The Decline of Data – Moving from Volume to Value

IoT Leaders with Nick Earle, CEO of Eseye and Matt Hatton, Founding Partner & Analyst for Transforma Insights

History is littered with examples of technology companies that failed to adapt when there was a sea change in the prevailing business model.

Consider the companies that fell by the wayside when the software industry switched from a per-license pricing model to SaaS.

We’re on the precipice of a similar sea change within IoT.

In this episode, Nick talks with Matt Hatton, Founding Partner & Analyst for Transforma Insights, about how companies will need to pivot for the inevitable changes that are on the way.

Join us as we discuss:

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Transcript

Intro (00:05):
You’re listening to IoT Leaders, a podcast from Eseye, that shares real IoT stories from the field about digital transformation’s swings and misses, lessons learned, and innovation strategies that work. In each episode, you’ll hear our conversations with top digitization leaders on how IoT is changing the world for the better. Let IoT leaders be your guide to IoT, digital transformation and innovation. Let’s get into the show.

Nick Earle (00:35):
Hello, and welcome to the IoT Leaders Podcast. For those of you who perhaps have not listened before, this is the podcast produced by Eseye, the company that I run. My name is Nick Earle, CEO of Eseye. It’s a podcast that attempts to demystify and shed some light on the complexities of IoT and what are the best practices to become successful. And each podcast, we have a guest and this week I’m delighted to welcome Matt Hatton, who is the founding partner of a company called Transformer Insights. And so, Matt, welcome to the IoT Leaders podcast.

Matt Hatton (01:12):
Thank you, Nick. Delighted to be here.

Nick Earle (01:14):
Okay. And Matt, where I’d like to start, actually, I know you’re in big demand, I see you lot on conference agendas and speaking, but in particular, I first got to know you a little while ago. And one of the things that came to my attention was a great little book. Actually, I give it to people when they join Eseye, and it was called The Internet of Things Myth, which I thought was a wonderful title, but it basically was a book. The way I describe it is a book that explains why IoT hasn’t yet happened. And in particular, what resonated to me early on was the claims from various companies, including the company I work for at the time, Cisco.

Nick Earle (02:01):
By 2020, we’re a year past it now, of course, we were all going to have 50 billion things connected, life was going to be great. And in fact, it was probably going to be more than 50 billion. It would be even more. And actually it turned out, when the dust settled and we looked at the numbers, it was 11 billion. And I think the book is one of the best explanations of actually what happened in retrospect. So, maybe we can just start off now. I know you co-authored it. What would you say just for our listeners and viewers, when they see this on the social media of this podcast, what were the main reasons, can you summarize why we had such an enormous miss on our predictions as an industry?

Matt Hatton (02:41):
Yeah, I mean, the starting point, you’ve got to go back to a little bit is whether 50 billion was a reasonable target or what the expectations really should have been. And actually as someone who was doing market forecasting in around about 2011 of the IoT market with my previous company, Machina Research, we didn’t think it was going to be 50 billion devices. So, there was kind of an expectation gap a little bit. So, we pitched it around. I think 12 billion was our first prediction.

Nick Earle (03:10):
Well that was big.

Matt Hatton (03:12):
Not bad, not bad.

Nick Earle (03:14):
That was very good.

Matt Hatton (03:15):
We’d say the figure now is, or the end of 2020 was around about nine billion, I think something like that. So, I think we were pretty pretty close. But back to the question, I mean, it’s still a valid question in terms of, okay, well, against those expectations, why did we not quite see the take up? And more importantly, for me, it’s not necessarily about numbers of devices, it’s the impact. People were talking about how IoT would have a world changing impact on all of these industries, and it would completely transform everybody. And that has happened in some cases.

Nick Earle (03:50):
Some cases, yeah.

Matt Hatton (03:51):
But also, it hasn’t happened in a lot of other cases. Now you can look at things like, on the consumer side of things there were some terrible business models. I mean, things where you’d get your connected garage door bricked if you didn’t comply with terms of service, or you’ve got situations where something that you used to buy as a piece of hardware and own forever, you’re effectively going to a subscription model for lighting or for music or for any number of different things. And is that really the best user experience for people who are used to having something that would just work constantly for the lifetime duration of the device? Probably not.

