telekom and Centrica.
Early telecom entrants into the smart home space in the US and Europe have not enjoyed great success. There were a couple of reasons.
First, the telecom response to the IoT was to try to make it fit their M2M model. This is a model that works at an enterprise level where there is less sensitivity to cost, but the idea of putting modems into every device was wholly unrealistic. Whilst telecoms continue to push M2M, the market has quietly morphed toward simple hubs that manage connected devices and channel their data at no cost over broadband to cloud platforms where it is aggregated to and into services. This is likely to change with the advent of lower cost M2M solutions specifically designed for IoT applications.
Secondly, many telecom companies tried to bundle home automation and security solutions with their broadband to increase monthly subscription revenues. The appeal was obvious as US consumers have typically paid $30-$50 per month for security monitoring. Unfortunately, this was an attempt to breathe new life into the old security industry business model rather than innovating to create something new. The model ignored the fact that the market for people willing to pay the high monthly fees for professional security is saturated. Consequently, telecoms will ultimately struggle to keep up with low cost DIY models from Amazon, Google and other that have used the IoT to truly reinvent the ways consumers can manage their homes.
The opportunities in the IoT are not lost, but the window of opportunity is narrowing. Many companies need someone to provide the market with the support infrastructure for the IoT, and telecom companies are ideally suited. Amazon, Google and Microsoft have raced to fill the void, but Telecom companies have the infrastructure and market position compete effectively if they change their view of the opportunity. Telecoms need to become aggregators and provide the infrastructure for other industries to deploy apps that consumers can use to pull together all the things they want to manage into one, common user interface.
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