Internet of Things markets

Connected Objects Internet of Things markets BIG - RussianTechTour - NUMA 29th October 2015 Yves GASSOT, CEO, IDATE

Agenda Scope of Internet of Things market Main market figures New segmentation with emerging markets Wrap-up

Scope of the Internet of Things Many different concepts and markets under one umbrella Direct connectivity Machines or specific hubs Primary value without connectivity M2M Connected cars, smart meters, alarms, point of sale, remote health monitoring Primary value from connectivity (can be in real time or differed through sync) Connected Information Devices Indirect connectivity Through an information device, typically a smartphone or STB Objects with electronic ID Supply and retail chains (RFID, NFC, QR Code) Wearables & gadgets Activity trackers, fitness gadgets Source: IDATE, World M2M Market, November 2014 3

Strong but heterogeneous growth of IoT markets By 2025, 155 billion things across the world, up from 42 billion in 2015 (14% CAGR) The Objects with electronic ID leads market by far (80% of total things) 'Connected information devices': 20 billion devices (13% CAGR, in 10 years). M2M segment represents 6% (10 billion) of total market in 2025 'Wearable and connected objects' will comprise 1.4 billion units in 2025 but fastest growth (30% CAGR) over the period. Objects with electronic ID as a leading concept, by volume 4 Source: IDATE, Internet of Things, October 2015

IoT scope with impacts on value chains and related player positionings Product manufacturers Positioned mainly on the hardware segment, but there could be strong variations MNOs Naturally present on the connectivity segment on M2M and connected-information devices. Internet giants Mainly addressing the consumer market Clearly positioned on the VAS (their core business) and data management IT integrators Mainly positioned on the professional markets (IT side & data management through their cloud services) Hardware Connectivity Data management Information system Value added services M2M Objects with electronic ID Connected information devices Wearables & connected objects Source: IDATE, Internet of Things, October 2015

Strong disparities among verticals Strong markets in volume: pharmaceutical and textile industries Supply chain optimization and counterfeiting issues Fast growth of Utilities, driven by regulation and public policies across the world Automotive and electronics are also taking off Internet of Things market segmentation, world, by object, 2015 7 Source: IDATE, Internet of Things, October 2015

Beyond electronic ID technologies, cellular will be key RFID and 2D barcodes as main enablers of the Internet of Objects Low-cost and widely used in the industry for supply-chain optimisation Cellular technology is the leading traditional networking technology Smartphone is taken into account in this sizing But M2M only represents 15% of total cellular connections WPAN technologies are also very widely used (6% in 2025) Cost reasons & fast-growing adoption of smartphones (used as an intermediary device). LPWA technologies driven mainly by utilities at first Then they should address applications that does not even exist yet 12 000 Breakdown of IoT technologies, by connection, RFID/2D barcodes excluded, world 10 000 8 000 6 000 4 000 2 000 0 2013 2015 2018 2020 2022 2025 Cellular Wireless PAN LPWA Fixed Satellite 8 Source: IDATE, Internet of Things, October 2015

Towards a new IoT segmentation M2M, which includes industrial and closed loop-based applications. Wearables and connected objects which currently do not communicate between each other. Industrial Internet, referring to the smart-factory concept where multiple applications interact with others to optimise all internal processes. Smart home concept, where all appliances aim to converse with others even without accessing the Internet Internet of Things markets Source: IDATE, Internet of Things, October 2015 10

IoT as a key pillar of digital transformation of verticals Many opportunities coming from connected objects Cost-saving opportunities (mainly through various optimisations), GE data-oriented offering New services will emerge mainly through connectivity itself (remote control applications), data generated by machines. In the industrial world, multiple changes are expected More and more services on the top of their products Or even instead of their products (Product As A Service) Companies could shift their core business model From a product sale towards a service offering. Leading industrial giants already have their own dataoriented department GE generated over 1 billion USD around this new business in 2014. Consumer market could also be an opportunity BUT this should take longer due to security and privacy concerns. Source: GE Connected objects will become one of the key pillars of the industrial giants in their servicisation strategy