Matt Hatton (04:30):
And switching over to the enterprise side of things, there was, I think, quite a disconnect between how organizations in their IT departments perhaps, saw IoT as being, a wonderful bright shiny thing that we can go play with. And the reality within the organization in terms of their operations and commercial models and so on, and how capable they actually were of taking advantage of the opportunities that IoT brought them. And this was part of the reason why you saw all of this POC hell, all trials and so on, that happened, but never really went to commercial deployment, is because for the most part, companies were testing the technology and it was a kind of a proof of technology rather than a proof of concept, because there was never really much of a thought on how this is going to change the organization and what it does.

Matt Hatton (05:25):
So, you’ve got things like the operations, you’ve got things like, okay, if you switch to an as a service business model, one of the big capabilities that IoT allows is, you can go from selling potato sorters and selling potato sorting as a service, that’s the example I always like to throw in, you can do that, but for that potato sorting machine manufacturer, that involves completely changing how they do everything, from their finance, their operations, their customer service, just about everything. And very few companies have really thought through how that would change. And so, there was inevitably going to be a bit of a gap between what the promise was and what the reality was.

Matt Hatton (06:05):
And so, I mean, there’s a couple of other things. It was also pretty complex. You’ve seen, I think in the last 10 years, quite a lot of driving out of the complexity. You’ve got a kind of platformization of the sector, which makes it a lot easier. You’ve got more technologies available that are more appropriate for IoT, I’m thinking about particularly some of the low power wide area technologies. But in 2011, they maybe didn’t exist, and maybe there was an expectation that they would appear and be much more widely deployed and used. Then as it happens, they did. So, you’ve got all those sorts of factors.

Nick Earle (06:46):
By the way, just as an aside in one of my previous lives, previous careers, I was at Cisco and was actually running the unit whether was tasked with doing the change management across the company, from transactional box selling essentially to annuity. And you’re absolutely right, the biggest issue was everything changes. I mean, your finance system has to change, your operations system has to change, how you pay people, the job descriptions, your budgeting process. I mean, it’s just so fundamental and no one really understood. Well, we just sort of charged for it as an annuity. All the backend systems have to change.

Nick Earle (07:34):
But the other issue, the one thing that I saw in the book in one of here at Eseye of course that we picked up on is, this issue of certain assumptions that we all had, whether we were saying it was, and admire you for saying 13, I think you were 12, 13, the most accurate, but there were a lot of people who said 50. I mean, Cisco was one of them, but IBM, Erics… I mean, a lot of people said 50, and there were some basic assumptions, and maybe we could just step through them. And one of the first ones was, well, connectivity is going to be like, cellular connectivity is going to be pretty easy.

Nick Earle (08:09):
I mean, we have already done that. That’s a problem the industry solved. We stick a SIM card in a piece of hardware that has firmware, maybe a screen, and because that’s phone, and we know how that works, and it just works right, and you get 100% connectivity, but it turns out those use cases that you talked about, they require in many cases near 100% connectivity and certainly connectivity was not easy, was it? I mean, people don’t know about hardware, the large global mobile network operators in the cellular consumer voice world, they sell great connectivity, but it’s not at the sort of levels that often IoT devices need, isn’t it? I mean, from an industry point of view, global, truly global connectivity is a real challenge, isn’t it?

Matt Hatton (08:57):
It is. It was more a question of, I think optimization. Well, there’s two issues. One is optimization. So, the old way of doing things with mobile phones, you stick anybody’s SIM in any device, and it goes more or less anywhere in the world and it works fine. Doesn’t really carry over into IoT, because you’re dealing with much more extreme use cases, things that require as you say, that much more coverage or longer battery life. So, you need to optimize the devices and the network and all those various constituent parts for delivering that capability.

Matt Hatton (09:37):
So, yeah, it’s a much more challenging environment, and perhaps more challenging than everyone gave it credit for. There’s also a bit of inertia as well. It’s not just, okay, there are these use cases and wouldn’t it be wonderfully if they were connected and then suddenly they’re all going to be connected. It takes time. It takes time and effort to pull together a proposition that seems appropriate to those use cases, and to persuade the sectors involved that it’s a vital part of what they need to do going forward.

Nick Earle (10:14):
One of the conversations I was having on a previous podcast, we’ve done quite a few now is, people were saying it was also the opposite of the way we thought the world was going to go. And just to explain that, when cloud came, cloud represent to simplification. I mean, AWS talked about simplification and driving cost down, something that we’ll come back to, I’m sure, because of a blog that you’ve recently done. But essentially AWS, their promise was it’s just simpler than owning a box, managing a box, operating a box. Just connect to the cloud with the credit card we’ll take care of the complexity, and it’s infinitely scalable. And we all sort of believed that and said, ” Well, that’s hardware.” Hardware’s now gone. It’s the personal device say, or, or perhaps a PC, but basically I’m not having to design hardware or manage hardware.

