1. ACG RESEARCH FORECAST
INTERNET OF THINGS
1H 2014 WORLDWIDE
ExecutiveSummary
TheInternetofThings(IoT)marketopportunitywillbeworth$138.4billionby2018witha
compoundannualgrowthrate(CAGR)of33.2percent.
Thekeyserviceprovider(SP)verticalsareconnectedcar,home,industrialIoT,utilities,and
wearabletechnology.
Themarketisveryfragmentedwithmanyplayersfromawiderangeofindustriesand
fundamentalapproaches.
Industrystandardsbodiesandconsortiums,suchasOneM2M,IEEE-SA,ITU-TandIIC,are
workingonsettingasinglesetofcorestandardstodrivetheindustry.
Allvendorsarestrivingtopositionthemselvesaskeyvendorsthoughnonecurrentlyhavea
completesolution.Ericsson,Cisco,andALUhavehorizontalIoTplatformsolutionsthat
addressearlyandlateSPadopters.
EricssonleadstheEPplatformsaleswith1Q14and2Q14revenuetotalof$26.7billion.
ServiceprovidersareakeypartoftheIoTvaluechainandareattemptingtodefinetheir
positionformaximumadvantage.
Tobesuccessful,ACGrecommendsthatSPscontinuebuildingouttheircoreIoThorizontal
platformsbyfocusingonthecommonserviceentityfunctions.
UsecasesthatgivethemostvaluetoSPshavethefollowingattributes:highlymanaged,
missioncritical,lifedependent,warranthighliability,andregulatorydemands.
2. INTRODUCTION
Internet-of-Things communications (IoT) has caught the attention of the information technology sector
because it promises to transform many industries by delivering higher energy efficiency, improved
operational efficiency, less supply chain friction, more powerful analytics, and better communications
with customers. Although there is little disagreement that IoT will be transformative, there is little
standardization on how to define or segment the market. Also, vendors and service providers are
working on developing optimal technology approaches, and profitable business models. This report
focuses on the total addressable market as it applies to the cellular service provider/telecommunication
carrier opportunities.
Although IoT is not technically a new segment, (examples of early IoT include SCADA, industrial
automation, airline engine management, and telecom network management), interest is surging
because the confluence of cost, form factor, and pervasive connectivity is enabling new applications
(wearables) and services that were not possible just a few years ago.
We see this transformation occurring in two phases. In Phase I, SPs are transforming their network
infrastructures from monolithic to hybrid virtualized architectures to maximize management,
orchestration, and agility. In Phase II, SPs will naturally focus on monetizing these networks. These
phases are not necessarily evolving sequentially.
To date, ACG sees that awareness and clarity is needed on IoT and what it can bring to the SP and
enterprise markets. One big issue that fuels this confusion is the problem of mixed standards, new
approaches to old or existing issues, and interoperability issues between vendors and SPs. The IoT
market is isolated in that each service provider is producing services within verticals and is finding it hard
to create a horizontal service infrastructure fast enough to address the market. Complex ecosystems
develop and are fragmented not only in business development but in different verticals and platforms
deployments, creating uncertainty for the residential and enterprise customer. This uncertainty has
created the “quadruple trust” factor: acceptance of protection, security, privacy, and safety of a user’s
assets.
Service Provider Trends
SPs are realizing that to dispel these fears and compete with over-the-top (OTT) providers, they need to
demonstrate automation, security, and governance within their networks. SPs are now forced to look at
what was once linear monolithic services as full solution outcomes or as outcomes as a service (OaaS)
where the entire platform can be offered as a service with actionable benefits to the customer. This
move will require the core of the SPs’ networks to change, for example, SPs are investing in solutions
from their equipment providers (EP) and are finding that they need to develop solutions that offer
growth in the cloud, software defined networking (SDN), network function virtualization (NFV), and big
data analysis for core networks. With this shift in the core network we see vertical markets starting to
emerge and converge, for example, wearables with health care and connected home with utilities.
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3. SPs are slowly building out their virtualized infrastructures, which accounts for the increase in SPs’
operational expenses q-q. SPs are open to various purchasing models as long as they are saving them
cash and gives them the functionality they need in an organized way. Whether this increase will prompt
all SPs to emphasize and itemize the IoT spend in their financial reports remains to be seen.
Machine to Machine Connections by Wireless Provider
Connected Devices Rank 1Q 2014 2Q 2014 3Q 2014
AT&T 1 17,025 17,203 18,482
Verizon 2 15,500 15,696 15,923
T-Mobile 4 7,361 7,582 7,934
Sprint 3 8,033 8,000 8,018
Table 1. M2M Connections Status (in 000s)
The connections status shows AT&T leading with 18.4 million machine to machine (M2M) cellular
connections. Verizon is second with 15.9 million connections. Sprint, third, has 8.0 million, and T-Mobile,
forth, with claims 7.9 million connections.
Equipment Provider Trends
To enable ubiquitous connectivity of these various devices and services, 5G access solutions will play a
more significant role. EPs, such as Ericsson, Cisco, ALU, are building out small cell solutions that will
create density in the network landscape to accommodate the billions of devices. SPs are trying to see
how to utilize and manage free space in their network (whitespaces, AWS) to make this happen.
