As technology vendors, cloud service providers, analytics firms, network equipment makers, industrial equipment OEMs and telcos compete for leadership in IoT markets, the next few years will be critical. Bain believes the market for IoT hardware, software, systems integration, and data and telecom services could grow to $520 billion in 2021, more than double the $235 billion spent in 2017.
To reach that scale, however, market leaders will need to continue to make gains while expanding their industry-specific offers. Incumbents across categories who cannot move quickly enough to address customers’ needs are likely to get leapfrogged by more nimble competitors. Device makers, in particular, run the risk of seeing software and analytics competitors capture the value of solutions, leaving them to deliver lower-profitability hardware components.
The right actions vary, of course, from one company’s situation to another. But three themes are nearly universal for IoT vendors.
Focus on getting a few industries right. Customizing use cases for each industry and packaging systems intelligently are emerging as keys for success. Leading vendors are targeting their technologies on fewer industries than before — a welcome change that will allow them to deliver offerings better suited to customers’ needs. They should continue to narrow their focus: More than 80% of vendors still target four to six industries — too many to build depth rapidly (see Figure 1). Focusing on two or three verticals allows vendors to gather significant industry expertise, which can help them maintain a competitive edge against the more generic offers by cloud service providers.
Develop end-to-end systems. As vendors gain experience implementing IoT systems in specific industries, they can develop cost-effective end-to-end packages with partners — something that buyers have been clamoring for. Many IoT deployments require customization, usually based on the industry. More than 60% of customers say the technologies they buy are at least 25% customized. When vendors explore the particular use cases of an industry, they learn about the different data sets required, the sensors measuring it and how to process it to glean valuable insights. From this, they discover what’s transferrable to the next customer. They can then create standard packages, reducing customization requirements, shortening sales cycles and increasing the likelihood of success.
Several companies are showing how to adapt technology to markets in this way through partnerships and acquisitions. IBM Watson, for example, develops proofs of concept with customers and applies those lessons to develop industry playbooks that include multiple use cases. IBM Watson’s concept work with Samsung, for example, informed later work with elevator company Kone and French railroad operator SNCF. Verizon chose acquisitions as a way to gain deep expertise in telematics, buying Hughes Telematics, Fleetmatics, Telogis and Movildata to boost its fleet management.
Prepare to scale by removing barriers to adoption. Customers and vendors alike believe that progress has been slower than they had expected in overcoming the main barriers to adoption (see the Bain Brief “How providers can succeed in the internet of things“). However, vendors have more experience with operational considerations today than they had two years ago, and customers have a better understanding of the necessary investments. Customers also have more realistic expectations about the returns they can expect.
Leading vendors will translate that experience into repeatable playbooks that address their customers’ concerns about security, integration and returns on investment. Understanding these pain points is the first step; addressing them and baking them into end-to-end offerings will position technology providers to deliver cost-effective IoT systems that can scale.
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