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Commercial Internet of Things (IoT) has received substantial press over the last three years.
It started in 2015 with hyped claims of IoT’s ability to deliver total transformation, but expectations around the technology have matured and IoT is now viewed as a reasonable technique for solving business problems.
However, one thing has not changed: When it comes to IoT market participants, the focus of the discussion remains on larger IT vendors, system integrators and customers.
The missing story is the involvement of the distributors, value-added resellers and smaller SIs, and the current needs of the small to midsize customers.
Why are small to midsize customers important?
Although the IoT conversation is centred on adoption among large enterprises, most of the revenue opportunity lies in addressing the multitude of small to midsize customers worldwide seeking solutions to business problems.
However, the nature of the early IoT era, which has been filled with extravagant claims, inadequate products and services, and a chaotic partner ecosystem, has led most cost-conscious customers (hint: the majority) to hesitate and throw up their hands in confusion.
Today, IoT offerings are increasingly addressing narrower business or technical requirements, and vendors are delivering collections of components that can be used to create complete solutions, lowering the burden on customers and thereby making IoT more accessible.
With the increased accessibility, the small to midsize customer opportunity is ripe for IoT.
However, TBR believes the larger IT, and in many cases operational technology (OT), vendors are not well structured to capitalise on the opportunity with smaller customers due to their more horizontal nature, along with the higher cost of sales they incur from having to decipher and construct a vast number of specific vertical use cases.
Packages and bundles
The diversity of IoT solutions initially led to most IoT offerings being general-purpose components, burdening customers, VARs or SIs with inventing and specifying IoT solutions.
The financial and organisational costs of inventing IoT solutions created a barrier to entry for smaller customers as well as customers of all sizes with smaller IoT projects.
The lack of a clear road map for assembling solutions, as well as the profusion of large vendors claiming their offerings had universal applicability, resulted in a long and expensive sales cycle and inhibited the adoption of IoT.
However, the market has evolved:
- IoT has progressed through stages, from DIY to easily integrated components to kits to finished solutions. At each point in this evolution, IoT has become less expensive, less burdensome and less risky to customers, while still delivering business benefits. TBR likens the progress to transitioning from Home Depot (custom-built from components) to Lego (pieces that fit together, often provided in one box with instructions for one possible solution) to Ikea (solution-specific kits with instructions) to Amazon (take it out of the box and plug it in).
- As the number of solutions has increased and offerings have become increasingly specific, addressing narrower business or technical requirements, participants in the market are seeing more common individual use cases that can be assembled by multi-vendor partnerships. This allows vendors, along with key partners, to offer collections of components that can be used to create complete solutions.
- Participants in the market are beginning to deliver more complete collections of components, shortening the sales cycle and increasing sales efficiency.
- Packaged and bundled solutions play in large enterprise as well as small businesses. For non-differentiated business processes, everybody benefits from the scale of packages and bundles.
This evolution has led to the emergence of packaged and bundled solutions, which are easier for customers to implement and easier for vendors to sell.
Bundles and packaged solutions encompass a continuum of use-case- specific solutions, with bundled solutions offering the greatest flexibility and customisability and packaged solutions offering the greatest ease of implementation.
Bundled solutions would fit within the Lego stage described earlier, while packaged solutions, which VARs prefer, would be categorised in the Amazon stage.
Meanwhile, SIs are likely to offer a range, from the Ikea to Amazon examples. Both types of offerings will remain on the market, serving different customers.
What these categories have in common, however, is that each one addresses a specific use case and each one is complete, allowing customers to match solutions to their problems and then exercise their preference in how the solution is delivered.
A bundle is a collection of interoperable components from partnered vendors geared toward a particular use case, and generally snaps together out of the box to solve a business challenge.
While bundles allow more room for customisation and scaling, packaged solutions are pre-tailored, or turnkey, providing less flexibility but more plug-and-play functionality.
IoT ecosystem
We spoke about the roles of distributors, VARs and SIs in the technology market. We also highlighted the emergence of packaged and bundled solutions. Where do the two intersect?
The intersection lies in the positioning of the distributors, VARs and SIs, which are poised not only to capitalise on the emergence of the new breed of solutions (bundled and packaged) but also to accelerate customer implementation of IoT and drive revenue for large IT vendors.
Why distributors are well positioned in IoT
The IoT ecosystem is sorting itself out, with IoT offerings growing more precise in scope and application. This is largely a result of IT and OT vendors abandoning broad platforms and refocusing on core strengths.
However, despite efforts by IT vendors to partner for joint go-to-market activity, the reality of the IoT market is that the customer base is so broad and customer needs are often so narrow that more horizontally oriented IT and OT vendors cannot address the market effectively.
