Navigant Research Blog

Do Conglomerates Hold an IoT Advantage?

— June 7, 2018

Modern-day conglomerates that have stuck with this business model may be poised to capitalize as the Internet of Things (IoT) broadens its penetration into commercial and residential building-related markets. In western countries, conglomerates had their heyday between the 1960s and 1980s, when large corporations used their profitable cash cow businesses to finance the acquisition of diverse companies in tight capital markets. Japanese horizontal and vertical keiretsus are similar to western conglomerates, although current keiretsu relationships have not been as tightly bound or integrated as they were prior to the 1990s. In the buildings sector today, several conglomerate- and keiretsu-type company structures are beginning to show a distinct market advantage in the fast growing IoT realm.

The Conglomerate Advantage: Meeting Evolving Consumer Needs

What gives these conglomerates an advantage? Simply, these companies control a portfolio of technologies that can be connected in novel ways, forming use cases to solve a host of real world problems. They are also poised to meet evolving consumer needs and expectations about what technology will do for them. Let’s look at a few examples.

Johnson Controls’ merger with Tyco expanded the companies’ technology portfolios to include fire and workplace safety, security, and closed-circuit TV systems, along with the more well-known HVAC and building controls offerings. The use case of obtaining occupancy data from the building security system and linking that with other building management systems allows for a more efficient and intelligent operational program for the entire building.

Honeywell’s Vector Occupant app includes wayfinding capabilities and a location-based feature to rate spaces, allowing those within a building to highlight comfort issues to the building staff for quick resolution. Japanese company Panasonic, which is part of the Matsushita keiretsu, offers a host of products ripe for IoT applications. From HVAC and smart home sensors to appliances, cameras, and communications technologies, Panasonic is well-positioned to offer consumers unique connected residential applications that add convenience and efficiency to their daily lives.

Communications and Integration Are Key

One issue that these conglomerates have with engaging the IoT market is communications between devices and coordination between the companies, which historically have been accustomed to independent operation. Many times, individual technologies were developed in a silo within one of the conglomerate’s vertical companies. At the time, this approach was perfectly acceptable and made fiscal sense. Today, these technologies need to communicate with each other to solve a use case, but they each have different communications protocols. This is causing development challenges as well as internal coordination challenges within the conglomerate.

Partnering Offers Opportunities to Non-Conglomerates

Non-conglomerate companies can use a partnering strategy to compete with conglomerates. In fact, partnering may offer more opportunities to be flexible in the market. Companies can offer multiple unique solutions with different technologies by partnering with a diverse set of companies. Conglomerates that use their own technology exclusively may be limiting themselves to a smaller solution set, and end-use customers may feel boxed in to using only one supplier brand.

The bottom line with either type of company, conglomerate or non-conglomerate, is to build or work with systems or solutions that are open to integration with other systems. Open systems expand the market for all participants and significantly increase the number of use case solutions that can be devised.

 

What Amazon’s Acquisition of Ring Means

— April 5, 2018

At the beginning of 2018, I wrote a blog covering Amazon’s Key delivery service, which was introduced to enhance package delivery by allowing couriers access to customer’s homes to ensure safe package delivery regardless of customer availability. Amazon’s latest innovation raised concerns about how far the boundaries of technology can be pushed to make consumers lives more convenient by letting strangers through their front door. Despite this scrutiny, Amazon is pushing ahead with this service through its latest acquisition of Ring, the camera-enabled smart doorbell startup.

Enhancing the Key Service with Ring

Before Amazon’s acquisition of Ring, it relied on the Amazon Cloud Cam, which it developed to release the Key delivery service, and partnerships with existing lock makers. Ring’s doorbells extend this service’s existing capabilities through an additional camera, and through audio equipment that allows customers to chat with delivery people and answer the doorbell remotely. This deal was reportedly worth more than $1 billion, making it the company’s second-largest acquisition behind its $13.7 billion purchase of Whole Foods Market in 2017, which bolstered Amazon’s Fresh food delivery service.

A Message to the Competition

This move—and its acquisition of Whole Foods—not only strengthens the company’s Internet of Things offerings by extending its selection of connected devices, but also sends a message about Amazon’s commitment to business-to-consumer (B2C) services. By enhancing its Key service with Ring, it is more competitive with other tech incumbents engaged in the smart home like Google (which acquired Nest in 2014 and now owns a range of energy and security products), Apple, and Samsung. B2C services are quickly becoming the business model of choice across a variety of industries, and Amazon is one company that is taking it seriously and executing it well.

In the energy industry, Navigant Research has seen a transformation toward this model, as is highlighted in the Energy Cloud 4.0 white paper. Several utilities are already taking steps toward offering B2C services, including Dutch utility Eneco, which offers monthly energy monitoring services to its customers through Quby’s Toon platform. In the security sector, Comcast is increasingly diversifying and shifting toward offering security and automation services in the home to increase revenue (as US consumers drop traditional cable television packages) and customer satisfaction. Not to mention the variety of other service-based businesses that have skyrocketed in popularity, like Uber, Netflix, and Spotify. Once an online retailer, Amazon has become a diverse service-based business, and the company’s acquisition of Ring to support its Key service is a signal to other retailers that it intends to push forward and innovate in the home services space.

 

Ericsson Presents Its Future Vision for the Neural Grid

— February 13, 2018

At its London-based industry analyst event, Ericsson detailed areas for future growth. Its primary customer base (communications service providers [CSPs]) is looking for growth in an age of flat revenue from existing services. Ericsson believes this future growth will be made possible by the rollout of 5G communications—by 2026, Ericsson predicts 5G will contribute to a potential 36% of revenue growth for CSPs.

