The IoT space is going through a period of transition, which is probably the most dramatic for a decade. Technology and commercial changes are triggering a pivot in how services are delivered, and the way that we should think about the roles and responsibilities of the various vendors delivering IoT. We identify nine key trends that will shape the IoT space for 2023 and beyond. This blog post summarises the 9 trends.
More details can be found in a recently published report 'A new taxonomy for IoT reveals new roles and opportunities' which explores these trends in more detail, as a lead in to examining the huge implications they will have for vendor roles in a resulting new taxonomy. The report is available to subscribers to Transforma Insights' free 'Essential' subscription. Sign up here.
The most notable recent trend in IoT is for increasing ‘virtualisation’. By that we mean that there are numerous functions in IoT that were historically tied to hardware or otherwise restricted to a limited set of vendors that are now becoming increasingly accessible to new software vendors to address.
One key example is in communications networks. Historically the hardware and software/control elements of networks were provided by the same vendors. Today, however, courtesy of developments like Software Defined Networking and Network Function Virtualisation (NFV), the provision of these functions has separated. As explored in the report ‘Separation, Innovation, Explosion: how splitting software from hardware is the ultimate tipping point for technology’ (July 2020), the separation of responsibility for the hardware layer from the software/control layer provides a stimulus for innovation coming from new innovative organisations, which then translates into an explosion of improved features and functionality.
This dynamic also applies to numerous other aspects of IoT, including eSIM, for instance.
Effectively, in the connectivity domain there has become an increasing separation of the running of networks (and supply of devices) from the provision of an increasingly significant proportion of the management of that connectivity.
The virtualisation trend goes hand-in-hand with the advent of cheaper and more ubiquitous storage and compute resources. This takes the form both of more cloud data centre capacity, particularly from the cloud hyperscalers, and increasing amounts of ‘edge’ compute located throughout the network and on end devices themselves. This includes more local data centres, multi-access edge computing (MEC) sites, campus edge, gateways and device edge .
The prevalence of large volumes of cheap flexible computing located at numerous points throughout the network provides an environment in which the pivot towards new software-based solutions can thrive. It also necessitates a greater degree of management of data flows and coordination of where processing of any given application might be done.
In August 2021, Transforma Insights published a report ‘What is the ‘Thin IoT’ stack and why do I need it?’ which describes an emerging norm within the development of IoT applications to make use of specific off-the-shelf technologies that have been created explicitly to be optimised for use in constrained environments, such as limited access to power, low bandwidth connectivity, and limited processing and memory. The elements of the Thin IoT stack cuts across devices, software and connectivity, including device components, operating system, connectivity platforms, networks, device management, eSIM, machine learning, and more.
These technologies are collectively a major enabler of a wider adoption of IoT, removing significant barriers to entry for developing solutions. The further evolving implication has been that the technology functionality within these layers becomes less and less of a differentiator, being easily accessible for any vendor and increasingly based on standards. Almost any vendor able to integrate the functionality within these layers easily within their offerings, whether it be device management, eSIM or new access technologies. This increases the importance of the services and contextualisation that are wrapped around the offering.
This need for the Thin IoT stack is exacerbated by the deployment of IoT in increasingly constrained environments. These constraints mean that resources, be it power, processing, network connectivity, processing, or storage, need to be more carefully marshalled. Furthermore, there are significant benefits in ensuring that all of the elements of an IoT solution are cross-optimised, further driving the need for more management .
A subset of this trend relates to IoT devices specifically. There is an increasing recognition that participation in developing devices puts a provider in pole position for early consideration in the process for IoT solution or product development.
One of the key elements of the ‘Thin IoT stack’ is the range of IoT middleware platforms that emerged about a decade ago. These cover areas such as device management, connectivity management and application enablement. This was the process of ‘platformisation’, whereby the use of these software tools became the de facto option for building IoT projects because they significantly simplified the process of building and deploying IoT. Today, however, we are increasingly in something of a post-platform world.
