Ericsson's IoT strategy has shifted from a systems integration-led approach of selling to enterprises and service providers, to one which focuses just on services providers as customers with a horizontal platform approach. Ericsson hopes this change will bring scale and higher margins to its business. However, it faces strong competition in a crowded marketplace, where differentiation of a horizontal solution is difficult. In addition, its partnership strategy still needs some development to aid its future growth.
Ericsson focuses on connectivity and service providers for future growth
Ericsson recently held an analyst day in London, and reiterated its IoT platform strategy, building on what it had shared with analysts at its earlier event in Singapore in mid-2017. Ericsson's IoT Accelerator platform, which has been commercially available since 3Q16 and follows its earlier device connection platform product, continues to put connectivity at the core of its offering. Following a strategy review last year, Ericsson is focused on selling into service providers with a horizontal platform offering, rather than selling direct to enterprises, except for some large automotive OEMs which it already has as customers. It hopes to increase margins with this horizontal strategy, although there were no figures available yet to support this move. The horizontal strategy is intended to appeal to service providers who want to scale up their IoT offering. This gives Ericsson a sharper sales focus, and operators should certainly be Ericsson's starting point for its IoT strategy, especially given its strong operator customer links. Ericsson's vision is to empower the service providers to be the central point of the network and platform manger. However, Ovum is concerned it is limiting its future growth given that it's recent IoT Enterprise Insight survey showed most enterprises do not currently buy IoT solutions from service providers, with enterprise IT vendors and systems integrators named as the most popular IoT solution providers.
Ericsson is in direct competition with the likes Cisco Jasper and Huawei who, like Ericsson, are traditional telco vendors with strong sales channels into the service provider market. In addition, Ericsson's solution is provided in a platform-as-a-service (PaaS) business model and completely hosted in the cloud so it also competes with cloud-based IoT platform providers such as AWS, Microsoft Azure, and IBM Watson, although their offerings have a greater focus on the software, applications, and value-added services than connectivity. To date, Ericsson has 16 million active connections on its IoT platform, around 25 operator customers, and 2,200 customers. This is a good start, but it is still some way behind Cisco Jasper which has 66 million connections, more than 50 operator customers, and 15,000 companies using its control center IoT product.
To win more service provider customers, Ericsson will need to target those operators who currently do not have an IoT offering or try to displace its competitors. A further challenge for Ericsson is that some of the larger leading operators have built their own IoT platforms such as Vodafone which has 59 million connections, AT&T with 34 million, and Telefonica with 18 million; however, the pay-as-you-grow-as-a-service model will appeal to operators who are only just building out their IoT solutions, as well as to those who want a hosted solution rather than building in-house.
Ericsson has strategically chosen not to play in the applications and value-added services space, instead it has created the IoT Marketplace, an ecosystem with more than 400 open APIs. Ericsson hopes to grow this and bring new partners onboard to provide the vertical-specific applications. Ericsson has identified three key verticals and packaged up some end-to-end solutions using partners. The three verticals are advanced industries (including automotive, smart manufacturing, and predictive maintenance); transport and logistics; and public sector (smart cities and smart buildings). While the IoT Marketplace is a good initiative and a way to broaden the platform's appeal, there is still some work to be done in its vertical customization. Ovum believes for further success it needs to partner with the larger players in the ecosystem, as the solutions presented seemed to involve smaller niche players, and the offerings were less developed and scalable than those we saw presented by some of its competitors. As with most things IoT, from vendors to operators to Sis, everyone is trying to build their own ecosystem/marketplace and it was hard to see how Ericsson currently stands out from the crowd.
IoT Service Provider Contract Tracker: 4Q17, IOT003-000003 (January 2018)
IoT Enterprise Insight Survey: Asia-Pacific, IOT001-000002 (January 2018)
IoT Enterprise Insight Survey: Europe, IOT001-000004 (January 2018)
IoT Vendor Strategy Profile: Hitachi, IOT004-000002 (December 2017)
IoT Vendor Platform Deals Tracker: 1H17, TE0019-000043 (June 2017)
"Ericsson remixes IoT recipe to increase scale and margin," TE0019-000047 (July 2017)
Carrie Pawsey, Senior Analyst, IoT