German Buyers' Attitudes Toward the Internet of Things: Is the Market Ready for Takeoff?

Transcription

1 SURVEY German Buyers' Attitudes Toward the Internet of Things: Is the Market Ready for Takeoff? Lionel Lamy Mark Alexander Schulte IDC OPINION IDC believes that the Internet of Things (IoT) will have a significant impact on the IT industry, with considerable growth opportunities for vendors. To benefit from this market potential, it is crucial for ecosystem players to understand decision makers' attitudes, perceptions, and requirements around IoT solutions. For this reason, IDC interviewed 150 organizations with more than 500 employees in Germany in September The research was carried out as part of a worldwide IoT initiative including 1,212 interviews across eight countries. The main survey results are as follows: IoT awareness is strong among German organizations, with 70% of respondents having heard about the term. While awareness is strong, true understanding of what IoT can do still lags. Many decision makers struggle to understand the concept of IoT and its potential benefits for their companies, with only 40% saying that they truly understand what IoT is about. With 45% claiming to have implemented connected sensors, systems, or products to automate and monitor business processes, German companies are gaining first experiences with IoT deployments. Many users are piloting or running small-scale test environments to gain insights about potential business benefits and the feasibility of these solutions. The most common use cases involve connected security systems, quality assurance, and warehouse and building management solutions. The market development looks promising for vendors in the IoT ecosystem: 70% of the companies interviewed plan to launch or extend IoT solutions in the years ahead. About 60% said that the budget for IoT or machine-to-machine (M2M) solutions has been available in their firms in This is encouraging for vendors, but it also puts pressure on them as they need to align their offerings and go-to-market strategies without delay to address the full market potential. Drivers for IoT adoption mainly revolve around operational benefits such as process automation, productivity and efficiency gains, and cost reductions. However, it will be essential for IoT vendors to consider organizations' concerns about high up-front investments, data security and privacy, and the low availability of holistic solutions to position themselves as the vendor of choice. We believe that the German IoT market will grow significantly over the next few years, as companies will seek to leverage data generated by connected sensors, products, or machines to enable automation, encourage faster decision making, and gain competitive advantage. In fact, more than 80% said IoT will be strategic or even transformational for their businesses. We believe the German IoT market is ready for takeoff and can provide opportunities neither vendors nor buyers can afford to miss. January 2015, IDC #OT02W

2 TABLE OF CONTENTS P. In This Study 1 Definition 1 Methodology 2 Respondent Demographics 3 Situation Overview 7 IoT Awareness among German Organizations 8 Planned and Implemented IoT Solutions 10 IoT Adoption Drivers and Inhibitors 18 Budget Allocation for IoT Solutions 24 Perception of Vendors within the IoT Ecosystem 26 Future Outlook 31 Essential Guidance 33 Advice for IT Vendors 34 Learn More 35 Related Research IDC #OT02W

3 LIST OF FIGURES P. 1 Components of the Internet of Things 2 2 Survey Sample by Industry Sector 4 3 Survey Sample by Organization Size 5 4 Survey Sample by Hierarchy Level of Respondents 6 5 Survey Sample by Respondent Function 7 6 IoT Awareness 9 7 Degree of Familiarity with the IoT Concept 10 8 IoT Deployment Plans 11 9 Number of Deployed and Planned Connected Endpoints Types of Connected Endpoints (Deployed and Planned) Frequency of Communication (Excerpt) Objectives of Data Analytics Top Driver for IoT Investments Major Obstacles Hindering IoT Deployments in the Next Two Years Budget Allocation for IoT (or M2M) Solutions in IoT Budget Holders The Role of IoT in Vendor Communications Perceived Future Leaders in the IoT Market Most Important Selection Criteria for IoT Vendors Impact of IoT on Business Models Where IoT Will Take Off First IDC #OT02W

4 IN THIS STUDY This IDC study analyzes the perceptions and attitudes of German organizations regarding the Internet of Things (IoT). The insights of IT and line-of-business (LOB) decision makers are based on the results in Germany of IDC's worldwide IoT survey conducted in September It also focuses on the IoT awareness of German decision makers, IoT use cases, and investment plans as well as adoption drivers and barriers. Furthermore, detailed information about budget allocation as well as the perception and selection of IoT vendors by ICT buyers are part of this study. Definition Internet of Things (IoT) The Internet of Things (or "Internet der Dinge" in German) is described as the interconnection of things or endpoints such as sensors, systems, or products. These are either wired or wirelessly connected "things" that have commonly been referred to as M2M deployments and most recently as part of the broader IoT solution deployments. The connected sensors, systems, and products generate data without human intervention. The data collected is automatically processed and analyzed for faster and better decision making. The term "Industrie 4.0" is common in Germany and describes the application of IoT in the manufacturing industry. However, it is sometimes used as a synonym for the Internet of Things. IDC has divided the IoT concept into five categories shown in Figure 1. The components of IoT include: Intelligent systems (i.e., sensors, RFID-enabled things) Connectivity (including service enablement) Platforms (device, network, and application enabled) Analytics/social business Applications and vertical industry use cases Other IoT considerations (e.g., quality of service, reliability, security, and professional services) 2015 IDC #OT02W 1