Nick Earle (11:09):
And yet along came IoT, and as you’ve just said, because of the issues to do with the use case in the device, different sensors, battery life management, firmware settings, global deployment, linking to different MNOs, over 800 MNOs, mobile network operators, around the world, suddenly hardware was front and center as one of the big things in IoT deployment. But most users, it’s very rare for a user to have a hardware design department, a customer to have a hardware design department. And although there are cloud IoT platforms, the hardware design side of it suddenly became a huge issue. And most people said, “I don’t want to be involved in that. I don’t know how to do that.” And yet the research says 80% of problems in IoT deployments can actually be traced back to something within the device. So that with that, we suddenly went in at the back almost, back to the future. We went back to something we thought we’d let go of as an industry.

Matt Hatton (12:09):
Yeah. Well, to use the well worn and slightly hackneyed phrase, hardware is hard. You’ve got the certification of the devices, you’ve got such, and I come back to it again, the diversity of use cases meant that if you wanted to develop a solution for your particular requirements, then probably you had to almost build it from the ground up in many cases. And if you didn’t then, okay, use a gateway, fine that’s okay, but the cost associated with using a gateway was probably well out of proportion with what you’d be prepared to spend. So, you do end up with quite significant challenges with that, and certification onto network, particularly the US operators are very strict about what gets approved for going on to their networks. It’s a challenging thing.

Nick Earle (13:02):
Yeah.

Matt Hatton (13:03):
And actually, on the subject of networks, one of the other significant things was compliance. So, particularly in the cellular world. So, you had some horror stories of companies trying to support their, or network operators trying to support connections in other markets based on roaming, and the host operator saying, “Hey, I’m not really happy with you having these permanently roaming devices on my network.” Notwithstanding regulatory, but this is just interoperator relationships. And they say, “Not having this, I’m switching those connections off.” And if you’ve got hundreds of thousands of vehicles in the US, as some European network operators did in cars, what do you do? You’ve got stranded devices, and none of this helps to reinforce this idea that IoT is going to be easy and a great thing to do if you’re a car manufacturer, say. So, that’s just another thorny issue that was a bit of a problem back in about 10 years ago or so.

Nick Earle (14:06):
Yes, actually that was one of the reasons, when I joined Eseye to be CEO, they said to me, “oh, well, we do this ubiquitous global connectivity, but we’ve also got this team of people over here.” And I said, “well, what do those guys do?” And he said, “well, that’s our hardware design.” And I said, “hardware design team, what sort of an old fashioned concept is that?” And actually, as you just said, it turned out to be incredibly important because of the devices. You can’t use a gateway, often it’s just too expensive, it’s physically too big, it’s not right for the use case. You have to put connectivity into the device of security into the device, that get the firmware settings. And as you say, the certification is different. I mean, even in the US, the way AT&T with GSM heritage, Verizon with a CDMA heritage, if a device wants to go between one and two, you are now connecting to networks that have different requirements.

Nick Earle (15:08):
And so, just that one thing means, if your network’s going to localize or connect onto both, it’s got to have firmware that actually converts things and puts them in the other way around. And so, anyway, that’s back to this point that it didn’t happen, but it is happening now, IoT is growing now. We’re starting to simplify things now, we’re seeing some great use cases. We talked about that a lot. You’ve talked about it a lot, we talked about it a lot on these podcast series, we often have our customers, we have 2000 customers. We often have, our customers are in talk about their use cases, so that we’re actually showing, “look, these guys have found a way through and are now doing some amazing things.” But I think what’s now happening, and I want to come back to your blog that you’ve recently written, there’s something else over and above, at this vision that we sort of fight through the complexity.

Nick Earle (16:05):
And we somehow we get the device designed, we get global ubiquitous connectivity. We sort out the issues to do with roaming and the whole eSIM, and eUICC movement is really helping on that. There’ve been multiple podcasts on that subject. But let’s just say for the moment we battled our way through, but now we have some industry changes that are putting pressures on business models. And one of them in particular is the decline of data. So, I wanted to ask you about your blog, because the one you’ve written, I’ll make sure I get the title, right. “How will connectivity providers cope with $1 IoT?” So, perhaps you could just explain a little bit about what that means, and what the challenges are.

