In our recently published report IoT revenue: state of the market 2020 [1], we highlight how the overall size of the IoT revenue opportunity in 2025 will be $900 billion, a 2.6-times increase on the 2020 figure. However, we factored in a contraction of $200 billion in IoT revenue compared to our 2018 forecast. Covid-19 (coronavirus) is obviously a driver of this revision. The pandemic has disrupted the world as we know it, both on the supply and demand side. While IoT budgets and spending will contract in the short term, the legacy of Covid-19 will be faster digital transformation. To address this opportunity, players across the IoT ecosystem have to work together to simplify deployments and address the needs of end-users, whether that’s consumers, enterprises or governments.
While forecasting anything in the current climate is tough, I’ve highlighted below some of the key assumptions and drivers influencing our new revenue forecast (see chart, click to enlarge).
[2]
Deeper recession
In June, the IMF adjusted its outlook on the depth of the economic crisis. It now projects global growth at –4.9 per cent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook forecast. There are still massive uncertainties, with waves of new infections, lockdowns re-emerging and potential vaccines all affecting market recovery. However, one thing is certain: government measures matter. Regions that cannot put stimulus plans in place will suffer more than others. We see sub-Saharan Africa and Latin America contracting the most. Northern America, Western Europe and pockets of Asia Pacific will benefit from fiscal stimulus plans which aid recovery, particularly in the important SME sector.
Short-term disruption but long-term upside potential
In this [3] blog post I discussed the impact Covid-19 will have on IoT connections [4]. We forecast IoT connections to grow at a slower rate compared to our December 2019 forecast: in 2020, net additions will decline by 45 per cent. Due to a combination of two trends, a short-term slowdown but stronger adoption of IoT across enterprise verticals that have to adjust to the new normal, we expect 24 billion IoT connections by 2025. This is a similar figure to our December 2019 outlook. In the short term, the economic uncertainty could constrain demand and funding for IoT projects. However, every crisis leaves a legacy in terms of faster innovation and a new normal. It is reasonable to assume that Covid-19 will lead to faster adoption among companies of IoT, AI/ML and 5G to drive digital transformation. Business will have to automate their operations. The nature of working is changing all over the world: to stay in the game, businesses and individuals have to adapt. Moving forward, enterprises and governments will want to build resiliency.
Applications, platforms and services are still key
IoT is all about data, and data will power the digital transformation of many sectors of the economy. Enterprises are deploying IoT to achieve cost savings, generate new revenue and comply with regulations. As such, enterprise deployments continue to centre on applications focused primarily on operational efficiencies such as quality control and the management of supply chains, assets and fleets.
The value from IoT data is what fuels application revenue growth. IoT service providers are simplifying deployment by offering complete but also customised solutions. The more these solutions are in the field, the more data will be collected and the more likely it is that new application revenue will be generated. Welcome to the virtuous cycle of data. To enable this, players continue to transition from a product sales strategy to a recurring product-as-a-service (PaaS) revenue model. Vendors, including operators, from across the ecosystem are vying to become the one-stop shop for IoT solutions. Those that have strong credentials and offerings in cloud computing platforms and infrastructure have an advantage. According to our Enterprise in Focus Survey 2019, 21 per cent of enterprises highlight them as first-choice providers for IoT solutions. Cloud players are busy inking partnerships across the ecosystem.
Don’t bet on connectivity
Although connectivity revenue will grow over the forecast period, it will only account for 5 per cent of the total IoT revenue opportunity by 2025. Compared with our previous forecast, connectivity revenue has changed the least. The main difference between then and now is the slower realisation of the 5G opportunity. The potential uplift from 5G IoT adoption depends on how quickly Release 16 can be deployed in commercial networks. We see 5G features such as ultra-reliable, low-latency communications (URLCC) becoming commercially available in 2022.
5G also grants operators an opportunity to address certain verticals such as manufacturing [5], look out for a blog on that soon. Recent announcements suggest operators have progressed in the way they are addressing the manufacturing sector, including SMEs, as they are increasingly offering simple, out-of-the-box solutions. Our research shows [6] IoT connectivity is likely to account for the bulk of IoT revenue. However, operators have been expanding their capabilities beyond connectivity to capture a larger proportion of the overall market to offer end-to-end solutions which involve other IoT capabilities such as platforms, security and analytics.
Professional services suffer the most
This segment (comprising consulting, systems integration and managed services) will suffer a 23 per cent contraction in 2020 compared with our previous forecast, linked to a decrease in new projects but also the fact that vendors are facing pricing pressure and accommodating changes to payment terms.
Systems integration will continue to be the biggest contributor towards professional services revenue as enterprises continue to struggle with integration. Our survey shows [7] that more than half of the companies surveyed reported integration as a key challenge. IT is the most difficult area to integrate, especially across Asia Pacific where companies are struggling the most (nearly 90 per cent of companies surveyed across India and Japan, for example).
So what does it mean for the players across the IoT ecosystem?
Our Enterprise in Focus Survey 2019 shows companies prefer to buy custom products from one provider. However, the simple truth is that no single company can address the needs of an entire IoT ecosystem. M&A continues, as do partnerships to provide IoT-as-a-service offerings to target different verticals. Recent examples include a Qualcomm and Infinite partnership for smart cities, Honeywell and SAP for smart buildings, and Verizon Business and Microsoft Azure in analytics.
Many solutions have been repurposed or created to address the short-terms goals of enterprises: ensuring workers’ safety, adherence to Covid-19 regulations and continuity of business operations. IoT vendors should focus their efforts on helping businesses quickly deploy IoT solutions to address these immediate needs as well as guiding them along the path of digital transformation.
– Sylwia Kechiche – principal analyst, IoT and Enterprise, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.
[1] https://data.gsmaintelligence.com/research/research/research-2020/iot-revenue-state-of-the-market-2020
[2] https://www.mobileworldlive.com/wp-content/uploads/2020/08/GSMAi_IoT_revenue_forecast_by_segment.jpg
[3] https://www.mobileworldlive.com/blog/intelligence-brief-covid-19-and-what-it-means-for-iot
[4] https://data.gsmaintelligence.com/research/research/research-2020/iot-connections-forecast-the-impact-of-covid-19
[5] https://data.gsmaintelligence.com/research/research/research-2020/5g-grants-operators-an-opportunity-to-address-manufacturing
[6] https://data.gsmaintelligence.com/research/research/research-2020/operator-revenue-in-the-enterprise-market
[7] https://data.gsmaintelligence.com/research/research/research-2020/iot-in-business-2020-the-enterprise-voice-on-iot-adoption
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