Wrap-up Many different concepts under the Internet of Things umbrella Different markets/concepts with different dynamics 80% of objects refers to objects with electronic ID Impacts on player positionings Internet of Things development through vertical markets Pharmaceutical and textile as primary markets in volume Regulation as a key driver for many verticals including the fast-growing ones like utilities, automotive Outside electronic ID-based technologies, cellular should be the leading networking technology New entrants with low power and long range features should address applications that does not even exist yet! New segmentation of the Internet of Things Industrial Internet set to accelerate servicisation as well as internal optimisation Smart home is still raising many questions (price, technical fragmentation) M2M as a mature market where the bulk of the revenues coming from IT/software services Adoption of wearables and connected objects is suffering from lack of services Connected objects will become a key pillar in servicisation strategy for the industrial giants

Appendix

Industrial Internet set to accelerate servicisation as well as internal optimisation Seen as the Fourth Industrial Revolution Introduction of the Internet of Things in the manufacturing environment. Objectives Initially provide internal-process optimisation (via cost savings) Create business shift allowing service provision thanks to connected industrial machines/products Value chain quite fragmented Five different types of players, ranging from sensor providers through connectivity players to platform providers. Value comes from the collection and analysis of data. Many questions remain on how to collect data and analyse them in order to create revenues. The four Industrial Revolutions Source: DFKI Industrial Internet at GE Market drivers Capacity to generate revenues Save costs through optimising operational process Market barriers Security Interoperability Source: GE 15

Smart home still raising many questions Broad ecosystem (Too?) many applications = Connected version of home automation (commercial failure) (Too?) many applications under the smart home umbrella Many different players traditional consumer electronics manufacturers household appliance providers players from energy, lighting, security and others Value chain dominated by product manufacturers Bulk of revenues come from product sales. Services could emerge in the future but they will still be very limited Many doubts exist about viable business models, related to interest of data and monetisation issues. Will all objects will be connected? Are all data valuable? Drivers Security Energy management Barriers Privacy and security issues Price levels of these products Technical fragmentation The smart home will definitely take off but it will take longer than expected. Source: Smart home energy Fragmented smart-home landscape Source: Arthur D Little 16

Bulk of M2M revenues coming from IT/software services Market will develop through various verticals Previously based on industrial applications Now driven by three key verticals (automotive, consumer electronics and utilities) in volume, thanks to regulation in some regions across the world In the longer term, emerging segments will include healthcare and the concept range will include smart cities. Mature development should take longer than expected as debate continues around business doubts. The M2M value chain is very fragmented Combination of value chains The bulk of M2M revenues should come from software and IT integration Primary objectives: to make massive cost savings within the verticals. all players to provide end-to-end offering with a strong focus on services Drivers Regulation and public policies within certain verticals, chiefly automotive and energy. Barriers Financial side Total cost of ownership Doubts on business models for some applications Lack of education of the marketplace. M2M development through vertical markets Source: IDATE, Internet of Things, October 2015 M2M value chain Source: IDATE, Internet of Things, October 2015 17

Adoption of wearables and connected objects is suffering from lack of services The ecosystem is mainly dominated by object manufacturers MNOs are at present absent from this market as connectivity providers Main focus of various connected wearable devices Main pure players Main focus Withings Wellness Fitbit Fitness The smart home market suffers from a lack of services on top of devices Early adopters are not benefiting from value-added services, but only receive gross data. Nest Netatmo Jawbone MyFox Security and energy efficiency Security and energy efficiency Fitness Security and energy efficiency Adoption is still very limited for now Even the Apple Watch is not meeting its expected success. and even facing decreasing interest from device owners. Different polls/surveys show the abandonment of connected wearables after only 12 months only Source: IDATE, Internet of Things, October 2015 Adoption survey, key wearable devices Drivers Maturity of the technical solution, such as standardised networking technologies. Growth of smartphone adoption Absence of telecom costs for the majority of devices Price of the connected wearable is a major barrier More expensive by far as the bill of material (BoM) increase compared to non-connected devices (with similar features). Standalone devices Privacy concerns for devices generating personal data (which are expected to grow). Source: Accenture, January 2015 18