5 FIGURE 1 Components of the Internet of Things IoT use cases vary dramatically depending on the industry to which they are applied. Examples of IoT solutions include: Remotely connecting a vending machine to collect data on inventory and sales frequency Tracking locations of fleet vehicles Healthcare home-monitoring solutions (i.e., heart rate and glucose monitors) connected to medical systems and remotely monitored by medical professionals Connecting and monitoring of machines and plants (e.g., wind energy converters) for predictive/preventive remote maintenance Connected or smart home solutions Methodology IDC conducted primary research in September 2014 to better understand decision makers' attitudes toward IoT in Germany. Based on a structured survey, IDC interviewed 150 organizations with more than 500 employees across major verticals. The research was carried out as part of a worldwide IoT initiative covering eight countries (the U.K., the U.S., China, Japan, South Korea, Singapore, Brazil, and Germany) with a total of 1,212 interviews IDC #OT02W 2

6 IDC observes a growing influence of business departments on IT decisions, and this also applies to the implementation of IoT solutions. LOBs will be particularly affected by the benefits and challenges resulting from IoT. To reflect this, IT and LOB representatives have been interviewed as part of this study. Questions at the beginning of the survey ensured that only respondents involved in IT and/or business decisions have taken part in the survey. 95% of these decision makers are directors/managers, VPs, or CXOs. This target group is the most eligible to give reliable information about their organizations' IoT strategies. During the interviews, IDC also encouraged respondents to focus on their company needs and interests regarding IoT rather than their own individual consumer-oriented needs and interests. The study provides an aggregated view of the respondents' perceptions of IoT, a detailed analysis by company size band, an overview of respondents' familiarity with IoT, and a comparison with overall results worldwide. Such contrasting data is highlighted when significant differences in the results occur. Respondent Demographics The sample includes organizations from a wide array of industries in Germany. Figure 2 shows the breakdown by vertical. Companies from the IT and telecom industries represent the largest group in the sample (23%), followed by healthcare providers (10%), manufacturing firms (9%), and government agencies (9%). The sample consists of a broad range of verticals, with 50% of the industries having a 7% share or less. This ensures that all major industries of the German economy are part of the sample. Thus, the information gathered during field work allows a well-grounded analysis of German firms' attitudes toward IoT IDC #OT02W 3

7 FIGURE 2 Survey Sample by Industry Sector Q. Which one of the following best describes your organization's primary business activity? n = IDC #OT02W 4

8 Only organizations with more than 500 employees were allowed to take part in the survey. We expect medium-sized and large companies to have a significant impact on the IoT market and be early adopters of IoT solutions. Therefore, firms with fewer than 500 employees have been excluded from the sample. Figure 3 illustrates the distribution of respondents with regard to the number of employees. The sample splits almost equally between medium-sized organizations ( employees), large firms (1,000 4,999 employees), and very large enterprises (more than 5,000 employees). This ensures that the survey results are based on views from companies of these three categories. FIGURE 3 Survey Sample by Organization Size Q. Approximately how many employees are in your entire organization worldwide, including all of its branches, divisions, and subsidiaries? n = 150 Figure 4 illustrates the hierarchy of respondents within their organizations. Only decision makers from director/manager level and up were eligible to take part in the survey. These respondents are typically well informed about current and planned technology initiatives and can provide reliable insights about the IoT strategies of their companies. The sample consists primarily of directors/managers (38%) and CXOs (42%). Thus, the results in this study are based on opinions of employees with managerial responsibility IDC #OT02W 5

9 FIGURE 4 Survey Sample by Hierarchy Level of Respondents Q. What is your title and functional area at work? n = 150 Due to the growing influence of business departments on IT decisions and the strong impact of IoT solutions on business processes, both IT and business decision makers have been interviewed. While the IT has to enable and manage the technology behind IoT solutions, business units are the ones faced with benefits and challenges from an end-user perspective. Considering both of these views, half of the respondents are involved mainly in IT decisions and 22% in business decisions, with 28% taking part in both IT and LOB decisions IDC #OT02W 6

10 FIGURE 5 Survey Sample by Respondent Function Q. Are you an IT or business decision maker at your organization? n = 150 In summary, the results are grounded on a firm sample of German IT and LOB decision makers from diverse vertical industries. The 150 interviews conducted lay a solid foundation to analyze and draw conclusions from the respondents' statements, allowing insights into the attitudes and perceptions of decision makers as well as current and future adoption plans concerning IoT solutions within their organizations. SITUATION OVERVIEW IDC believes that IoT will have a significant impact on the IT industry, with considerable growth opportunities for vendors in the IoT ecosystem. To benefit successfully from this market potential, it is important to understand decision makers' attitudes toward IoT: How familiar are managers with the IoT concept? How many organizations have already implemented IoT solutions? What are their plans for 2015 and beyond? And what are the main obstacles and drivers that German decision makers associate with IoT solutions? The following sections provide answers to these questions as well as vendor guidance to help increase their shares of the IoT market in Germany IDC #OT02W 7

