January 2015

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New Players Fight for a Stake

In the Building Internet of Things Market

Allan McHale
Allan McHale,

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As our recently published report shows – http://www.memoori.com/portfolio/internet-things-smart-buildings-2014-2020/ – smart, connected products offer exponentially expanding opportunities for new and improved functionality; as they cut across traditional product boundaries and add further capabilities.

The changing nature of products is also disrupting value chains, forcing companies to rethink how they organize to meet new challenges and take advantage of the new business opportunities.

There are a number of possible scenarios that may play out in the coming years:

  1. New market entrants from the IT world come up with their own viable building automation propositions and leverage their strengths in connectivity and / or data analytics to attract new customers.
  2. IT players choose to partner with incumbent building systems players to develop end-to-end solutions.
  3. IT service providers simply look to provide value-add services such as data analytics or visualization tools to the buildings market.
  4. Conglomerates attempting to expand their capabilities through acquisitions and organic growth to enable them to deliver an end-to-end Big Data services.

We expect a combination of all 4 scenarios to play out, with different IT players following different strategies. Should one or more IT players go for scenario 1 and make a proper play for the buildings market, this may help drive further raft of M&A activity as the IT players look to gain the knowledge, skills and IP required to deliver effective building related services.

In this scenario we would also see the poaching of sector-specific talent from building market players by IT companies as a means to build up their know-how in mechanical, electrical, physical and energy systems for buildings.

Scenario 4 involves the M&A activity happening in the reverse, with acquisitions flowing further up the value chain. In many cases the deep pockets of the major IT firms relative to most of the industry players in the buildings sphere this seems less likely. However we are already seeing some signs of the more powerful conglomerates focused on the building sector opting for the 4th scenario, with Schneider’s acquisition of Invensys allowing it to offer a much wider range of IT software solutions.

The building automation industry must also remain wary of the most extreme scenario, and avoid the fate of the digital revolutions that destroyed Kodak in the 90s AND utterly transformed the face of the music industry since 2000.

The lessons are there to be learnt, and incumbents must adapt their strategies to face a new interconnected reality, and flourish in a promising growth market, or face being consigned to the pages of history. If they can develop the right mix of skills and service offerings, horizontal moves into adjacent markets such as smart grid, retail or industrial sectors might also prove attractive to players in the Building Internet of Things (BIoT) market.

Internet of Things Supply Chain Partnering

BIoT solutions make a tough sell if they are made up of a disparate collection of hardware, software and network products from different vendors. Business practice, as well as improved standards and protocols for interoperability, security, and performance will be required and will require co-operation across the supply chain.

Some operators are attempting to develop end-to-end services internally as an offshoot of their own supply chain needs, but given the complexity and diversity of the IoT we expect most such attempts to fail. Several nascent consortia, partnerships and alliances of powerful IT industry players, telcos and semiconductor manufacturers are already emerging to serve the wider IoT market, but the dust has still to settle on which will win out. We cover these partnerships in greater detail in our research report – http://www.memoori.com/portfolio/internet-things-smart-buildings-2014-2020/

Nevertheless, such collaborations represent the best available means to develop standardized, stable, secure and seamless offerings that business can understand and trust and to deliver the benefits they are being promised.

It will be mutually beneficial to both the consortiums and the providers of building services / systems to join forces to better deliver the BIoT. For players currently operating in the vertical, it will give them the opportunity to work with leading IT firms to ensure the interconnectivity of their solutions. Whilst for the IT players it will give them greater insights into the particularities of the buildings market. We expect these emerging consortia to tempt increasing numbers of buildings players to join their ranks over the next 12 months.

The Growth in Cloud Based Offerings

Connecting smart solutions to the cloud is becoming an increasingly popular market model. It enables intangible service and product suppliers to leverage previously unrealistic storage and analytical power and hence deliver entirely new enhanced capabilities with the product or service.

Massively increased data volumes being generated by buildings systems also mean cloud power is a pre-requisite in many cases for deriving value from the data.

Cloud based offerings have taken many forms to exploit this opportunity, from IaaS (Infrastructure as a Service, PaaS (Platform as a Service),SaaS (Software as a Service), Video Surveillance as a Service (VSaas), and many others.


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