Matt Hatton (16:55):
Yeah, of course. This is really about price erosion, simple as that. We’re seeing a quite, well, continued price erosion. It’s always something that’s happened. And to the point where we are heading, in the direction of a prevailing price point, particularly the lower end, in terms of the amount of data being used of about a dollar per year, we’ve seen some eye catching pricing of exactly that kind of level. If you look at China, they’re already at about the sort of $1 to $2 per year level. If you do the sums on the net hands that are being added by a lot of the operators at the moment, they’re probably in the sort $4 to $5 per year, kind of a range versus cross standard base of maybe a dollar per month. But we see this gradual but notable decline heading in the direction of a dollar a year.

Matt Hatton (17:57):
Now, that’s not all bad news, of course…

Nick Earle (18:00):
Depends who you are. And we’ll come onto that, from an enterprise point of view it sounds like great news.

Matt Hatton (18:05):
Absolutely. And the use cases that are enabled, obviously many, not least because you might be able to use cellular where previously you might use Wi-Fi. Using Wi-Fi, for instance, to connect a fridge, okay, well, you can sort of see the point. But having to manage the keys and connect it onto your own Wi-Fi network and whatever, it’s a pain, whereas cellular is up and running and gets going, right? So, the question is, does the margin erosion, is that reflected in growing adoption? Well, of course, to a certain extent it’s inevitably going to be, the question is whether it more than makes up for it, probably doesn’t.

Matt Hatton (18:50):
And so, you are in a scenario where, okay, where do you generate your revenue from? Where does the money come from? Or what approach do you need to take in order to make sure that’s still profitable? And there’s a couple of things you can do, one thing is, and you alluded to it in the previous comment, it’s about know-how. Okay. So, it stops being about providing connectivity and it becomes about having the hard yards in helping companies to deploy IoT, and therefore being able to support them. So, it’s not just selling SIMs, it’s selling this know-how. Okay. How do I connect things? How do I make sure my device is optimized to work on the network? All of these sorts of, in a way value added services, but it’s the kind of stuff that a lot of the more long in the tooth connectivity providers have been doing for a very long time.

Matt Hatton (19:40):
So, that compensates to a certain extent. But you’ve also got a situation, I think, where you have to see the communication service providers, the connectivity providers making a bit of a pivot. Some are further on this, along this pivoting than others. To what we are terming hyperscale IoT connectivity provider. And that involves things like making sure that your onboarding and SIM management, connectivity management platforms are right sized and have the appropriate scalability for that sort of low touch, no touch onboarding, and managing. And there’s a whole series of other things. Cloud integration, having ultra simplified way of integrating the data into the cloud, just to remove the requirements to touch the device or touch any element, to effectively streamline getting that connectivity working. And by adopting that approach, we think the cost comes into line with where we see the revenue heading.

Nick Earle (20:50):
But that is a change management challenge, isn’t it? I mean, if you assume the price, a dollar per year, and who knows in five years time we could be saying 50 cents, 30 cents, I mean, it’s kind of like Moore’s Law type truism. If you assume that that’s going to happen, then the challenge is, can businesses pivot their business model? And now we’re talking about the supply side, not the enterprise side, that seems to be all good news from the enterprise side.

Nick Earle (21:21):
Because if you’ve built up over the years, sort of muscle memory, that is around selling SIMs, and they’re your proprietary SIMs, they have your IMSI in, so the moment you sell the SIM, you get the connection, you choose you, you are in the seat that chooses the roaming, whether you roam or not.

Nick Earle (21:40):
And you choose the pricing, you got to lock in because you got a proprietary SIM. And suddenly, here you have this world, where is, first of all, it’s not a proprietary SIM anymore it’s an eSIM, so it’s programmable, OTA, over the air. So, you no longer have a lock in, in the device, you got eUICC standard which enables estates to be wholesale transferred from one operator to another operator. So again, your lock in, if you like, has been loosened on the connectivity level, and now here we are saying, “oh, well, all you have to do is climb the stack.” And you can monetize services, I mean, essentially services, what you’re talking about, device design, you can monetize know-how or advise, what we call advisory services, which is advising people on best practices of how to go through this journey.

Nick Earle (22:35):
And what you’re actually saying is, but there are companies who will just be the Kings of low data, and they will, the AWS’ of data if you like, but they will absolutely drive this price down. And you’ll see a bifurcation between, it seems to me that what we’re entering into is a bifurcation between volume and value. And that bifurcation can be broadly categorized as platform and services on the value side, and things like security, which I want to come back to in a minute. But volume is almost like data, and choice of data.