11 IoT Awareness among German Organizations The Internet of Things is not an entirely new concept. It is in fact an extension from M2M deployments into broader IoT solutions based on connected sensors, systems, and products, which generate data for automated analyses that lead to faster and better decision making. It has gained attention in Germany over the past few years. Seven out of ten respondents interviewed said that they have heard of the term. A couple of reasons drive the awareness of the IoT. On the one hand, connected devices and products have become part of our daily lives. Consumer technologies such as fitness trackers, smart home applications, or smart meters make the concept of IoT tangible and understandable for people. This goes hand in hand with the growing digitalization of our private and business environments. On the other hand, use cases of IoT business solutions have become clearer, and media coverage of IoT applications has risen significantly in Germany over the past few months. IoT awareness among German decision makers is in line with the average worldwide results. However, a lot of hype and discussions in the country are also around the term "Industrie 4.0," which refers to the practical application of IoT in the manufacturing industry (e.g., connected machines, products, and materials in smart firms) one of the most important verticals in the German economy. The deployment of intelligent machines, products, and materials that are connected via a network to enable more autonomous and self-regulating production processes is gaining pace. In fact, an IDC survey among 211 manufacturing and engineering firms with more than 100 employees in Germany in June 2014 indicated that every second company familiar with Industrie 4.0 is planning a budget for smart factory initiatives in A closer look at the survey results indicates that a common understanding of IoT among German decision makers is not apparent yet. It is still not clear what IoT is composed of and what use cases can be part of this concept. Even though more than 70% of the German respondents have heard about the term, the requirement for vendors to further educate the market about IoT and its respective solutions remains high IDC #OT02W 8

12 FIGURE 6 IoT Awareness Q. Have you ever heard of the term "Internet of Things" prior to seeing it used in the introductory paragraph of this survey? n = 150 for Germany; n = 1,212 for worldwide (the U.K., the U.S., China, Japan, South Korea, Singapore, Brazil, and Germany) This conclusion is backed up by the results shown in Figure 7. The values illustrate the different levels of knowledge among the decision makers about IoT. A lot of respondents have not entirely understood what IoT is and the implications it can have in their businesses. However, almost half claimed that they are very familiar with the IoT concept and have deeply understood what it actually is. Being familiar with the concept does not mean that the respondents intend to deploy a solution; however, it is a prerequisite for the starting IoT initiatives. IDC believes that IoT will become a mainstream technology over the next few years. However, vendors need to clearly articulate the benefits of their solutions and highlight the path that needs to be taken to develop that potential. The majority of companies (from Figure 7) still need to understand the concept of IoT better and its implications. As more use cases become available and discussions are led on a more concrete level, the understanding of IoT's potential will inevitably rise. Vendors need to develop market and partner strategies today to ride the wave of IoT growth we expect to see in Germany IDC #OT02W 9

13 FIGURE 7 Degree of Familiarity with the IoT Concept Q. How familiar would you say you are with the term or concept "Internet of Things" as described? n = 150 for Germany; n = 1,212 for worldwide (the U.K., the U.S., China, Japan, South Korea, Singapore, Brazil, and Germany) As shown in Figure 7, German respondents seem a bit more familiar with the IoT concept compared with the worldwide average. Organizations in Germany have looked more into the subject as well as the benefits and challenges resulting from IoT solutions. This is an indication of the growing interest in deploying IoT solutions among German firms and a hint that the German IoT market is slightly more mature than the worldwide market composed of the eight countries mentioned in Figure 7. Planned and Implemented IoT Solutions The following section provides a detailed view of implementations of IoT solutions including current and planned deployments, numbers and types of endpoints, and the communication between them. Figure 8 indicates current IoT deployment plans. It shows that German companies are quite interested in IoT solutions in general, and many of them are gaining first experiences with production environments. In fact, 45%said to have already deployed an IoT solution. Examples of IoT initiatives include fleet tracking, smart manufacturing, energy management (e.g., smart meters), smart home deployments, smart cities (e.g., optimized traffic), connected cars, and ehealth applications. A closer look at the deployed use cases will be shown later in this section IDC #OT02W 10

14 However, many of these organizations are piloting or running test environments with connected sensors, systems, or products to gain insights about potential business benefits and the feasibility of these solutions. Companies usually start with a pilot approach that runs in parallel with the production environment. In many cases, there is no greenfield to deploy IoT solutions due to existing processes and technologies in place. A good example of this is a production process in a manufacturing company that is intended to become more automated because of intelligent and connected machines and products. FIGURE 8 IoT Deployment Plans Q. What are your organization's plans for deployment of connected sensors, systems, or products in order to, in an automated way, monitor, collect data on, and generally further understand activities or events pertinent to your organization? n = 150 As Figure 8 shows, 29% of organizations interviewed plan to extend their existing IoT solutions. With regard to new deployments, 31% intend to launch a solution in the next 12 months, and 10% plan to do so in the next months. In total, 7 in 10 organizations plan to launch or extend IoT solutions, indicating the market growth in the years ahead. Conversely, only 12% have not yet considered an IoT strategy or solution. This is very encouraging for vendors in the IoT ecosystem as it shows the potential of the market in Germany. The data also puts pressure on vendors that want to benefit from the growing demand. As shown in Figure 8, every third firm intends to deploy a solution within the next 12 months. It is therefore essential for vendors and service providers to align their offerings and go-to-market strategies without delay. Figure 9 provides a closer look at how many connected devices, systems, or products have been deployed so far and what the organizations' future implementation plans are. Results shown are based only on respondents whose firms have IoT solutions deployed or are planning to deploy one IDC #OT02W 11