Enter the bundling and supply chain experts: the distributors.
Distributors are more numerous than the large IT and OT vendors and often serve a particular vertical or closely related verticals. This focus allows them a better understanding of the challenges and needs of VARs, SIs and end customers.
Distributors research IT and OT vendor offerings, then assemble technology bundles or kits that act as foundational pieces upon which VARs and SIs can build packaged solutions that address common challenges within a specific vertical.
Since distributors own inventory, they can provide SIs and VARs a wide storefront for tweaks here and there for unique cases.
More focused distributors can do a better job than IT vendors of inventorying the vast number of specialised solutions from vertically focused ISVs and picking out the best of the crop for the VARs and SIs they serve.
Distributors help all parties in the ecosystem. They can tee up for VARs and SIs by providing well-stocked, vetted bundles or directions for bundles that can serve as the basis for packaged solutions, decreasing cost of sales for VARs and SIs and reducing end-customer frustration due to delayed components or technical challenges associated with integrating non-vetted component sets.
Distributors can also act as referrers for SIs and VARs — it is a mutual relationship.
By using distributors, large IT and OT vendors can reduce the cost to sell, market and stock their own solution set.
Distributors can help funnel large IT and OT vendor equipment and solutions into the vast multi-vertical marketplace, ensuring the vendors’ equipment is well represented for well-aligned architectures or use cases, as well as educating VARs and SIs of its value.
Also, distributors’ more agnostic nature makes them better positioned to assemble best-in-class solutions than competing IT and OT vendors.
Distributors can also help ISVs. Because many ISVs are small players in a large, noisy market, it can be hard for an impactful solution to reach a targeted customer base.
Distributors will research best-in-class, specialised solutions from ISVs that are geared toward the distributor’s target market and introduce the solutions to their wider customer base.
There are also mature distributors for non-IoT equipment, such as restaurant equipment, that will add IoT packages to their inventory when they are available, further broadening the reach of IoT solutioning.
The various roles of the distributor all benefit the end customer. Lower cost of sales and implementation for VARs and SIs in turn reduces customer cost, which will continue to be a primary factor in adoption for small to midsize customers.
In addition, customers will receive a well-vetted collection of components, rather than a hastily pieced-together mishmash.
Why VARs and SIs are well positioned in IoT
While distributors put the ball on the tee, VARs and SIs put the ball into the hole.
While some customers are technologically savvy enough to implement a bundled solution themselves, those customers are few and far between.
VARs and SIs can take a bundled solution and fine-tune it to the needs of customers. While there is crossover activity by both, there is distinction between how VARs and SIs behave:
- TBR believes VARs will focus on the packaged turnkey solution, seeking to transform distributor bundles into off-the-shelf plug-and-play solutions. VARs will seek to identify common challenges among customers and tailor defined solutions that have established scope, well-defined pricing and an outlined ROI. It is important to note that some VARs function more as resellers and will need to evolve (and we believe many are on this path). Some hardware VARs are focused on service support and not adding value beyond distribution. Bundle creators, or Lego makers, are looking for VAR partners that will define those turnkey solutions.
- While packaged solutions will work for more common challenges, a finer touch on last-mile implementation will be required for customers seeking to solve more customised or complex implementations of IoT. This is where SIs will come in. While they will also seek to develop turkey packaged solutions, they are better positioned to tackle complex implementations by utilising distributor bundles as a foundation and customising them to meet unique end-customer needs.
In summary
TBR believes a very important chain is forming, from the large IT or OT vendor down to the small to midsize customer, facilitated by the unsung heroes: distributors, VARs and small SIs.
Packaged solutions, enabled by bundles, will be the most impactful driver of increased IoT revenue by being clear in purpose, easier to implement, and more predictable in price and scope.
These are all attributes that small to midsize customers, which have plenty of problems that could be solved by IoT, are looking for as they consider IoT.
And while large customers are often the flashiest in their implementation of IoT, small and midsize customers make up the largest market opportunity.
TBR believes it is time for the ecosystem to pay more attention to distributors, VARs and small SIs and ensure there are very few roadblocks to the formation and operation of this new value chain.
Those unsung heroes will be not only funnels but also multipliers, giving vendors access to a much wider base of customers.
However, TBR believes the solution and component boon from emerging vendor partnerships, along with increased customer alignment, is just starting to hit its stride in 2019.
It will take some time for the approaches described to be fully adopted in the IoT market, including IT and OT vendors’ use of their distributor and VAR pipelines, and for a vast majority of existing distributors and VARs to catch up to their forward-looking peers.
Daniel Callahan is an analyst at Technology Business Research