Nick Earle (23:18):
And which eSIM gives you the ability to switch the, and eUICC, the ability to switch provider. So, do you see that world that I’m describing making sense? A bifurcation into volume and value, almost like an uncoupling of the data and the platform and enterprises as such take control of the value side of the equation, and then you have a challenge for MNOs and MVNOs, IoT partners, to how quickly they can move up the value stack, because if they can’t, they’re going to get eaten essentially from the bottom by the volume low cost guys.

Matt Hatton (23:55):
Yeah. You can sort of think of it as, you sell the connectivity but what you’re really trading off is the other things that you layer on top of it. And then there’s a lot of those, you look at, okay, we talk about communication service providers as a homogenous block, but actually there’s a whole load of different approaches. If you think of somebody like Orange, okay, Orange has Orange business services. They provide a lot of systems, integration, consulting, very heavy. And the connectivity piece is more of a support act to that, if you like. And sensibly so, they’ve said, “our focus is probably more on doing that consulting piece, the bit that, where we can add the value and we can differentiate ourselves, rather than the pure play connectivity.”

Matt Hatton (24:48):
I think you’re right about the bifurcation. When I talk about $1 IoT, that’s sort of a, I guess, a median level of a dollar, and probably we’re looking at five years before we get to that sort of level. So, you’re talking about a lot of connectivity that is still high value, high volume. There’s a lot of additional value to be added to that, but that can still be done more efficiently. Okay. So, this application of the concept of being a hyperscale IoT, that connectivity provider applies equally to that as well, in terms of just being more efficient in the way that you address the market and therefore improving margins.

Nick Earle (25:34):
If I’m a MNO mobile network operator, as I said, there’s 800 of them. And I know a lot of them watch this podcast because I get LinkedIn messages and whatever, what are the attributes of a hyperscale? What do you call it, a hyperscale IoT connectivity provider? So, why hyperscale? And secondly, what are the attributes of that as compared to how they are and they go to market today?

Matt Hatton (26:07):
Why hyperscale? It’s a bit of a borrowed term really, because its obviously the cloud providers would consider themselves to be the hyperscalers. And the thinking is that you’ve got to apply similar sorts of principles to the provision of connectivity, and in terms of what the characteristics are, well, a lot of it is that low cost, low touch onboarding and management capability that I was talking about earlier. There’s also a lot about integration up and down the stack, taking out some of the complexity associated with the hardware, with the cloud integration. Those are a couple of the other big and significant pieces. So, for instance, we discussed, okay, it’s very complex to get your hardware developed and optimized for the appropriate device. Well, there’s an increasing move from a lot of players to integrate the hardware piece into the proposition, have the devices preintegrated into platforms, pre-certified, those sorts of activities.

Matt Hatton (27:20):
And in terms of the hyperscale cloud, the integration to cloud, what IoT will happen in the cloud or rather the application piece of it will happen in the cloud. And so, the most critical thing is to have efficient delivery and management of that cloud based data, which means you’ve got to have the sort of the plugs to push data into the cloud in the most appropriate way, and almost to the point where maybe you go to the cloud provider as your first port of call, and then they say, “okay, well, these the connectivity options associated with it. And, we’re pulling data, and actually you don’t need to worry about the connectivity.”

Nick Earle (27:59):
Yeah. I have got a cloud background, as you’re aware from my work at Cisco, running the cloud program, and I do believe the lessons from the hyperscale, they weren’t called the hyperscalers for many years. We looked at them initially saying, “what’s going on here?” They’re losing money, of course, and we didn’t realize what the strategy was, but it was basically simplification and reducing pricing, very analogous. But what’s happening is that the data, and what we found certainly was the data, this issue of integrating the data from IoT use case into your backend systems is so complex that in many cases, what people are saying is, “I’m not even going to do that. I’m actually going to put it straight into the cloud.”

Nick Earle (28:42):
And then you get the, “well, how do I do it?” I mean, just at it’s very basic level, you’ve got data and you’ve got to convert it into MQTT messages. I mean, just that in itself is that, “oh, well, how do I do that? And then how do I pay for it?” Well, you pay for MQTT messages in capacity packs. You buy 50,000 messages at a time from, in the case of AWS, the AWS marketplace. And then, how do I handle security? And of course now you have a set of managed services that are like device defender for AWS that does that. And then you have to get the security certificate back in. And how do you do anomaly detection behavior? So, it comes back, I think, to your issue of, or your point about knowhow. One of the things that we did about two, three years ago when we saw all these issues and we saw how complicated it is for people.