15 FIGURE 9 Number of Deployed and Planned Connected Endpoints Q. How many total connected devices, systems, or products do you plan to deploy as part of your Internet of Things strategy? n = 128 (deployed or planned); n = 67 (deployed) Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products. Results shown in Figure 9 highlight the following: The majority of organizations interviewed have a manageable amount of connected things deployed today. In fact, two-thirds of them have fewer than 100 connected devices, systems, or products implemented so far. This underlines the fact that a lot of companies are currently in the piloting and testing phase of IoT solutions and have low-scale deployments in place. Looking at planned deployments, many organizations intend to extend the number of connected endpoints being part of their IoT solutions. Most firms (28%) plan to establish a production environment with connected devices, systems, or products that require management and data analyses capabilities IDC #OT02W 12

16 The number of connected endpoints grows with the size of an organization. The mean number of "things" currently deployed is 80 for companies with 500 4,999 employees, whereas the average for enterprises with more than 5,000 staff members is 1,412 endpoints. As such, large companies are at the forefront of deploying comprehensive IoT solutions in Germany. Vendors in the IoT ecosystem should have a particular focus on these organizations due to the potential large deal size associated with these IoT solutions. To understand deeply the use cases these endpoints are part of, respondents were asked to give more details on their IoT solutions, either currently deployed or planned. Looking at the results in Figure 10, a broad set of IoT use cases becomes evident. Most of them are related to different companies, markets, and industries, but they all include sensors, intelligent systems, network connectivity, and data analysis as key components of the solution. By their very nature, IoT solutions are very industry-specific. Thus, when considering the values shown in the figure, it is important to distinguish between horizontal and vertical solutions. Horizontal solutions such as security systems, building management, and payment systems can apply to nearly most organizations. On the other hand, industry-specific use cases such as smart city initiatives, healthcare solutions, and agriculture processes are only of interest for companies from the respective vertical. Therefore, the results provide a general overview of IoT projects stated by organizations that have implemented or planned corresponding solutions. The most distributed IoT solutions that German organizations intend to implement or already have deployed are security systems relying on synchronized video cameras or motion detectors, quality control processes based on connected products, warehouse management solutions (e.g., materials or containers with RFID tags), as well as building management functions. All of the top 4 solutions do not only apply to a single vertical industry, and thus they provide potential benefits to most organizations. The results also indicate deployment plans relating to one of the fastest-growing IoT scenarios in Germany: the application of IoT in the manufacturing industry (Industrie 4.0). In fact, a couple of use cases (as shown in Figure 10) aim at the realization of smart factories and intelligent value networks. Besides warehouse management and product quality assurance that belong to the top 4 group, the implementation of smart manufacturing processes based on connected machines, products, and materials as well as the industrial machine maintenance have been named by more than 20% of respondents. An IDC study among 211 manufacturing and engineering firms with more than 100 employees in Germany in June 2014 indicates that even though there is still some uncertainty about the potential of Industrie 4.0, every second production or engineering firm plans a budget for corresponding initiatives in In fact, the fourth industrial revolution based on intelligent systems (or cyberphysical systems) has already begun. The data in Figure 10 correlates this IDC #OT02W 13

17 FIGURE 10 Types of Connected Endpoints (Deployed and Planned) Q. Which of the following best describe your organization's deployed or planned use of connected sensors, systems or products? n = 128 Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products IDC #OT02W 14

