Tech and telecoms groups fight to dominate ‘internet of things’

October 5, 2014 12:10 pm

Tech and telecoms groups fight to dominate ‘internet of things’

From connected cars that cut insurance costs to washing machines controlled by smartphones, the much-hyped “internet of things” is rapidly becoming the next big market for the world’s largest technology and telecoms groups.

Connected security and utility services to provide cheaper and more efficient ways to feel secure and warm at home are no longer just a luxury for the rich but a requirement in many modern dwellings. A typical family home in an affluent country will contain several hundred “smart”, internet-connected objects by 2022, according to Gartner, the research group.
Against this backdrop, an intense battle is developing between technology and telecoms groups over who will provide the software and services to enable the internet of things. At the moment the market is fragmented, but companies including Arm, Google and Vodafone are trying to secure leading positions in the technology infrastructure that will provide connections to smart devices.

Technology companies such as Apple and Google have achieved dominant positions in the smartphone market – much to the dismay of some telecoms groups. But analysts say these groups have a chance to claim significant roles in the development of the internet of things, also known as the machine-to-machine communications market, because it usually involves one device connecting with another.

“The fragmentation and lack of technology standards could provide the biggest opportunity for telecoms operators in a fast-evolving industry already changing how people live,” says Matthew Howett, analyst at Ovum. “There is a clear opportunity for an aggregator who is able to interconnect the myriad inoperable devices.”

While consumer uses are easy to envisage in the internet of things, experts say that the largest market will be in devices that people will not notice – for example, traffic systems made efficient by smart monitoring.

Estimates from analysts suggest the market could grow to a vast size rapidly. Cisco describes it as a “$19 trillion opportunity”, with 50bn internet-connected gadgets working by 2020. Gartner estimates the market will be worth about $300bn by 2020, when Goldman Sachs analysts believe there will be 28bn devices.

While the estimates vary, few doubt that the market will be large – and technology and telecoms companies want a piece of these revenues given slowing growth in former boom markets such as smartphones.

Most connected devices in the internet of things will rely on either mobile networks or WiFi where available, such as in the home. However, while a great number of objects will demand only a tiny amount of bandwidth, they will require efficient connections that are both cost effective and low in energy usage.

Providing connections to the billions of connected devices will be a big challenge, according to the European Telecommunications Standards Institute, which sets standards for technology in the telecoms sector.

The ETSI last week created the first specifications of an internet of things network, allowing long-range data transmission for a few euros a year, and minimal power consumption.

Global network coverage will also be important, which could provide an obvious opportunity for large telecoms groups.

Vodafone has developed a global “subscriber identity module” or sim card – the chip that provides connectivity to devices – that will work in any country without incurring roaming costs. Vodafone has edged ahead as the largest machine-to-machine communications provider based on number of sim cards, according to Machina Research, followed by AT&T, Deutsche Telekom and Telefónica.

Two years ago Vodafone decided to invest in platforms for different industries, highlighting a shift in approach among telecoms companies to providing services beyond simple connectivity. Vodafone made its largest purchase in this area to date with the £115m acquisition this year of Italy’s Cobra Automotive Technologies, a provider of connected car services.

Vodafone is not alone in the telecoms industry in making these investments – others include AT&T and Telefónica – and these companies are also facing competition from technology groups.

“It is competitive,” says Erik Brenneis, director of machine-to-machine at Vodafone. “The potential is huge – every mobile group is focusing on it.”

Vodafone has grown its team working on machine-to-machine communications from seven people to 1,300 in just five years.

“There are good opportunities in machine-to-machine for telcos, but they may not be easy,” says Martin Garner, analyst at CCS Insight. “The major machine-to-machine deals are often on long sales cycles and are highly competitive.

“Also, connecting things up is only the first step, and the main value to the customer comes from how the data generated is then used – telcos may look for a role in the IT aspects of this, but they will either be collaborating with, or competing against, established IT players.”

Technology groups have seen the opportunity to set the operating standards for the internet of things.

Google last week revealed a project called The Physical Web that will allow smart devices to interact without the need for an app, for example, while Samsung is buying SmartThings, a US company that provides an open software platform designed to run appliances in the home. ARM last week released free software that allows devices to communicate with each other – highlighting the proliferation of competing platforms.

Analysts warn that technology fragmentation could hold back the development of the internet of things. But as the market matures, clear winners will emerge in both the infrastructure and the devices that ride on top of them – the race is on to become the AT&T or the Google of machine-to-machine communications.

Copyright The Financial Times Limited 2014.


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