Nick Earle (29:31):
And we saw the directions that it’s going with the hyperscalers, the true hyperscalers beefing up in terms of what they’re doing, and having a much, much lower price per unit of compute data pricing inevitably going to come down. And still, when it does come down to this level, it’s still way above what we’re paying on our cell phones for data. So, it’s going to come down even more. And then, you look at all of the backend integration problems, and we realize that what people actually need is advice. We call it advisory services or to be a guide, to be a guide, it’s actually one of the reasons that balloon behind my head, the idea is that you don’t take a balloon up on your own, you go up in a balloon with a guide, and they actually let you rise above the problems and take you to where you want to go.

Nick Earle (30:23):
So, we actually rethink our whole company around advice and guidance. And because people just don’t know what to do. And the stats that have bandied around about the number of IoT projects fail are really scary. This as you point out at least 10 years. And of course, when IoT projects fail, it has consequences on people and their careers. So, we absolutely believe that the advice on a whole variety of areas, all of the ones that we’ve talked about, is one of the biggest gaps in the industry. And it isn’t just standalone consulting help that people use, it’s got to be advice in the context of IoT and in the context of what they’re trying to achieve. So, what you get is that there isn’t any such thing as a connectivity company, you almost need a consulting hardware, connectivity blend as a company to actually help people go through this journey.

Nick Earle (31:27):
But it is going to be tough, isn’t it? If I go back in my career, whenever there was a big change like this, a business model change, I remember when software was sold on a per license basis and it became SaaS. And what happened was, the model got adopted but there were casualties. A lot of the companies that were selling software licenses, enterprise software didn’t make the transition. And they just couldn’t, their financial model, you can’t go from collecting the money, net 30 to collecting more of the money, but over a three year period. Their financial model collapsed.

Nick Earle (32:07):
So, do you think, Matt, that everybody will be able to make the transition? I mean, there are 800 MNOs, most of which aren’t doing, you mentioned Orange, but most of which are not doing what you say. Apparently, according to one research report I read, that there’s 1000 people who claim to be an IoT company. So, there’s no shortage of people who say I’m an IoT company that’s not an MNO. Do you think there’s going to be a lot of casualties as these issues, as data drops, interoperability arrives in terms of eSIM and eUICC, and people have to move from volume to value?

Matt Hatton (32:46):
Casualties is a bit of a difficult thing to define for a start. Okay. So, you think about for MNOs, network operators, okay, there’s 800 of those, but for the vast majority of them, IoT isn’t more than 1% or 2% of that.

Nick Earle (33:01):
They say it’s less, they don’t even declare in their financial results.

Matt Hatton (33:04):
Exactly. So, realistically it doesn’t make an awful lot of difference to the top line, or the bottom line really. But what you’ll see is with some, a retrenching, going much more to a wholesale model I think is how we describe. Where they’re the carrier, but in terms of go to market or any of the other additional cost items, they don’t do much other than work with MVNOs.

Nick Earle (33:37):
Right. And that’s part of this bifurcation that I was talking about, yeah. They won’t even try, they’ll just make sure they’re wholesale providers to the value provider.

Matt Hatton (33:47):
Yeah. And they’re typically part of a triopoly in most markets. So, they’ll go for a fair share of their revenue in the market in which they’re present. And that’s fine. And that’s already the strategy of the vast majority of those 800 you mentioned. If you’re a third operator in a small market, it’s very unlikely you’ll have an IoT team. You probably won’t even have an IoT person. It’s likely that the person with any kind of responsibility for IoT sits in the wholesale team anyway. And so, it’s thought of as being more of a wholesale opportunity.

Nick Earle (34:23):
Yeah. So, when you look back at lessons of history, in terms of IT, then whenever there was a change in the business model, there were often casualties. And what I mean by that is, let’s just take one that were all very familiar with. In the ’90s, most enterprise software was sold on a license basis. You bought a 1, 2, 3 year license or by a number of users, but essentially it was a transactional cost. You bought it, you paid for it, you put it on the shelf, and sometimes you used it, and sometimes you didn’t. Along came SaaS, and actually what happened was, the SaaS model rose to the top. But most 80%, 90% of the companies that were in large enterprise space weren’t able to make the transition, just for these issues that you mentioned at the beginning of the podcast, the backend issues, the fact that instead of getting all the revenue up front, you then got it over a monthly basis over three years, but everything had to change internally, and the fine financial model dropped.