18 Most of the vendors in the IoT arena will not be able to address all use cases shown in Figure 10 as they vary too much and require different and deep expertise. We believe that it is essential for IoT players to focus on those vertical or horizontal solutions with which they have the greatest experience. In addition, establishing partnerships to successfully address these opportunities will be key. We expect that ecosystems will emerge around vertical and horizontal IoT use cases in the near future. Strategic partnerships, for instance, between sensor manufacturers and software vendors will drive the development of integrated solutions, creating awareness and effectively entering the market. A fruitful partnership will be characterized by a rational supplementation of the vendors' product and service portfolios as well as an aligned strategy with regard to the addressable market and target group. If IoT can be summed up as capturing data and transporting and analyzing sensor information, it is obvious that connectivity is significant. As shown in Figure 1, the communication layer enables an alternating interaction between connected products and platforms. The 4G/LTE data network has been extended significantly in Germany over the past few years. On behalf of the Federal Ministry of Transport and Digital Infrastructure, TÜV Rheinland reports that 4G availability reached 86.5% and was available to 34.5 million German households by mid This presence of (broadband) Internet access is a strong driver of IoT as it allows sensors, products, or machines to connect to the network and share information. The frequency of communication between things and platforms varies for each IoT solution. Figure 11 shows how often a communication between connected things and an organization or a data repository takes place. It becomes obvious that the frequency depends on the use case of a solution. While some demand continuous/real-time communication, others are satisfied with periodic (more than once a day), batch (once a day), or exception-based (for emergency alerts) communication. Particularly in the warehouse management, a real-time registration of inbound and outbound goods is essential for efficient stock keeping. An example for periodic communications is energy management, where smart meters send reports about the electricity usage a few times a day. Digital signage is often combined with batch communication, for instance, to update a public sign each morning. Establishing continuous communication for every IoT use case to enable real-time interaction among connected things might seem like a good idea on the surface. However, this is going to lead to a huge amount of data that needs to flow through the networks. This is not only an issue concerning costs associated with mobile data plans but also in terms of the data analysis. The frequency of communication should therefore depend on the use case of an IoT solution. For mobile operators, the results shown in Figure 11 indicate the revenue potential that comes along with an IoT solution IDC #OT02W 15

19 FIGURE 11 Frequency of Communication (Excerpt) Q. For each connected solution, identify the current (or if not yet deployed, the planned) frequency of communication between the connected "things" and your organization (or data repository). n = Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products. Selected IoT use cases IDC #OT02W 16

20 One of the most important IoT disciplines is the analysis of the data generated by the connected sensors and products to enable better and faster decision making. While the growing amount of data poses a great challenge to many IT organizations, the potential of the captured information is enormous. 75% of the companies interviewed said they have an overall strategy for analytics, which underlines the importance of this topic for German firms. Figure 12 indicates the most important objectives behind a data analytics strategy. FIGURE 12 Objectives of Data Analytics Q. How is your organization using analytics? n = 113 Note: Respondents have an overall strategy for analytics for targeted products/services. ; The objectives depend very much on the use case of an IoT solution. For example, the improvement of marketing relevance is particularly important for digital signage, whereas process automation plays a vital role in the manufacturing or transport industry. The different objectives illustrate the challenge for data analytics vendors to provide the right tools and engines required by their customers. IoT Adoption Drivers and Inhibitors Within the German IoT market, IDC expects high growth in terms of number of connected devices and deployments revenue. However, organizations face many factors that drive or hinder the adoption of IoT solutions. The following section focuses on these drivers and inhibitors. Respondents who have already deployed or plan to launch a solution to connect sensors, systems, or products have been asked about the number 1 factor that influenced their organizations' decision to create an IoT strategy or investment IDC #OT02W 17

21 Looking at Figure 13, it becomes apparent that the main drivers behind an IoT deployment are related to operational benefits. An increase in productivity has been stated most often (18%), followed by timeto-market improvements, process automation, and cost reductions. These factors are interrelated and major benefits of the IoT concept, as products or devices communicate and operate increasingly autonomously. Taking the smart factory as an example, products correspond self-reliantly with machines in terms of how they should be handled (e.g., which color or which label it should receive) during the production process. Another example is the deployment of smart meters that make life easier for utility firms' staff, removing the need to check the water or electricity consumption manually in each household. This increase in automation does not only lead to efficiency gains but also to cost reductions and thus higher profitability of an organization, which illustrates the attractiveness and potential of IoT deployments IDC #OT02W 18

22 FIGURE 13 Top Driver for IoT Investments Q. What is the top factor that influenced/will influence your organization's decision to create a strategy or investment in a connected sensor, system, or product solution? n = 128 Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products IDC #OT02W 19

23 External benefits of IoT solutions such as customer experience improvements, reaching new customer segments, or developing new services on the data generated are less of influencers of IoT deployments so far. Thus, German companies aim primarily at increasing internal advantages when implementing IoT use cases today. However, even though these operational benefits will remain important, we expect the external factors to catch up in the coming months or years. These often require a longer planning and implementation phase if you think about extending a company's hardware offering with additional services based on the data generated by connecting their products, for example. Vendors and service providers in the IoT field should adjust their go-to-market communication to the most important IoT benefits illustrated in Figure 13. As operational advantages are the main drivers of adoption, these should be used as a starting point for discussions with potential clients. Besides knowing the drivers of IoT, it is also important to understand which factors hinder IoT deployments and reduce the speed of adoption. Figure 14 shows which factors are perceived as the highest obstacles by the organizations interviewed. Respondents were asked to name the top 3 barriers. Almost 4 in 10 respondents said that initial costs associated with the deployment of an IoT solution are one of the top 3 obstacles. These up-front investments are by far the greatest challenge that companies face on their way toward an IoT use case implementation. Due to the nature of IoT projects, costs typically consist of hardware, software, and consulting or integration services expenditures. In addition, ongoing costs (e.g., for mobile data plans) start during the operation phase. However, these continuous expenditures are by far less of a concern for the decision makers interviewed. Vendors should address this hurdle by pointing out different financing options to their customers. Nonetheless, many organizations are faced with more than one vendor during the deployment of an IoT solution. Developing finance options across an entire IoT development and implementation is thus another advantage of vendor partnerships in the IoT ecosystem. Another way of approaching the challenge of high initial investments is to start off with smaller projects that can be easily extended over the lifetime and therefore require less initial funds. German organizations have always been quite sensitive with regard to data privacy and security. Broad media attention and public discussions about activities related to intelligence agencies such as the National Security Agency (NSA) have fortified these issues and hampered the adoption of cloud services in Germany over the past few years. However, vendors have increasingly addressed these concerns by establishing datacenters in Germany that are governed by local privacy law. IoT vendors should be aware of the fact that many German organizations feel rather uncomfortable generating, transmitting, and storing company data outside their firewalls. From an IDC perspective, there are three major security concerns that firms are afraid of and vendors need to address: Intellectual property theft Disruption/outage of process due to hacking External manipulation of a process (discovered belatedly) 2015 IDC #OT02W 20

