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27 February 2015

Verizon M2M and IoT report predicts 5.4bn B2B connections by 2020

A new report from Verizon, which commissioned ABI Research for the project, charts strong growth in the IoT connectivity business for the US mobile network operator (MNO). The ‘State of the Market: The Internet of Things 2015’ focuses in particular on business installations of IoT tech, and collates a number of other sources to show that IoT technology is increasingly popular among enterprise users.

The report notes that while the IoT is currently hailed as the next big thing, the key ingredients of network connectivity, security and infrastructure have existed in some form for decades. We would go a step further and say that the largest impetus behind the increasingly connected products and services is that now the cost of the connectivity (in terms of the BOM and monthly recurring charges) are now low enough to create viable business models.

While the first cellular phones could have been kludged together to create a smart meter in the 1980s, the cost of doing so would have eclipsed the savings or extra efficiencies. We’re getting close to a point where connectivity in certain product families will be the norm, rather than an exception. Once the chips are cheap enough, the question will become ‘why not’ rather than ‘why’ – as the benefits of connectivity become increasingly obvious to OEMs and system integrators.

As the report says, “the declining cost of sensors connectivity and data processing power is making the ROI (return on investment) equations for IoT projects look even more appealing. While the economic outlook is still uncertain in many regions, investor and consumer confidence has grown, making businesses more receptive to investing in new technologies.”

In terms of future growth, ABI Research predicts the IoT market will grow to 5.4 billion devices by 2020, up from 1.2 billion today, and growing at 28% CAGR. This is a much lower figure than the headline numbers that Cisco likes to run with, but upon closer inspection, you find that the Verizon report is talking about 5.4 billion business-to-business (B2B) connections. The distinction could have been clearer, and is only made in the title of a graph’s axis.

As for dedicated M2M connections, Verizon saw a 45% year-on-year revenue growth in its IoT business, with the 4G connections growing by 135% – giving Verizon a portfolio of “more than 15 million IoT-enabled connections for a wide range of industries.”

Verizon believes that the market penetration of M2M among businesses who have adopted the technology extensively is around 10%, and predicts that by 2025, those who have adopted M2M technology will be at least 10% more profitable than competitors that don’t.

Verizon’s criteria for IoT devices requires that the “connected asset must be able to sense something about its surroundings, this data must be transferred to a central location or processing application automatically, and that the data must be usable in a downstream function.” Collectively, the company refers to these requirements as “the Three As: Aware, Autonomous, Actionable.”
The IoT Market Segments:

Cumulatively, Verizon saw a 45% year-on-year growth in its IoT business, with the 4G activations growing 135%. In terms of Verizon’s market demographics and annual growth between 2013-14, Manufacturing customers enjoyed a 204% growth, the clear leader of the M2M portfolio. In second place was Finance and Insurance, on 128%, Media and Entertainment on 120%, Home Monitoring on 89%, Retail and Hospitality with 88%, Transportation and Distribution had 83% growth, Energy and Utilities (surprisingly we think) on 49%, the Public Sector and Smart Cities with 46%, and finally Healthcare and Pharmaceuticals on 40%.

Manufacturing:

Compared to the Energy and Utilities sector, Manufacturing had a much stronger 2014, with 204% growth – despite production line monitoring and automation being one of the most mature IoT applications, according to Verizon. Safety and security applications are also growth-drivers in Manufacturing, as is asset tracking and “staff integrity” – the polite way of saying employee theft.

“Food-to-fork” chain of custody tracking is another area that is growing thanks to changes in legislation, much like the smart meters. The European horse-meat scandal is a noteworthy event that might have been prevented by a more rugged authentication and origin-tracing process afforded by M2M sensors and encryption, rather than the fallout from doctored paperwork and fraud.

The report claims that of the organizations that have implemented IoT, 82% have experienced increased efficiency, 49% achieved improved product quality, and 45% reported improved customer satisfaction. Figures like that help companies approve business plans, which further improves growth in the wider IoT industry.

Unsurprisingly, the report backs up the industry consensus that the smart home products are enjoying strong growth, and “Verizon’s network data shows an 89% year-on-year increase in the number of connections for smart alarms, cameras and other home security solutions.”