Nick Earle (35:23):
And if you’re a public company, that your share price dropped. Because of the fact that your next year’s revenue is going to decline, but longer term it would grow. So, my question then becomes, when we talk about the change that people have to go through, MNOs and many MVNOs, do you think there will be casualties or, and/or do you think there will be rather than casualties because they have protected interests, regulatory protection in many cases, do you think there will be, what we’re seeing is going to see a wave of consolidation in the industry?

Matt Hatton (35:56):
Yeah, I think it’s inevitable. Casualties is probably a bit strong and certainly on the network operator side of things, right? So, you got 1% or 2% of revenue being accounted for by IoT. It’s not going to drive consolidation on network operators, it’s probably not going to make an awful lot of difference to the top line or the bottom line if they change strategic approaches to IoT. But what we might see is a bit of a retrenching to more of a wholesale based model. And we have seen examples of this from one or two operators.

Matt Hatton (36:32):
We’ve got a report coming out on Thursday, our CSP IoT benchmarking, and some of those operators that we’re profiling have made a notable move towards being a little bit more wholesale focus, so effectively they’re not the go-to market engine for IoT, they’re providing a network. But it’s never going to drive consolidation for those kinds of players. For the MVNOs, yeah, absolutely. I think there’s probably a bunch of companies at the bottom end, the sort of long tail providers, of which there are millions now.

Nick Earle (37:06):
A lot of people came from the consumer side and just basically do roaming. In cellular roaming, MVNOs from the voice consumer side that now say, “oh, we do the same for IoT.” But that seems to be the bit that’s going to get caught between the two bricks that they’re coming in.

Matt Hatton (37:25):
I think so. And also, the story of MVNOs and IoT has been one of consolidation over the years. You get new companies appearing, and they tend to appear at about the same sort of rate as they get merged into others. So, you saw that with KORE acquiring or being the result of the acquisition of a whole bunch of companies in the US, in the sort of 2014, ’15, ’16 sort of timeframe. And Wireless Logic is going through a process of acquiring companies over here. That’s about gaining scale, geographic scale, or styles.

Nick Earle (37:58):
Yeah. Protecting yourselves.

Matt Hatton (38:01):
Yeah, exactly. And it’s the natural reaction to-

Nick Earle (38:03):
Yeah. Get bigger, get bigger quicker.

Matt Hatton (38:05):
Yeah. So, pricing pressure will naturally lead towards that. But for me, it’s a bit of a short term approach. I think it-

Nick Earle (38:14):
It only keeps the tide from coming in for a period of time, but ultimately the water still can, to use that analogy, still comes in, right?

Matt Hatton (38:24):
Absolutely. And that’s not to belittle either the organizations that I mentioned or to suggest that they haven’t done that, but doing it through M&A is probably not the optimum way of doing these things. There are these internal systems and approaches that you need to get right rather than just going for scale.

Nick Earle (38:45):
And just to finish, and we could talk for hours, but it’s actually interesting because a lot of our podcasts ought to do, as I said, with case studies, or other aspects of the industry, this is more become a discussion on the future of the IoT market and the players and what strategies they have to deploy. So, it is one of those subjects that can go on for a long time. But I did mention that I wanted to come back to security, and our own view is that driven by things like eSIM, eUICC, the rise of the hyperscalers, the decline of the data. I mean, there’s a lot of headwinds which are coming in now. And the attractiveness of IoT is a business case, because it really is attractive if you can get it right.

Nick Earle (39:28):
And it really will disrupt and create a new user experience. We think that the bar has to be raised even higher. It’s certainly something we’re trying to do it. It’s not easy, but it’s something we’re trying to do, which is to go and actually again, learn lessons from the industry. And one lesson that I just want to refer to is that when that SaaS model did change, that we were talking about, the IT architecture was fragmenting at the time, and it was going to minis PCs and cell phones, mobile phones. But what was happening is the threat perimeter was getting bigger. And so, although the costs were coming down and the software is now available on an iPhone, it was available on a Samsung phone, et cetera. But what was happening is the security concerns were getting bigger, and so this issue of setting central policy and deploying it to the Edge started to become the biggest gating issue of whether or not these models were adopted.