To assist SPs in addressing capital expenses (capex) and operation (opex) spend, EPs are beginning to
virtualize their offerings with SDN/NFV architecture solutions within cost-effective hardware. EPs are
building complete partner ecosystems to fill in the infrastructure needed for SPs to deploy services.
Some of the key components outlined in the OneM2M specifications that EPs are focusing on are the
Application Entities, Common Service Entities and the Network Service Entities. This will be discussed
further in the IoT Segmentation section.
FORECAST
ACG’s worldwide TAM opportunity for IoT focuses on cellular wireless connections because they will
give the best opportunity for revenue for the SPs. We project worldwide revenue of $ 138.4 billion in
2018.
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4. Figure 1. IoT Regional Forecast
Figure 2. WW IoT Regions
By 2018 the APAC market will dominate the world market with the most revenue from IoT: $76.40
billion, 55 percent of the market. This is principally because of the increase in cellular activity from the
influx of affordable cellular phone devices and IoT device manufacturers. Europe’s revenue is expected
to reach $44.70 billion, 32 percent of the market share. The Americas’ revenue is predicted to reach
$17.30 billion, with 13 percent market share. Though we see a smaller increase in the Americas, most of
the innovation will be in this sector of the region because of the capital expenditures of the leading
carriers.
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5. Figure 3. IoT Verticals
Figure 4. WW IoT TAM
By 2018 the wearable vertical of the worldwide IoT market will edge out the automotive vertical by
approximately 4 percent because the wearables market actually has a few subsegments that graph
between several verticals. For example, there will be wearable devices that will reside in healthcare,
transportation, government, and manufacturing verticals. The wearable vertical also has a range of
pricing from $10 to $1000. Wearables revenue that will flow through SPs is forecasted to be $22.8 billion
by 2018, 24 percent of the overall market.
Transportation vertical will reach $19.4 billion, 20 percent market share. This includes fleet services and
automotive companies with embedded 3G and 4G devices offering subscription services. Europe will see
a steady increase in remote telematics because of regulatory laws governing the need for roadside
remote services, such as OnStar in every vehicle.
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6. The health care vertical will post revenue of $16.2 billion, 17 percent market share. This vertical will
have use cases that are mission critical, life dependent, high levels of regulations, and strict network
management service level agreements. This presents a prime opportunity for SPs with managed services
to handle use cases in this vertical.
Manufacturing is forecasted to grow to $12.9 billion, 14 percent market share. We will see industrial IoT
initiatives flourish in this vertical as test beds from the IIC come into play. Companies such as Microsoft,
Cisco, IBM, and HP that are serious players in this space are targeting manufacturing companies with
solutions from hardware devices to open big data analytic embedded solutions.
The government sector will grow revenue to $8.7 billion, 9 percent market share. Driving this growth
will be countries looking at public safety measures, asset tracking and management services, defense
solutions, and disaster recovery methods.
Utilities vertical will post $8.6 billion in revenue, 9 percent market share. Smart grid, smart meters, data
management, production/renewable monitoring, control and demand side management, energy
efficiencies, and ecological benefits are drivers in this space.
Telecommunications is expected to grow to $4.4 billion, 5 percent market share. This vertical includes
connected home services (security systems), smart buildings, and network mgt.
Retail/Wholesale vertical will increase to $2.3 billion, 2 percent market share. Retail and online vendors
such as Best Buy, Wal-Mart, and Amazon are gearing up with their own IoT enabled products. This
vertical will probably see the most innovation of gadgets and “things,” but economically it will be at such
a low price point it will most likely not make much of a dent in the market.
Natural resources vertical is expected to increase $.2 billion, having a negligible percentage of market
share. Products and services within this space deal with agriculture, forestry, fishing, mining, and oil
refineries. Examples of innovation: fisheries are adding sensors to their fish pools/ponds to monitor the
temperature and chemical balance of the water; this data is fed back into an analytics system to give
actionable data to farmers. Pipeline companies are enhancing their SCADA systems to remotely control
and diagnose issues in the field.
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7. Figure 5. IoT Y-Y Revenue (Billion)
IoT Y-Y revenue from 2014 to 2018 will see a sharp increase at a CAGR of 33.2 percent. There will be an
inflection point as worldwide awareness grows around 2016.
Figure 6. WW IoT Connection Forecast
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8. Figure 7. WW Connections by Vertical
CONCLUSIONS
The M2M/IoT market is growing and poised to transform the world in many beneficial ways. However,
SPs have to continue to transform their network infrastructures to be able to adapt to the new business
models that are destined to occur with the new service offerings. They must address the core CSE
functions in their networks, namely the OSS/BSS, provisioning, policy, reporting, security, governance,
data management, application management, diagnostics, and security management. They need to
adopt virtualization and the sale and service models being offered by the EPs, such as cloud services,
SDN, NFV, big data analytics, and edge solutions not only at the customers’ premises but also in the RAN
and the back office.