Transportation and Distribution:

Verizon saw an 83% growth in IoT usage in the transportation and distribution sector, as companies embraced the fuel and time saving efficiencies that are afforded by fleet management systems. Diagnostics and analytics are predicted to save the rail industry some $27 billion globally, according to GE, a major manufacturer of locomotives.

Only 8% of cars are currently connected to communications networks, says Verizon, leaving some 600 million to be retroactively brought online – in what could potentially be a very large area of growth for aftermarket suppliers. In terms of features, 72% of connected vehicles had diagnostic systems, 67% had connected safety features, and 62% had in-dash navigation.

The report says that 33,000 deaths are caused by traffic accidents in the US each year, and that IoT-enabled safety measures have huge potential to improve safety. Findings from Texas A&M suggest that $120 billion is wasted in both time and fuel annually that could be prevented by intelligent transportation systems.

Aside from road safety, road maintenance is another area that IoT connectivity can help improve. The report points to the state of Oregon, which is planning on introducing an IoT-based mileage recording system for 5,000 voluntary participants. Instead of paying the state’s tax on gasoline (used to pay for maintenance), the drivers are charged 1.5 cents per mile they drive, and receive tax credits instead of paying the gas tax.

Energy and Utilities:

The report predicts that by 2025, more than 10% of used electricity will be generated by consumers and contributed to the smart grid. That two-way process requires infrastructure upgrades, which fall under the umbrella term of ‘smart grid.’ The grid equipment is called smart because it is able to collect and report information to a central intelligence, and it often uses cellular data to backhaul its findings to the cloud.

Of these M2M connections, Verizon saw 49% annual growth in the industry, which initially sounds surprisingly low. However, Verizon points out that 94 million smart meters were shipped in 2014, and that it expects 1.1 billion to have been installed by 2022. This points to a more mature (and saturated) market than the other sectors that have enjoyed triple-digit growth rates – because the industrial side of the IoT has existed for nearly two decades, under less-trendy monikers including ‘industrial automation’ and good-old M2M.

But on top of 2014’s smart meter shipments, Verizon says that the USA’s 2007 Energy Act and the EU’s target of 80% smart meter coverage by 2020 are strong drivers of growth in the sector. The political impetus is to increase energy efficiency, by increasing the visibility of faults in the network and allowing customers to see and then lower their actual usage. Smart meters can also help tackle the estimated $6 billion of electricity stolen in the US each year, but are mainly desired to save on the expense of manual meter readings and the inefficiency of estimated billing.

Public Sector and Smart Cities:

In the Public Sector, Verizon reports 46% growth in year-on-year IoT connections, with smart city capabilities being a “critical consideration for companies deciding where to open facilities.” In addition, smart city investments will get more important with time, as the proportion of citizens living in cities grows from more than half today to over 70% by 2050.

A test case in Lansing, Michigan saw the city cut its street lighting costs by 70%, thanks to more energy efficient bulbs and the savings generated from self-diagnosing fault reporting, which reduces truck roll costs. The report cites Navigant Research, which says 40% of municipal energy costs are attributable to street lighting. In addition, Verizon reports that 75% of the world’s energy use takes place in cities, which will only scale with the shift to an increasingly urban population

Verizon also points to the EU’s EXC 245/2009 regulation that requires around 100 million streetlights to be replaced by 2015 in order to meet pollution requirements – and a smart lighting deployment can also provide the communications infrastructure necessary to launch other smart city services such as traffic management and security surveillance, on the back of the network connectivity.

However, the issue of funding remains the biggest barrier to smart city adoption, despite what look like convincing arguments for municipalities to adopt the technology.

Healthcare and Pharmaceuticals:

Another interesting fact gleamed from the pages is that Verizon is currently running a voluntary pilot program to monitor employee health, and found that participation in the program from overweight staff increased 86% when wearables were incorporated into the strategy. A combination of wearables, advanced coaching and social gamification increased participation across the board by 80%. Based on its findings, Verizon thinks that organizations will introduce more that 13 million fitness tracking devices into the workplace by 2018 (presumably in the US, but not clearly stated – again).