Blog Post

The Internet of Things isn’t a profit center … yet.

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Tablets and e-readers and connected electric meters … oh my! As device makers embed broadband into more and more gadgets, and consumer demand for ubiquitous broadband skyrockets, operators are realizing they aren’t in Kansas anymore, and traditional financial metrics and ways of running their businesses won’t cut it. The solution to an influx of devices and accelerated demand unfortunately isn’t a one-size-fits-all approach, but will require an operator to take several steps, including working more closely with device makers and application companies.

From a paper put out Tuesday by Chetan Sharma, a wireless analyst:

In 2011, the connected devices segment is growing at a 12 percent rate while the traditional device segment is growing at less than 5 percent. By 2015, we expect the connected devices segment revenues to exceed that of the prepaid segment in the US. As prices fall, connected devices will start to penetrate the developing markets as well. In fact, tablets are likely to be embraced in developing nations once we start to see $100-200 price-point in the market. It is also clear that the number of devices an operator has to launch to stay competitive will double and quadruple in the coming months and years. As such, the traditional cost models of throwing more [people] at the problem won’t be effective.

The report sums up (in 19 pages) what we’ve been writing about for a while: The shift from voice revenue to data revenue has hit some snags for operators — snags they are trying their best to repair without alienating customers. And while the Internet of things has plenty of potential both for revenue growth and profit growth, adding more devices and supporting them will stretch the operator’s infrastructure. Despite the fact that machine to machine subscriptions aren’t always the largest in terms of revenue, they can generate spectacular profits — remember that cellular-enabled medicine cap that cost $25 a MB — which means that tracking the average revenue per user may no longer be the best metric for operators.

However, as the number of devices expands, so does the opportunity for data on the network and confused customers. To deal with too much data, solutions such as Wi-Fi offload and smaller networks will help, but the real issue to handle both problems will be more intelligence. At several places in the report, Sharma discusses how devices, networks and apps will have to become more intelligent and integrated. There’s added brainpower when it comes to getting on the least congested network in terms of making the shift from Wi-Fi to 3G or 4G seamless. There’s intelligence and network awareness built into the apps that will let a user send an important PowerPoint (s msft) presentation to his boss using a more reliable network than perhaps a tweet about his lunch. And there’s better integration between the device and the network, so certain items such as electric meters might send their data during times when the network is less busy.

The significant cost of managing a network is in the planning for “peak traffic capacity.” If this capacity can be managed through policy, quality of service, and congestion management, the peak time traffic costs can be lowered by 10-20 percent across the network.

Throughout the report, savings of 10 percent here and 20 percent there add up to a list of best practices that operators can choose to implement. However, it’s not all about keeping the operator happy. The paper points out that consumers are demanding family or multiple device plans for their myriad gadgets as opposed to paying for a separate plan for each one. The report hints that with Wi-Fi connectivity already embedded in many newer devices, operators could lose out on their relationship with the end user if they don’t adapt and give them plans that they want.

However, consumers have shown resistance to mobile data plan per device and instead need mobile data plans that cater to an individual or a family which has multiple devices. In a WiFi-centric connected devices world, operators need to ensure that they stay relevant and maintain a relationship with the consumer across a majority of their devices, while leveraging other available network assets to manage off-load effectively.

The report really doesn’t say this, but the sense here is that operators will have to remake their business from selling mobile phones to selling mobile access. The shift is easy to see coming, but steering a business through that change is no different from IBM (s ibm) realizing it has to switch from typewriters to PCs and now to services. The Sharma report lays out some of the tactical changes operators must make, but the shift from selling phones to access will also require a strategic and cultural shift as well. I plan to ask executives at Sprint (s s) and T-Mobile more about this shift at the end of this month during our Mobilize 2011 conference in San Francisco.

One Response to “The Internet of Things isn’t a profit center … yet.”

  1. Greg Glockner

    What isn’t mentioned is data traffic type. Streaming media – especially video – consumes orders of magnitude more bandwidth than simple data like smart meters & wellness devices. Consider the internet-enabled car. If it simply uses a data network to get weather, traffic and gas prices, it’s going to consume very little data. But if people want streaming radio and downloaded bitmap maps, then the data traffic is going to be huge.