Nick Earle (40:25):
And the reason I mentioned that is as Eseye, we’ve just published a report on interview a few hundred users around the world of what are their biggest reasons right now for not implementing IT at scale. Couple of years ago and for the last few years, it has been this complexity that we talked about. Now, very clearly, number one issue is security concerns. The idea of having these devices, which in many cases are not protected, they don’t have agent security software on them, but the idea of deploying them at scale, people can easily hack them, because often if there is a password on it, it’s four zeros or something like that.

Nick Earle (41:06):
Easy hack them. And then tunnel in, and by solving all these technical problems, you’ve actually built the tunnel for people to hack you. And so, one of the big differentiators, and it’s not solved yet for the industry, but we believe is going to be a policy management with auto deployment to the Edge, of which security is the main one but security compliance, configuration management, a whole series of things which is as the Edge expands, we need to actually, we’re going to see a swing back to the people in the center saying, “unless you can show me how to do network level deep packet inspection, anomaly detection behavior. For example, I don’t care how good the business value prop is. If we get hacked and they take all of our data, we can be out of business, or we can have a ransom Bitcoin attack before whatever.”

Nick Earle (42:03):
And so, it’s a subject for future podcasts, but I think we’re going to see another abstraction of value, which is to do with enterprise value, CIO, CISO, CFO concerns, which for many is yet another change management challenge, because now you have to come across as an enterprise software company, and previously you’ve been an MVNO or you’ve been a roaming partner. And again that, ultimately, whoever cracks that will probably become a platform and a standard, if you like, for the enterprise.

Matt Hatton (42:42):
Yeah. And there’s one thing that we as analysts like more than anything else, and that’s category creation. Okay. Defining a category of things, of technology, of something. Back in the Machina Research days, we did with LPWA. That was one of the ones that actually we came up with as an organization, and we said, “okay, there’s a bunch of technologies here, all doing much the same thing. We’ll create that criteria.” And I think there’s a category around what you’re talking about there, which is over and above connectivity management. It’s not policy management, it’s security and so, and I think you’re right, there’s another abstracted layer about supporting global connectivity with compliance and all of those various different elements. I think it still needs defining, but I think there is certainly a there, there, if you know what I mean.

Nick Earle (43:28):
It is there, there is the American say.

Matt Hatton (43:30):
Exactly.

Matt Hatton (43:31):
So, it’s positive, it’s a positive thing that the requirement for this has appeared, because the implication of that is-

Nick Earle (43:39):
…is entering the mainstream.

Matt Hatton (43:39):
We’ve got all the underlying things-

Nick Earle (43:43):
Yeah. It’s entering, it’s coming into the mainstream.

Matt Hatton (43:46):
It’s maturing.

Nick Earle (43:48):
It’s not one of those things that’s out there, and it’s a project of science, it’s entering mainstream and therefore it has to be housed in the same standards. Anything that goes in, and well, listen, Matt, when you write the report and you define it as a category, just remember.

Matt Hatton (44:04):
I certainly would.

Nick Earle (44:05):
Remember who mentioned it. But I know you’ve already been thinking about it anyway. Listen, we could go on forever, but we’ll exceed the time limit and the patience of our listeners. So, I just want to end it there. Thanks very much. I always enjoy our discussions. We always get off into what could happen next, what’s really going on, and what are the challenges in the players? And I know a lot of people find those conversations very useful. So, I hope that’s the case for everyone who’s watching this, listening this time.

Nick Earle (44:34):
So, you’ve been listening to the IoT Leaders podcast, with myself, Nick Earle, CEO, Eseye and Matt Hatton, at Transforma Insights, who also does a lot of work on the blog side. And if you go to his LinkedIn profile, there’s lots of links there. And he’s a frequent speaker at many industry events. So, Matt, with that I really appreciate the discussion, and I wish you well. And I look forward to this category being created and getting some more advice on what’s going to be needed.

Matt Hatton (45:05):
Absolutely. My pleasure mate, thank you.

Nick Earle (45:07):
All right. Thanks very much. Goodbye.

Outro (45:09):
Thanks for tuning in to IoT Leaders, a podcast brought to you by Eseye. Our team delivers innovative global IoT cellular connectivity solutions that just work. Helping our customers deploy differentiated experiences and disrupt their markets. Learn more at Eseye.com.

Outro (45:30):
You’ve been listening to IoT Leaders, featuring digitisation leadership on the front lines of IoT. Our vision for this podcast is to be your guide to IoT and digital disruption, helping you to plot the right route to success. We hope today’s lessons, stories, strategies, and insights have changed your vision of, IoT. Let us know how we’re doing by subscribing, rating, reviewing and recommending us. Thanks for listening, until next time.

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