Moving Up the Stack is Very Hard; Very Necessary

“Moving up the stack” might be among the most-difficult challenges a service provider ever faces. Arguably few such attempts ever have succeeded on a massive or even significant scale, where it comes to increasing revenue contribution.

And yet it is hard to argue that the effort must be undertaken. The reason service providers want to move up the stack is that the very structure of modern applications access makes this essential.

Virtually all applications now are delivered over the top, no matter who owns the assets. If you want proof, think about 5G. It now is the second mobile network where the standards were--and are--all about connecting computing devices. Voice support was an overlay for 4G, and so far is not even part of the discussion for 5G.

Think about that. A service that includes, as a core function, the ability to talk and text has, for the last two generations, treated voice as an afterthought. There is a very good reason. Voice--no matter who provides it--now is an OTT application, just like any other.

In other words, OTT is not a choice, it is a basic reality of the way value is delivered in the new communications ecosystem.

That is likely to be the case for internet of things as well. Value will be supplied in all sorts of ways. But the largest amounts of value, quantified as revenue, will happen in the services layer and the platform layer (all the OTT apps), according to John Kjellemo of Yandex.

Others might put the app layer at the top and the platform layer right below, but the net impact is the same. As much as 65 percent of total ecosystem revenue might accrue to the IoT apps enterprises and people want to use, or the platforms and integration services that support such use.

In what is a sobering forecast, Yandex, looking at available forecasts, believes it is possible that in 2020 less than one percent of mobile service provider total revenue will be generated by connectivity revenues, and a similar “less than one percent” of total IoT ecosystem revenue will be contributed by connectivity services.

In other words, even if 5G proves a resoundingly big deal for internet of things revenue, it still might be almost insignificant as a driver of mobile operator revenue, and will have relatively low profit margins as well.

Source: Yandex