Cost Conundrum as Companies Quit IoT Shows Need for a New Business Model

I. Grant

Summary Bullets:

• Cost and higher priorities have led some firms to abandon their IoT plans

• IoT generates a small fraction of operators’ income

New research by GlobalData shows that the companies that give up on their IoT projects do so because they are too expensive to implement (41%), and because their priorities shift (23%). Another 21% found they are too costly to maintain.

GlobalData asked more than 1,000 users worldwide, mostly industrial firms, about their IoT investment intentions. Replies show that getting budget is less of an issue this year than last, suggesting firms are more willing to try out the technology. However, this also led to more projects being abandoned later in the project lifecycle. While most firms kill their IoT projects in the investigation phase, all firms in GlobalData’s 2016 survey pulled the plug at the latest during the pilot stage. This year, 6% abandoned their projects in each of the deployment and post-deployment phases, citing implementation and maintenance costs reasons.

Clearly IoT users want IoT benefits to show up on the bottom line. And yet there is a growing number of case studies that show firms successfully improving machine uptime, tracking and tracing more stuff, some even selling air instead of compressors, all using connected devices to improve margins, cut costs, and enter new markets.

The number of connected devices is also accelerating. AT&T’s annual growth rate for IoT connections is about 17%, but AT&T also recently reported QoQ growth of 65% to 32.4 million devices. This total is still some way behind Vodafone, which saw annual growth of 42% to reach 54 million devices on its networks.

However, these successes are not reflected on operators’ bottom lines. In fact the contribution from their IoT business is rarely mentioned in financial dispatches. Verizon, the only operator to hint at its IoT revenues, reported that IoT sales were on track to hit $1 billion, still less than one percent of its total $127 billion revenue.

This raises the question if IoT can pay its way among operators, or if they need a new business model for IoT, and perhaps more. The recent TM Forum in Nice heard several operators question the efficiency and effectiveness of billing customers, citing OTT operators as a model for “free at the point of use” connectivity. And some report customers asking for a one-off lifetime fee for connectivity and traffic for their NB-IoT devices. This would capitalize their operating costs, and save the costs of checking and paying invoices for 15 or 20 years. Such a switch might even make viable those abandoned projects mentioned above, and who knows what else.

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