It remains very much unclear how important internet of things revenue will be for most mobile operators building 5G networks. And one big problem is that opportunities "up the stack," beyond connectivity, will be highly fragmented. And highly-fragmented opportunities are difficult for telcos that require scale to justify their involvement.
It is possible revenue contribution will be significant globally, but not for every service provider, in every country.
To illustrate, the GSMA now estimates that internet of things connectivity revenue will represent only about five percent of total IoT revenues. Of course, if X is huge, five percent of X could be a significant number.
Keep in mind that much IoT spending will come in the form of IoT devices and installation services, platforms, apps and other services.
GSMA also believes IoT total revenue will be about $1.1 trillion a year in 2025. That is significant as the present size of the mobile service provider revenue stream is about $1.2 trillion.
So if you assume the global mobile service provider business produces about $1.2 trillion in annual revenue, and if IoT can be grown to represent five percent of revenue, that would suggest potential upside, globally, of perhaps $50 billion. That might be significant in some markets, but is likely to generate relatively paltry amounts for most.
For most communications service providers (fixed network, mobile, low power wide area, Wi-Fi), the internet of things market could represent incremental revenue, though not necessarily from direct connection revenue. To seize more of the value, service providers will have to move beyond connectivity, in most cases.
That will not be easy.
Platforms, applications and services segment will represent 68 percent of total revenue by 2025, the GSMA now predicts (includes the value of cloud computing services; data analytics; security; system integration).
Ask yourself how easy you think it will be for a mobile service provider to create, develop or buy a big platform, app or services business.
Managed services and consulting will account for the remaining 27 per cent share of total IoT revenue by 2025. Same question: how difficult will it be for a telco to create or acquire a big managed services or consulting business?
If you assume that only a big, global telco can consider becoming a platform or app provider (supplying a full vertical market application or solution), then the other alternatives are to buy or become a systems integration, installation and consulting operation in one or more IoT areas.
For those of you with long memories, that sounds a lot like the information technology system integration business. And that has been a tough nut to crack, for telcos.
For starters, the system integration business is fragmented. Specialists in each vertical market tend to do better than generalists. And there is competition from the suppliers of hardware, software and solutions as well, who arguably are best placed to know how to activate their own systems and make them interoperate with the legacy computing environment in each vertical.
And fragmented markets tend to be smaller. That is a big problem for any firm that has to operate at scale to reap financial returns. Even in the enterprise space, telcos are not natural suppliers. In the small business and much of the mid-market segments of the market, channel partners are the only way to address the integration task, to say nothing of sales.
It is not impossible; just difficult. Many would have argued there is no way telcos would succeed in video, much less as participants in the content creation business or advertising, and yet that is where telcos are going, in part. Perhaps the model is Comcast.
Many did not believe cable TV operators, as distributors, could master the content business. And yet Comcast has done so. Among the keys to success is to avoid smashing the “up the stack” businesses into a telco mold.
In other words, let the managers of the “up the stack” businesses run their operations independently. In the past, many telco efforts have failed because they were thought to require “integration into the mothership” and that way of doing things.
A successful IoT system integration, platform or app business will have to allow customers to use any connectivity suppliers they choose, for example.
Also, no matter how many billions of internet of things sensors you believe will be in service by 2025, a great proportion are likely to generate zero direct revenue, as they will use Wi-Fi or some other short-range communications network.
Obviously, the greatest area of use case suitability for mobile operators are those applications where sensors must communicate from moving vehicles.
Where connections to mobile or other IoT-specific networks are used, the annual revenue could be as little as US$1 a year. Even in volume, that will not drive a lot of incremental service provider revenue.
Also, note that early and perhaps wild estimates of IoT revenues now are being pulled back down, as often is the case for brand new and big markets.
So even if the global Internet of Things (IoT) market is worth $1.1 trillion in revenue by 2025, most of the money will be made elsewhere, when there are more than 25 billion IoT connections (connected using mobile and other networks). The GSMA forecast, unlike some others, is based on growth lead by industrial IoT apps.
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