24 Almost 25% of respondents said that the lack of holistic IoT solutions has hindered their investments. This provides evidence that many companies seek an integrated IoT solution that provides low complexity for the customer. As many vendors do not have the capabilities to offer consistent solutions across the entire IoT stack from sensors, intelligent systems to connectivity, management, and analytics software, strategic partnerships should play an important role in a vendors' market approach. This would also enable increased awareness of the firms and solutions involved. The fact that almost 20% are unsure which vendor they should use for IoT projects indicates the importance of showing expertise and competency in the German market IDC #OT02W 21

25 FIGURE 14 Major Obstacles Hindering IoT Deployments in the Next Two Years Q. What do you think will hinder the deployment of an "Internet of Things" solution at your organization in the next two years? Please rank the top three. n = IDC #OT02W 22

26 It is encouraging for IoT vendors and service providers that only 10% of organizations interviewed said that they do not see the ROI of IoT projects, leaving most of the market aware of the benefits of interactions between connected sensors, devices, or products. Nevertheless, it is essential for solution providers to illustrate their offerings by use cases and ROI calculations that are tailored to the specific situations and needs of a company or vertical. Budget Allocation for IoT Solutions At the beginning of this study, we highlighted current IoT deployments and future investment plans. The results indicated that many companies have gained first experiences with IoT use cases. Correspondingly, about 60% said that a budget for IoT or M2M solutions is available in their firms. This is encouraging for vendors and shows that IoT is not just hype but an attractive concept for clients today. The survey shows no significant differences by company size band. Whereas very large organizations are typically early adopters of new technology, firms with 500 4,999 employees have expenditures budgeted for IoT or M2M investments in 2014 as well. Enterprises and medium-sized and large organizations provide potential for IoT vendors. We expect that the number of companies with IoT budgets is going to rise in 2015 given their deployment plans (31% plan to implement an IoT use case in the next 12 months). Vendors should therefore drive the marketability of their solutions and go-to-market strategies immediately to benefit from the anticipated IoT market growth in Germany IDC #OT02W 23

27 FIGURE 15 Budget Allocation for IoT (or M2M) Solutions in 2014 Q. Does your organization currently have budget allocated for an Internet of Things (or M2M) solution in 2014? n = 150 Figure 16 indicates which function owns the entirety or majority of the funds in organizations that currently have allocated budget for an IoT solution. The IT department as the budget holder is in about two-thirds of the organizations, whereas LOBs are responsible of the funds in one of three cases. The larger an organization is, the more often the budget is allocated to the business units. However, IT departments are still a significant part of purchasing decisions even though value will be most seen in business processes. This also becomes apparent as the IT drives the decision to create a connected sensors, systems, or products strategy or solution deployment in half of the organizations. Thus, IT remains a key player in IoT decision making even though IoT will have significant impacts on the business itself, rather than just IT processes. Vendors should aim to get both perspectives the IT and LOB at the table when discussing potential deployments with organizations IDC #OT02W 24

28 FIGURE 16 IoT Budget Holders Q. Please indicate which function holds the entire or majority (more than 50%) of the budget. n = 89 (58 for 500 4,999; 31 for 5,000+) Note: Respondents currently allocated budget for an Internet of Things solution. Perception of Vendors within the IoT Ecosystem The following section focuses on the vendor side of the IoT ecosystem in Germany. It provides insights about what role IoT plays in client situations today, which vendor types are being perceived as IoT leaders by end users, and what are the most important selection criteria for organizations that IoT solution providers cannot afford to miss. Many vendors have started discussing IoT with their (potential) clients today. In fact, two out of three IT vendors, service providers, or suppliers have done so (65%, see Figure 17). We believe that these discussions are mostly about potential impacts on a client's business as well as benefits and challenges that result from the IoT rather than a vendor promoting its IoT solution. However, the results indicate that a lot of service and solution providers have realized the potential of IoT and leveraged it to show their competency about IT trends and developments in client situations. As vendors strive for leadership in the IoT arena, discussions with prospects about IoT are going to rise in IDC #OT02W 25

