The “do-it-yourself” mentality for CSPs is giving way to something more diverse

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An article by Matt Hatton, Founder & CEO, Machina Research.

One of the continuing questions facing CSPs as they address IoT is the extent to which they should be focusing on developing and deploying applications for vertical sectors, or horizontal capabilities, over and above the core role of the provision of connectivity. Our latest research reveals an increasingly sophisticated and nuanced approach to the age-old “build, borrow or buy” conundrum, and a set of new requirements in IoT where the CSPs may be well positioned to play.

One of the accusations frequently levelled at CSPs is that their direct offerings for end-users have historically been quite poor, and indeed hindered market adoption as they sought to push end users towards sub-optimal vertically integrated offerings. We think inevitably of ‘walled garden’ mobile content services, which proved to be a long way away from the format that users would end up preferring to access mobile data services. While it is true that most CSPs failed to develop compelling offerings in this space and they need to avoid the same mistakes in IoT. However, the analogy is far from being a perfect one. For instance, the same is not true in enterprise services, where CSPs feature prominently amongst the list of top vendors, including IT services and systems integration capabilities through the likes of BT Global Services or Detecon. So there is no inevitability about the fact that CSP direct offerings might be weak; but it’s probably a safe bet to assume that they should avoid developing direct-to-consumer offers.

Machina Research has, since its inception, been instrumental in supporting Communications Service Providers (CSPs) as they evolve their IoT strategies. One key pillar of this support is the annual CSP Benchmarking Report, which compares CSP strategies in IoT and providing recommendations on best practice. This, combined with the extensive work we undertake with CSPs around the world, inevitably indicates some prevailing trends. The question of whether to target verticals or maintain a more horizontal approach is not a new one. However, the last 12 months has seen an evolution.

Less than a year ago we would have characterised the CSP role in IoT as having a natural evolution path. It started with pure connectivity, typically as part of a wholesale team, albeit possibly with a few applications deployed in targeted areas mostly as a legacy of an untapped market, e.g. for fleet management. It evolved to the development of a dedicated connectivity platform and the establishment of a dedicated IoT unit. The next evolution, as the CSP reached scale, would typically be to build a set of vertical competencies, e.g. in healthcare or automotive. In the last year this simple evolution path has been challenged by a number of developments. For instance, and as documented in the report, more CSPs are taking the view that their best path to success is with a more horizontal approach to the market. Not necessarily less sophisticated, more of bifurcation of approaches with some CSPs forking in the direction of pursuing verticals, and others focused on providing more sophisticated horizontal capabilities. There is also the beginning of a trend, which we expect to accelerate, of smaller, mostly single country, operators more-or-less abandoning the idea of running their own IoT business and partnering up with other CSPs to provide a set of ready-for-market vertical offers. So in those cases the operators that would historically have sought to evolve their own product offering are effectively outsourcing it to a third party, either in the form of another CSP (e.g. Vodafone’s licensing of its GDSP platform and support for its Partner operators) or even a value-added reseller (e.g. Aeris has seen strong growth recently in its line of business associated with supporting CSPs).

What we’re effectively seeing is a shaking out of some of the less efficient practices in the support for IoT from CSPs. This inevitably incorporates the vertical offerings, so we can envisage a future where CSP vertical offerings are increasingly focused on those areas where the CSP has developed genuine differentiation, e.g. AT&T in connected home, Verizon in commercial telematics, Vodafone in automotive, Orange in healthcare, Telefonica in smart cities and retail, and so forth. It also extends further than that. Despite a bit of a backlash against third party connectivity support platforms, as personified by the in-house Telefonica’s Smart IoT platform, the overwhelming trend is away from CSPs building horizontal capabilities for IoT. There really is little point in developing application enablement or data analytics capabilities in the face of strong established offerings from various vendors including PTC/Thingworx, Bosch, Microsoft and HP. The best role for the CSP here is in acting as an aggregator of all these sets of capabilities.

So where does that leave CSPs? With a horizontal offering that is almost exclusively provided by someone else and a vertical offering that is largely so. To an extent that’s true. Fully vertically integrated offerings often don’t give customers what they need. However, there are a number of critical roles in the IoT that need an owner and for which CSPs are well placed. Over the last few years we have been writing in some depth on the requirements for an IoT Service Marketplace to pull together all of the diverse elements of IoT and provide a single place for non-experts to access the IoT resources they need. Expanding that requirement, there is a wider set of trusted third party (TTP) roles that need filling in the complex world of IoT, including relating to security or SLA management. The IoT also need a billing engine and CSPs are well placed to be involved.

Beyond that the CSP also has to be the face to the enterprise customer. They typically have unrivalled channels to market, and are likely to be one of the first ports of call for companies deploying IoT, particularly in the long-tail. As such there is a customer education and guidance role that the CSP will need to adopt.

The CSP is integral to IoT. However there are many different roles that they can play. This ranges from those that will basically outsource their IoT offering to a third party, all the way through to those that embrace the data management and TTP role that will be a requirement for future IoT.

Machina Research’s IoT Service Provider Benchmarking Report 2016 will be published in August 2016.

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