SPs must also educate and build trust with existing and new customers. Customers (enterprise and
consumers) are not informed about M2M/IoT/IoE opportunities and are affected by the quadruple trust
factors of protection, security, privacy, and safety of their assets. To address these concerns SPs may
have to partner with EPs such as Cisco, Ericsson, and ALU, which have products, services, and
ecosystems that have proven track records and are focusing on outcomes as a service. Once installed
SPs can demonstrate the resilience, flexibility, and security of their new virtualized platforms by
supporting highly managed use cases.
SPs will need to fight the urge to implement old M2M practices of developing isolated vertical platforms
for specific revenue opportunities. These practices fail to prepare their networks for horizontal
virtualized platform solutions, which will enable them to handle all vertical revenue opportunities more
efficiently. SPs are conducting trials of various platform solutions. If they are doing so for the purpose of
choosing the best horizontal solution then that is acceptable. For EPs possibly the best way they can
demonstrate the abilities of their solutions is to solve a particular use cases/issue needed by the
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9. prospecting SP. Once this issue is solved, they can further demonstrate their horizontal solutions by
extending them across other SPs’ verticals.
When will IoE become viable? For the service providers the uptake will occur after the hype phase clears
and the fear and disillusionment dissipates. The lowest point will be around 2016. Just before the
rebound, there will be many mergers and acquisitions as companies and investors run out of money and
focus. Standards bodies will converge, the horizontal platforms will be solidified for service providers,
true solid business/use cases will emerge, and the industry will move forward.
During the rebound phase, key verticals will merge, for example, health care and wearable technology,
collectively forecasted to be $35 billion by 2018. Utilities with connected car, home and smart cities
could reach approximately $27 billion. Manufacturing is projected at $30 billion.
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10. IOT SEGMENTATION
The carriers’/service providers’ packet cores are going through a major transformation. The following is
ACG’s view of the SPs’ network virtualization framework as it applies to IoT:
Figure 8. Network Virtualization Framework
SPs’ physical infrastructure is being virtualized as old hardware is being replaced by faster and less
expensive software defined networking (SDN) and network function virtualization (NFV) hardware and
software components. This shift is happening in real-time. The IoT market will begin to evolve as
industries establish protection, security, privacy, and safety (quadruple trust) in SPs’ networks and
confidence that they can deliver the services they need. In order to gain that trust SPs are transforming
their networks to meet the needs. SPs need to build a trusted network to focus on what the OneM2M
standards group calls the Common Service Entities (CSE) within the network:
• BSS/OSS Management
• Reporting Management
• Provisioning Management
• Policy Management
• Data Management
• Security Management
• Diagnostic Management
Once these entities are stabilized and agile enough to accommodate different verticals solutions as one
platform they will equate to true business to business (B2B) and business to business to customer
(B2B2C) activities. Use cases will test the integrity of the CSE infrastructures.
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11. PHASE I SEGMENTATION
Figure 9. Segmentation
Application Entities: Represent an instantiation of application logic for end-to-end IoT solutions, for
example, instance fleet tracking, and power meter application.
Common Service Entities: Represents an instantiation of a core set of common functions of the IoT
environment, for example, data management, subscription quadruple trust, location service quadruple
trust, and billing.
Network Service Entities: Provides underlying network services to the Common Services Entities (CSE),
for example, device management, and device triggering.
SAMPLE SOLUTION PROVIDERS
Some of the sample solution providers representing these entities:
Application Entities Common Service Entities Network Entities
• HP
• Ge
• IBM
• Kaggle
• Ayasdi
• SAP
• Wipro
• Rockwell
• Knewton
• Splunk
• GNIP
• Evolv
• Others
• ALU (Motive )
• Cisco (CiscoOne, ACI,
APIC)
• Ericsson(DCPaaS,
OneCloud)
• Eurotech (M2M Int)
• Gemalto (App
Enablement)
• LogMeIn/Xively (Conn
Obj Cloud)
• Numerex (Numerex
platform)
• Oracle (Oracle IoT)
• PTC (Composer)
• Quake Global (Quake
Cloud)
• RacoWireless (Omega
Mgt Suite)
• Cisco (IoX,Sourcefire)
• Ericsson
• ALU
• Adtran
• Edgewater
• Palo Alto Ntwks
• Symantec
• FireEye
• Checkpoint
• Guidance SW
• Intel
• Others
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IoT (B2B Infrastructure)IoT (B2B Infrastructure)
Application IntegrationApplication Integration Data AnalyticsData Analytics
Application EntitiesApplication Entities
BSS/OSS
Mgt
BSS/OSS
Mgt
Common Service EntitiesCommon Service Entities
Reporting
Mgt
Reporting
Mgt
Provisioning
Mgt
Provisioning
Mgt
Network Service EntitiesNetwork Service Entities
Policy
Mgt
Policy
Mgt
Data
Mgt
Data
Mgt
Security
Mgt
Security
Mgt DiagnosticsDiagnostics Network SecurityNetwork Security Device/
Connectivity Mgt
Device/
Connectivity Mgt