Ericsson cites the utilities industry as the largest opportunity for digitization. With a $101 billion addressable market likely in 2026, utilities present the second largest Internet of Things (IoT) opportunity (after manufacturing). The energy transformation is central to this growth. As the industry shifts toward a distributed future, connected asset deployments will increase exponentially. In addition, regulatory focus on advanced network flexibility requires significant improvements into a distribution utility’s visibility of loads and supply. All things being equal, the energy industry presents a juicy opportunity for CSPs.

Cellular Carriers to Prosper in Utilities with a Group of Technologies

Ericsson stated that CSPs will only succeed with a combination of technologies, and presented the reasonably compelling proposition of IoT services, supported by network-slicing-enabled 5G communications, and a concept it calls the distributed cloud.

IoT is often cited as the next big thing for CSPs. The term IoT has failed to gain traction in the utility industry primarily because the industry was comfortable with the technology long before the term was used to describe it. But this experience also presents a problem for telcos chasing profits in energy—the industry has to be convinced to switch from the proprietary, self-built, and decades old IoT communications networks to public carrier networks. The critical question is how Ericsson, and its CSP clients, can profit from the utilities industry.

Existing infrastructure may be difficult to convert to a public carrier, particularly for utilities rewarded for CAPEX on new assets. However, the sheer volume of low value assets that will become connected in the future pose many problems to utilities. Passing responsibility onto a third-party provider could well be an attractive proposition, if issues surrounding scalability, security, cost, and network availability are overcome.

5G may be the answer to this, particularly when connecting lower value, less critical assets (such as customer owned distributed energy resources (DER) or network equipment on low voltage networks). 5G offers much greater bandwidth than previous communications, while the ability to create virtual slices of the same physical network communications will help utilities overcome concerns regarding network availability for more valued assets.

Ericsson’s Distributed Cloud Approach Could Help Future Distribution Operation

Ericsson’s distributed cloud concept plays well into utilities’ current and future needs for edge computing. Ericsson has identified an opportunity for CSPs to host cloud servers in their existing real estate. CSPs’ buildings often have underutilized floorspace, yet are in central locations, directly connected to fiber rings and have good power supply. Ericsson believes its distributed cloud could compete as a low cost alternative to utility-owned, grid-edge computing that provides local data filtering and analytics.

Navigant Research has actively defined the technological needs of future transactive markets, in particular real-time visibility into DER, the calculation of hyper-local pricing of network access, the hosting of localized smart contracts for transactive energy participants, and more. The technology proposed by Ericsson has surprisingly close alignment with these requirements. Ericsson’s biggest challenge to convert an opportunity into sales is to overcome the industry’s innate conservatism and the current preference for proprietary IoT infrastructure. Regardless of how attractive the public network is, utilities still have a strong preference to build their own networks. Increasing cybersecurity concerns will only reinforce this attitude.

 

IoT: Building Awareness – Part 1

— December 12, 2017

Marcus Aurelius once said, “That which is not good for the beehive is not good for the bees.” Conversely, what is good for the bee is good for the hive—a metaphor not lost on Internet of Things (IoT) and smart building integration. A paradigm surrounding the building automation space is developing as businesses begin to focus more on occupant experience. Smart building technologies are widening the building investment landscape to include tenant engagement and satisfaction. Value-generating technologies, like IoT-enabled devices, make it easier to manage energy and businesses. Building owners are able to leverage existing communication platforms, capitalize on energy efficiency, and promote healthier lives with healthier buildings.

Better Building, Better Business

Building automation systems with IoT-enabled sensors can not only increase energy efficiency, but also improve worker efficiency, leading to more productive businesses. Research finds that comfortable work environments enhance business productivity by improving the health and satisfaction of its workers. Advanced sensors, like those in Amsterdam’s building superstar The Edge, have given building managers better information on how building space is being utilized by monitoring occupant behavior. This is important because the more we know about occupant behavior, the more we are capable of creating environments that will optimize worker performance. Studies on the effect of building systems in schools also found that indoor air quality and thermal comfort have a direct effect on concentration. Classrooms that are thermally comfortable with lower levels of pollutants increase student learning, resulting in higher levels of student performance.

Show Me the Money

The advantage of investing in smart building technology is twofold, as these systems are not only more sustainable and energy efficient, but potentially more lucrative as well. Businesses operating within these smart systems are better positioned to make financial gains, as employees are more productive. Reports like JLL’s 3-30-300 rule suggest that prioritizing tenant satisfaction and well-being creates larger payoffs for building owners and investors—more so than savings on monthly utility bills would alone. The study finds that “a 2% energy efficiency improvement would result in savings of $.06 per square foot, but a 2% improvement in productivity would result in $6 per square foot through increased employee performance.”

Work Smarter, Not Harder

The argument stands that smarter buildings make better workers. Smart buildings are attractive from a business perspective, as these technologies enable employees to be more productive and less distracted by time-consuming administrative tasks, such as booking conference rooms or scheduling in-house meetings. The more comfortable the worker, the better work they will produce. This, in effect, raises the value of the business and contributes to the overall value of the building. In terms of ROI on smart buildings, focusing on occupancy satisfaction takes a bottom-up approach that supports greater integration and interoperability, improving bottom lines across the board.

Connectivity Is Key

The paradigm surrounding building management systems is shifting as more attention is being paid to occupancy experience. We know that effective operations and maintenance through IoT-enabled devices improve building performance. Why not apply that same logic to worker performance? The significant effect data analytics continue to have on the uptime of building systems could equally improve the livelihoods of the people operating within those structures. Facilitating better working environments optimizes worker efficiency, adding value to businesses and buildings. What is good for the worker bee is good for the hive (and hive investors), as smart technologies continue to add value to both residents and buildings alike.

 

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