29 FIGURE 17 The Role of IoT in Vendor Communications Q. Have your organization's IT vendors/service providers/suppliers started to discuss the "Internet of Things" when pitching new products or services? n = 150 A detailed look at the results reveals that all major ICT vendor categories try to communicate around IoT, but hardware vendors are the ones that have started talking about it most often, followed by software and component manufacturers. Hardware suppliers are under pressure in the German IT market for many years due to an ongoing price decline and high device saturation. As such, they have a particular interest in driving IoT forward and generating revenue with its hardware components such as embedded and intelligent systems. Looking at Figure 18, it becomes apparent that the vendors discussing IoT most often today are the ones that end users perceive as future leaders in the market. Therefore, more than one-third of the decision makers interviewed believe that hardware manufacturers will become the spearhead of the German IoT vendor landscape. Differentiating the results by respondents' familiarity with the IoT concept reveals that the more familiar decision makers are with it, the more often they name hardware vendors as future IoT leaders. This underscores the role of hardware manufacturers in the IoT ecosystem. Systems integrators (13%), software vendors (12%), and service providers (10%) are the vendor types that have received more than 10% of respondent votes IDC #OT02W 26

30 FIGURE 18 Perceived Future Leaders in the IoT Market Q. Please select the type of vendor/service provider you see becoming a leader in the Internet of Things market. n = 67 (very familiar); n = 64 (moderately familiar); n = 15 (somewhat familiar) 2015 IDC #OT02W 27

31 IDC believes that even though the IT hardware (e.g., intelligent systems) plays an essential part, software and services are required to unleash the full potential of an IoT use case. Thus, multiple vendors will have to partner, federate, and align to offer an end-to-end IoT solution. Therefore, it will be likely that not a single vendor but partner consortia will compete for leadership and awareness in the German IoT market. Respondents that have already deployed or plan to launch an IoT solution have been asked to choose their top 3 vendor selection criteria. Figure 19 illustrates that a few factors are important, but some are must-haves for providers to be attractive to potential clients. A well-defined and developed IoT portfolio is ranked highest, with more than 50% of the decision makers' votes. Current IoT offerings are often perceived as too complex, not transparent, and not integrated enough within an end-to-end solution, which makes it difficult for organizations to compare and decide in favor of a solution. Vendors that provide more clarity in their product and services portfolios associated with their IoT offerings will have an advantage over their competitors. This goes hand in hand with the request to provide integrated IoT solutions rather than standalone hardware, software, or services offerings for IoT use cases. Almost every second respondent (48%) regarded an all-in-one solution as one of the top 3 criteria when selecting a vendor. In most cases, this requires a partnering between different vendors as stated beforehand in this section. The results in Figure 19 emphasize that IoT vendors should seek and establish strategic partnerships immediately to address organizations' demand for integrated IoT solutions. If not, they may forfeit revenue opportunities against partner consortia in the German IoT market. It is more than a bit surprising that existing IoT use cases are ranked lowest by the respondents. However, results are only based on decision makers that already have deployed or plan to implement an IoT solution. Therefore, benefits and implications of IoT that would be illustrated by use cases and references have already been understood by this target group. IDC believes that highlighting the value of an IoT offering through a successful customer project remains a proven way to increase awareness among new clients without any IoT experience IDC #OT02W 28

32 FIGURE 19 Most Important Selection Criteria for IoT Vendors Q. When you are selecting IoT vendor and suppliers to help you achieve your 2015 business/technology strategy, what are the top 3 IoT vendor/supplier criteria? n = 128 Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products IDC #OT02W 29

33 FUTURE OUTLOOK This document highlights the fact that the Internet of Things is more than just hype in Germany. Many organizations have already deployed IoT use cases such as connected security systems, warehouse management, intelligent production processes, or building management solutions. Many more plan to do so in the next 24 months. As such, it is clear that IoT has already reached the daily lives of people. Nevertheless, further hurdles such as financing as well as data privacy and security need to be addressed to enable an even broader and faster adoption of IoT initiatives among German organizations. This survey confirms IDC's belief that the German IoT market will grow significantly in the next few years due to the fact that many companies will seek to leverage data generated by connected sensors, products, or machines to enable automation, encourage faster decision making, and gain competitive advantage. Due to the potential impact of IoT on organizations, we have asked the respondents how important they believe IoT can be to their companies. Results in Figure 20 indicate that there is a consensus among German organizations that IoT will change businesses. On average, about 60% of the respondents believed that it will be strategic for their businesses, and 21% even said its impact will be transformational. An analysis regarding the familiarity of respondents with the IoT concept reveals that the better the decision makers understand what IoT is about, the more respondents think it will have a significant influence on their companies. 95% of the interviewees very familiar with the IoT believed it will either be strategic or transformational for their businesses over time. IDC thinks that IoT has triggered a change in the business itself by modifying business behavior through new processes designed to react based on the live data being transformed into actionable information. This is very promising for IoT vendors as they are on top of a major wave of transformation that is going to change the way companies do business significantly IDC #OT02W 30