Take the connectivity management platform (CMP) for instance. There was a period about 10 years ago when CMPs dominated the conversation in IoT connectivity. Today, it has become clear that a much more considered approach is required. Many MNOs use multiple platforms, including many shifting large volumes onto their own in-house platforms. Furthermore, the functionality delivered is now table-stakes for delivering IoT and many IoT MVNOs have perfectly serviceable – and frequently very good – in-house developed CMPs. The same sort of trend holds up for Application Enablement Platforms (AEPs). Today, there is a reduced requirement for stand-alone Application Enablement Platforms to help manage the flows of IoT data. Increasingly this functionality has become subsumed into cloud integration, i.e. with device data being delivered directly into cloud applications. Even Device Management Platforms (DMPs) are suffering from a lack of differentiation thanks to the Lightweight M2M (LwM2M) standard.
There was a period in the mid-2010s when the platform companies were the leading IoT unicorns, commanding sky-high valuations. The dominance of these horizontal tools has eroded with the increasing realisation that their functionality is becoming much more easily delivered and customers demand greater customisation and support in building IoT. Many IoT platforms are no longer sufficiently optimised for specific enterprise requirements to be much more than a semi-commoditised building block.
The ability to provide technology building-blocks, whether they be software platforms, networks, or devices, no longer provides much of a sustainable differentiator. Any provider of such functionality also needs a service layer, focused on resolving customer pain-points. This fits very neatly with the prevailing trend from their customers: enterprises, for the most part, need their hand holding in some way in the deployment of their IoT projects. Ideally, this should be provided by a vendor with experience of delivering within the customer’s sector. All IoT is deployed vertically, and understanding the specific needs of the vertical is crucial. Vendors with experience within particular verticals will be better able to serve the customer and it is likely will have introduced the features that are really required by that vertical (even if they are really horizontal capabilities).
Every organisation involved in selling IoT must provide some element of management, whether it be a full systems integration project or enriched post-sales support. Most enterprises need, or would greatly appreciate, a managed solution, not just a set of building blocks. This extends to elements like device lifecycle management. The main upshot of this trend is that there is diminishing opportunity for any company to exist as an infinitely scaleable IoT ‘platform’. Such elements are increasingly commoditised and demanding of a service layer around them.
As the Internet of Things has matured, a variety of regulations have been introduced around the world that have implications for it. A future report from Transforma Insights will examine all of the various elements. It includes the likes of permanent roaming, data sovereignty, and newly established rules around IoT device security. This plethora of new regulations with wide variations between countries, creates an increasingly complex environment in which keeping tabs on all of the possible regulatory issues is challenging.
The advent of more regulation has been a direct result of both the increased scale of IoT as well as the volume of security breaches. Diverse examples include the Colonial Pipeline hack, the Mirai botnet, and the Verkada video surveillance hack, as well as numerous examples of lax security for consumer electronics devices.
According to Transforma Insights’ own Enterprise IoT connectivity survey, which asked over 1,100 enterprise IoT buyers about their experiences with IoT adoption, security ranked second when enterprises were asked to identify their ‘top 3’ criteria when considering which vendor to select. The top priority was reputation/brand, which in itself also includes some aspect of security compliance.
The perceived importance of security has not itself changed in the last decade. It has always rated as one of the top two key challenges in IoT. However, the increasingly criticality of IoT and its scale has made considerations of security increasingly important.
We expect that 2023 will bring a flurry of consolidation in the IoT space. Many of the biggest vendors have already decided that they want to exit the IoT platforms space, including Ericsson, Google and IBM. It is inevitable that a lot of investors in IoT vendors will also consider that 2023 will be a year when they need to exit. While we remain bullish about the long-term prognosis for IoT, there will be owners that decide that growth is not happening at the rate that they hoped, leading to an increasing appetite for exiting the industry.
In the past few years there has been a strong trend for private equity investors to acquire IoT businesses at somewhat over-inflated prices. With a diminishing interest in IoT, and rocketing interest rates, we expect these external buyers to be much less prominent in the sector in 2023, with one or two major exceptions. The result is that prices paid to acquire IoT businesses will likely fall, making it more likely that IoT companies will be better placed to acquire peers and other adjacent players. Strategic acquisitions that were previously not financially viable will become much more so.
