For all of our projects, Linx relies on in-depth, double-blinded interviews with key executives at leading and niche players in the industry including vendors, service providers, customers and systems integrators / channel partners. Every study we complete is based on specific and detailed interview protocols established together with our clients that drive toward producing actionable intelligence.
From our research into the various stakeholders in this space, we find that the current market has vendors who either specialize in separate M2M fields, or vendors who specialize in interoperable, integrated solutions for the "connected home" in its entirety:
Within the healthcare sector, we see two main categories of M2M solutions currently experiencing the most mutual traction from both vendor and carrier-side perspectives:
1. Patient-centric M2M applications enable devices and services that directly benefit a patient’s health and safety needs.
2. Business-centric M2M applications improve business functions for healthcare providers.
We find that some market segments—like the personal emergency response systems (PERS) market—are early entrants to the M2M connected healthcare space. Most PERS product vendors and service providers currently offer, or will develop in the near future, cellular-connected PERS products. Other high-profile use cases of M2M in healthcare include developments such as Vanderbilt University's bionic leg, inertial microelectromechanical systems (MEMS) sensor technology that can determine motion and location and significantly improve accuracy in aligning hip and knee implants with a patient’s anatomy, or ingestible sensors that work together with wearable sensors to capture precise information about medication ingestion, dose timing, physiologic responses and other behaviors, sending the digital health information to a patient’s smart phone.
Our interviews with CSPs show that most CSPs are pursuing opportunities in both the categories listed above, but overall they have allocated more sales resources to the patient-centric M2M market. Patient-centric M2M solutions have higher volume potential with better margins from high-value applications than business-centric solutions, but they also pose a higher liability risk and are subject to more regulation.
This segment of the IoT umbrella allows connected, real-time information feeds about a consumer's home energy and other utilities. Our research shows that utility providers are using M2M tools to track usage of electricity, water and gas and provide this information to households to help customers track their current and historical consumption patterns, as well as the amount of energy being generated by solar panels and wind turbines, and the charging status of electric vehicles. Households will want to ensure that they are appropriately reimbursed for any power their home is feeding into the grid. They will also be able to access information about the cost of electricity and other utilities services, taking advantage of any incentives for energy efficiency.
Smart home energy gateways will be integrated with connected devices, such as security cameras, remote health monitoring devices and sensors, and electric vehicles charging infrastructure, to enable households to control this infrastructure remotely. Consumers will be able to control their use of electricity and other utility services, by switching on and off various white goods, lighting or heating appliances, not just from inside the house, but also from the office or during the commute home. Mobile handsets that are aware of their location will be able to automatically trigger events, such as turning off the central heating system when a consumer leaves the proximity of their home. Smart meters, home energy management systems and assisted living systems will all be part of the integrated home solutions. Connected utility solutions will enable regulation of the usage of household appliances and charging of electric vehicles based on the time of the day or dynamic prices for electricity. Gas, electricity and water sensor readings will be able to provide advanced analytics to enable householders to become more efficient.
We see that IoT in home security, in its current rate of progress, can be categorized into three levels of complexity:
1. Basic Connected Security: The basics of a "smart" home security system include a security control panel that will, during an emergency, contact a monitoring company using standard cellular connections from AT&T, Sprint, Verizon or other providers. Systems can incorporate phone lines as a backup and broadband connectivity for video streaming. Wireless door, window and motion sensors are deployed throughout the house to track activity. They can also be used to alert the user when someone opens cabinets, a gun case or basement door. Other family safety-enhancing sensors can be added to monitor for glass breakage (for intruder detection), smoke and fire, carbon monoxide and flooding.
2. Security add-ons: Motion-triggered video cameras can be used to monitor activity inside and outside the house. These allow the user to view real-time video or photos on a smartphone, tablet or computer. Some newer cameras use night vision and will pan and tilt to cover a wide viewing swath.
3. Home automation: With an "intelligent" home, the user can layer on various automation features to increase security and efficiency. Home lighting can be turned on and off and dimmed based on the user's schedule to deter burglars — and to save on the electricity bill. The garage door can be automatically opened when it senses the user's Smartphone pull into the driveway. Programmable door locks can be monitored and activated remotely using a smartphone or computer. Babysitters or dog walkers can be given their own time-sensitive key codes to open the front door. Thermostat control can also be linked into most systems, allowing the user to adjust those remotely.
What does our research show?
We have spoken to key executives from M2M/IoT hardware vendors in order to gain an in-depth perspective on their business models. We have found that, contrary to research from other analyst firms, hardware margins for key leading vendors in this space are very low and fall in the 6% - 18% range.
Our interviews with former executives at these vendors make it clear that vendors do not make much money on the hardware component of their business. The fee paid by large customers such as Comcast and ADT from their subscribers to vendors was largely to recover the vendor's hardware costs. Vendor pricing on hardware is largely dependent on their specific partner: a common profit margin would be in the 10% – 13% range, with margins for large customers/partners going as low as the threshold of 6% - 10% depending on the terms required to close the deal.
Our competitive intelligence shows the following price points for key vendors (vendor names masked for confidentiality reasons) for their recurring revenue stream:
For Comcast’s basic package (priced to the consumer at US$29.95 per month), which provides basic security and includes monitoring, a starter package of sensors and devices including both the touchscreen and wireless keypad entry, and limited web portal and touchscreen security functionality; Vendor X receives a per user per month price of $2.99, according to an executive at Comcast Ventures.
For British Gas’ Home Energy Control platform (total cost charged to the consumer of £159) Vendor Y would receive £6.50 per month per user, according to an ex-Engineering Lead at Vendor Y
According to an ex-Product Manager at Vendor Z, this vendor's typical cut from the monthly recurring revenue per subscriber was around 30%. Vendor Z provides volume breaks, and their lowest threshold would be as low as ₤1 for a subscriber base of 500,000 users. According to our interviewee from this vendor, no customer had actually reached any of the volume targets described above. Our interviewees stated that all of Vendor Z's major customers in his knowledge (Belgacom, Securitas, Scottish Power, Amino) stuck to the average standard flat fee of ₤10/month/subscriber.
The decision to implement Freemium models was dependent on the service provider customer, who would provide the Freemium model on a loss-leading basis. The vendor would expect to charge their standard flat fee or their standard fee with a reduced profit margin.
Future roadmaps for key IoT vendors interviewed revolve around iOS and Android development, tentative inroads into the DIY Market, and an increasing shift into a pure-software model.
Vendors we interviewed are expanding their focus on sourcing, retaining and developing partnerships with application developers, in both the iOS and Android ecosystems. The key selling point for white-label platforms has been developing high-quality software and customer interfaces, and ensuring software and hardware standardization and interoperability. Some leading vendors we interviewed in this space are introducing partner programs, under which they provide support and certifications to IoT developers.
Additionally, some vendors are increasingly targeting the $1 billion DIY home security market, along with their existing focus on the $10 billion home security market (both forecasted by NextMarket Insights).
Other vendors are moving away from their product-centric business and moving towards positioning themselves as software development vendors. This is due to the fact that even with a product-focused approach, a large portion of vendor revenue comes from development costs, rather than monthly recurring revenues or hardware revenues.
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