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IoT - Who has home advantage?

02 November 2015

With Apple, Google and now Amazon fighting for dominance in the smart home space, are telcos still in with a shot at the market? And if not, does it matter?

When it comes to IoT, the biggest cliché going is the idea of a fridge that restocks itself with fresh milk and groceries when supplies run low. It's an appealing example of how connectivity can reshape everyday life, but it also shows the technology at its most unnecessary - hardly the sign of a game-changing market opportunity.

Still, the smart home will almost certainly be big business in the near future. According to a recent report from Deutsche Telekom, seen by Forbes on September 30th, some 100 million households will be 'smart' by the end of this year, rising to 300 million within the next decade.

They're figures that ask to be taken seriously. Troublingly, there's no clear leader in the smart home space yet, nor a standard networking protocol. IoT devices live and die on their degree of interoperability. So, before we have our smart fridges, it looks like we may have to sit out a lengthy format war - the equivalent of VHS versus Betamax or Mac versus Windows.

The contenders: Not a telco among them

Today, there are three main contenders in the battle for the smart home. Each presents a number of compelling arguments for its rightful supremacy.

Firstly, there's Apple, which launched the HomeKit home automation framework in 2014. HomeKit's networking protocol is a proprietary one, so anybody who wants to build smart home devices for Apple needs to be a paid-up member of its Made for iOS programme. Given the impressive market penetration of the iPhone, and the prestige attached to the Apple brand, it's not unthinkable they could win this one.

Secondly, there's Google, which started its IoT push in earnest with the acquisition of smart thermostat maker Nest Labs in early 2014. Later that year, Nest joined forces with Samsung, ARM, Yale and others and set to work on a standard networking protocol for the smart home called Thread. Since then, the search giant has unveiled Brillo - a branch of its open-source Android operating system tailored to IoT devices. It looks closer than anyone to creating a common language for the smart home.

Finally, we have Amazon, which launched the Dash button in the US in March. Dash buttons are tiny plastic dongles, designed to be stuck around the house, that enable users to reorder preselected items - from Amazon, naturally - with a single press. Since then, it's reportedly teamed up appliance manufacturers to build similar functionality directly into their products.

One thing notable about this group of companies is the conspicuous absence of telcos from their ranks. IoT is fundamentally about connectivity. Yet not one of the forerunners in today's smart home market is a traditional CSP. It's a sad demonstration of the degree to which telcos have lost leadership in the consumer space. In recent years, they've been roundly usurped by a new wave of digital juggernauts in the hearts and minds of their customers.

It also highlights how Apple, Google and Amazon have created significant advantages for themselves in the absence of traditional telecoms offerings. Apple and Google are capitalising on the market penetration of their hardware and software products, Amazon - being a retailer - is looking to leverage its relationships with white goods manufacturers. Telcos may have connectivity on their side, but how many washing machines do they sell?

Finding a niche in the wider IoT market

Without differentiated products and services like the above, telcos' stake in the smart home market is a small one. This is particularly true for operators that don't have an established home broadband offering. That's because smart fridges and thermostats won't use SIM-based services. They'll sit on home Wi-Fi networks or leverage low-power Bluetooth. Telcos can either wade into the format war or dismiss the opportunity outright.

Fortunately, when one door closes, another opens. To return to my original point, the idea of the smart fridge isn't really representative of the real-world applications and benefits of IoT technology. Neither, I would argue, is the smart home itself.

IoT, or to use an older and less loaded term, M2M, has uses outside of the consumer space, too. Forget the smart home - what about the smart office, smart fleet and smart factory? Many of these ideas are in their early stages, too, but they're not being aggressively pursued by Apple, Google or Amazon. It is the industrial IoT that is an opportunity that's ripe for the taking by telcos. This is particularly suited to CSPs that can explain its value to an existing B2B customer base.

Moreover, the fact that most CSPs operate within a single geographical area - unlike the aforementioned digital giants, which are global - could well count in their favour. Their target customers, which could range from logistics companies to smart cities, will see added value in working with service providers that understand and have experience in their markets.

There's a small caveat in the fact that the majority of industrial IoT devices will still use Wi-Fi networks rather than SIM-based services. According to Gartner, just five per cent of IoT connections will be SIM-enabled by 2020. But that's not to say IoT won't be profitable for savvy mobile providers. Gartner also claims those connections will number 25 billion within the same timeframe. Five per cent of 25 billion is still 1.25 billion!

With the right business model and the ability to create genuine value for their B2B customers, telcos may find that five per cent of the IoT market is actually a bigger opportunity than the other 95 per cent. As smartphone makers and ecommerce giants fight it out for IoT supremacy in the consumer space, are CSPs gearing up for the industrialisation of telecoms?