34 FIGURE 20 Impact of IoT on Business Models Q. How important do you think the Internet of Things could be to your organization? n = 67 (very familiar); n = 64 (moderately familiar); n = 15 (somewhat familiar) Figure 20 clearly shows that the more familiar buyers are with IoT, the more they believe it will be transformational or strategic for their organizations. This is significant for vendors that will need to spend time educating their customer base to drive IoT adoption. The impact of IoT on business models will be remarkable. We believe that IoT will be a transformational revolution on a tremendous scale either companies or vendors cannot afford to miss. Its influence will be by far greater than what has been referred to as M2M communication. Vendors for sensors, embedded and intelligent systems, connectivity, management platforms, and analytics software will strive to benefit from this development. However, as this study has focused primarily on IoT use cases in the business environment, IoT is making big steps in terms of adoption in the private consumer sphere as well. Fitness trackers as well as electronic household equipment such as connected coffee machines, televisions, and fire detectors are examples of how it has become part of our daily lives. It will be interesting to see how consumers are willing to give up certain parts of their privacy to benefit from latest technology developments in the near future IDC #OT02W 31

35 With regard to IoT's takeoff, respondents are unsure if this is going to happen in the private or business environment first. On average, 47% of the decision makers interviewed expected that IoT is going to be successful in the business-to-business (B2B) market first, whereas 44% believed it will be in the consumer market. Interestingly, the larger the organizations are, the higher the share of respondents that think IoT will take off first in the B2B environment. As large enterprises are typically early technology adopters and likely to have IoT (pilot) projects in place, they are more aware about the maturity of B2B use cases. From an IDC perspective, the results draw a realistic picture. We believe that IoT will take off in the consumer and business market at about the same time in Germany given that IoT providers are going to address obstacles that currently decelerate adoption. FIGURE 21 Where IoT Will Take Off First Q. What are your personal thoughts about where the Internet of Things will take off? n = 128 (89 for 500 4,999; 39 for 5,000+); Note: Respondents have already deployed or plan to launch a solution to connect sensors, systems, or products. ESSENTIAL GUIDANCE As we believe IoT will become a major opportunity for all vendor types, IDC offers the following advice to solution providers. Advice for IT Vendors IDC has the following advice for IT vendors: 2015 IDC #OT02W 32

36 Educate both internally and externally. Although IoT will grow fast, vendors must not rest on their laurels. They must drive the understanding of how IoT can change their market. This means educating their own sales force as to the possibilities offered as well as spending time explaining to clients and prospects what IoT can do for them. As shown in this survey, the more buyers understand IoT, the more they think it can be transformational to them. Education is therefore the first step for any vendor looking to gain significant market share within this market. Implement go-to-market strategies and position yourself as the vendor of choice. The survey results are very clear in the sense that the IoT market in Germany is going to grow significantly in 2015 and ahead with a lot of organizations having plans to deploy or extend existing IoT solutions. German decision makers perceive hardware vendors as potential leaders in the IoT sphere; however, this may change at short notice in this dynamic market environment. To benefit from the market growth, vendors are required to drive solution concepts to the market, consider partnerships with vendors, and position themselves as the preferred IoT vendors in the market at an early stage. Identify and establish strategic IoT partnerships. No vendor has the competencies to offer solutions across the entire IoT stack as a single source. However, organizations request integrated solutions. Due to the lack of internal solutioning capabilities, developing strategic partnerships is key to address the IoT market in Germany today. Sensor and hardware manufacturers, software platform and analytics vendors, and telcos should therefore identify suitable companies for a strategic cooperation. Having partnerships in place to offer an endto-end IoT solution will be crucial to market success. This means sharing strategy, segmentation, and objectives with key players from a different background. IoT is not only an IT topic, so get all relevant stakeholders onboard. IoT is a concept with many facets, and the realization of projects will typically require endorsement beyond the IT department. The deployment of IoT solutions will have significant impacts on the business itself, rather than just IT processes. Thus, it is important for vendors to get all relevant stakeholders from the IT and LOBs involved when pitching an IoT solution. As IoT will have an impact on business models, it will increasingly get the attention of management. Aligning the different perspectives of IT, LOBs, and senior management will become a critical success factor in the sales processes. Communicate and highlight successful IoT lighthouse projects. Although on the rise, the IoT market is not fully mature: a lot of doubt remains and many issues need to be resolved. Buyers will need to see practical examples of where things have been implemented successfully. A few think that IoT technology is not yet mature for deployment. While we believe that further developments of IoT technologies are required and will take place, successful customer projects have already been deployed today. Concrete practical examples that highlight challenges and benefits of deploying an IoT solution are eligible to reduce unawareness and skepticism (e.g., in regard to data security and privacy) among German organizations. Vendors should therefore communicate successful customer projects that underline their competency and function as lighthouses in the market. LEARN MORE Related Research Internet of Things: New Worldwide Demand-Side Research on Perceptions and Plans for Adoption (IDC #WC , November 2014) The Internet of Things Across Western European Vertical Markets: New Insights on Opportunities and Use Cases (IDC #M08W, August 2014) The Internet of Things Adoption in Europe (IDC #OT01W, July 2014) 2015 IDC #OT02W 33