Unlocking value from IoT connectivity: Six considerations for choosing a
provider
Companies
must take a more nuanced look at connectivity providers as the Internet of
Things evolves.
The Internet of Things (IoT) is growing rapidly, with 127 new devices
connecting to the Internet every second. Although many new applications target
consumers, including smart-home systems and connected cars, others help
companies optimize operations ranging from manufacturing to customer
segmentation. As IoT expands, companies’ connectivity expenditures will rise by
about 15 percent annually through 2022. To capture this growth, connectivity
providers will extend their coverage and investigate innovative technologies,
including low-power, wide-area networks (LPWANs).
Such shifts could have major repercussions
for companies that sell IoT devices or services. For many years, they relied on
country leads to select connectivity providers, and the default choice was
often the largest regional or local player. A few also asked systems
integrators for provider recommendations, often with similar results. But as
IoT becomes more important to the bottom line, companies must reassess their
connectivity needs and make more nuanced decisions that consider global
coverage, intelligent-switching capabilities, service delivery, pricing,
security, and IoT expertise.
Global
coverage under one contract
For mobile connectivity, companies often have multiple country-specific
contracts, all with different terms, pricing, and coverage options. With IoT, a
simpler path may make more sense: having a contract with one mobile network
operator (MNO) or mobile virtual network operator (MVNO) that provides global
connectivity through a single platform. To ensure coverage beyond its
established base, the selected connectivity provider must tap into its roaming
agreements with other MNOs or MVNOs or seek new partners to fill gaps.
The single-contract approach helps
companies minimize complexity, since responsibility for global coverage falls
to the provider, rather than to the company supplying IoT devices or services.
Using one MNO or MVNO also gives companies more insight into their data usage
because they can monitor it through a single platform.
Strong
intelligent-switching capabilities
Many providers are investigating two
intelligent-switching technologies, both of which are relatively new. The
first, intelligent mobile switching, enables IoT devices to shift seamlessly
from one MNO or MVNO to another. It is still uncommon for IoT devices to have
this ability. The second technology, intelligent platform switching, lets
devices transition among unlicensed, cellular, and mobile platforms depending
on their data-transmission requirements and other factors. No IoT devices are
yet capable of platform switching, but some companies are increasing their
investment in this area.
Mobile switching can take various forms.
Some IoT players enable this capability through multiple international mobile
subscriber identity (multi-IMSI) technology, which allows a single
subscriber-identity module (SIM) card to be assigned numerous local numbers,
including those for different countries. This tactic keeps roaming charges
lower than those obtained through bilateral agreements with other providers.
Since multi-IMSI networks are still not widely available, most companies cannot
take advantage of them and still incur roaming charges.
Embedded universal integrated-circuit
cards (eUICCs), an emerging SIM technology, may eventually represent a better
solution than multi-IMSI for mobile switching in IoT. Each eUICC hosts profiles
of multiple MNOs that users can remotely add or remove on demand, potentially
giving them more control over roaming costs and quality than multi-ISMI
technology.
Few MNOs and MVNOs now provide eUICCs, partly
because the technology is so new, but customers may begin to request this
option as they learn more about its value. If eUICCs become mainstream, they
could become the default connectivity option—lowering costs dramatically and
potentially disrupting the industry. But enterprises must carefully evaluate
the benefits and trade-offs of eUICCs before aggressively pursuing this option.
For example, eUICCs are a relatively immature technology and thus may raise a
host of reliability issues or customer-experience problems. Enterprises also
risk losing subsidies or discounts from MNOs if they move to eUICCs, or they
may find that their eUICC provider does not connect to all the MNOs needed to
achieve their coverage goals.
Strong
service-delivery capabilities
With mobile connectivity, companies
naturally favor providers with good track records for quality service because
outages will result in a barrage of customer complaints. But most fail to apply
the same logic when evaluating their IoT connectivity needs. With IoT devices just
beginning to gain traction, an outage may seem like a minor problem compared to
the chaos that occurs when mobile users lose cellular coverage. This
misconception may cause procurement leads to downplay service quality and focus
on cost issues when selecting an IoT connectivity solution. In such cases, the
vendor of choice is often a company’s current mobile provider or the least
expensive alternative.
Although cost issues deserve attention,
companies will soon recognize that poor service could derail their fledgling IoT offerings. For instance, drivers of connected cars that lose online navigation capabilities in remote regions
are likely to assign blame to the business that sold the IoT device, rather
than the connectivity provider. As companies begin to place more weight on
service quality, they should focus on the following provider characteristics:
·
Leadership and strategy. The best IoT connectivity providers are committed
to innovation and invest in the latest technologies, including eUICCs.
·
Specialized knowledge. Companies should favor connectivity providers that
truly understand their industries and offer tailored products and services for
each customer, rather than a suite of generic offerings.
·
Customized plans and
performance measures. Standard service-level agreements
(SLAs) often leave much to be desired. For instance, they might state that
providers must restore connectivity after an outage but not specify the time
frame when this must occur. A better option involves asking for customized
contracts with specific key performance indicators (KPIs). In the case of service
disruption, the contract could reflect the customer’s desired deadline for
service restoration—say within three days—and have KPIs that track the percent
of outages extending beyond that time. Or if a company wanted to improve its
call-center service, the contract could specify that providers must answer 90
percent of service calls within 45 seconds and limit hold times to three
minutes in 80 percent of cases.
·
Risk management. The danger of a catastrophic event looms over
every business, and for IoT that could mean a widespread outage affecting
thousands of devices. Contracts should reflect such dangers by including
risk-management and contingency plans.
Customized
pricing
Most IoT connectivity providers offer
multiple pricing plans with different data limits and other features—one plan
might have low set-up fees and high overage charges while a second offers the
opposite. When evaluating their options, most companies choose a standard plan,
rather than requesting a customized offering, because they lack insight into
their connectivity needs and usage patterns. Without this information, they
often pay for unnecessary features, such as a data-volume allowance that far
exceeds their requirements.
The creation of a customized pricing plan
may seem daunting, but a simple approach can help. As a first step, companies
should determine how employees are using IoT devices within their organization,
as well as how customers are using their IoT-enabled products. During this
analysis, they should focus on their most important use cases, which can relate
to internal operations, customer needs, or both. Companies can then classify
their organization into one of three categories based on data needs (low,
medium, or high). Roaming and connectivity requirements, as well as the need
for overage protection, may vary within each of these categories, as shown in.
Let’s consider the example of a logistics
company, identical to the one discussed in the exhibit, to understand the
factors that dictate its contract requirements. This company operates a fleet
of 1,000 trucks across Europe in a seasonal industry. The trucks tend to make
local trips over the same routes rather than long journeys that span countries,
and they have low data requirements. Since this profile would put the company
in category one, it would likely prefer a package that charges for limited data
volume. The company would also want both satellite and mobile connectivity
(meeting needs for both land and sea, since some trucks may have to be
transported by ship on rare occasions). Data usage might vary by truck, with
some using much more than others, so a contract that includes a pooled data
plan would be preferable. Providers might also win the company’s business
through more flexible pricing options. One draw might be a plan that allows the
client to carry unused data forward, since business varies by season.
Emphasis
on security
As IoT implementation
increases, so will threats from hackers.
When companies are trying to determine how well connectivity providers can combat such intrusions, they should focus on three
areas: infrastructure, endpoint security, and encryption techniques.
Infrastructure
Most providers offer strong network-design
measures and process-design protection, including traffic separation and access
management, but there may be important differentiators related to
technology-design protection, including firewalls. Companies should also gauge
how quickly providers can respond to hacker intrusions.
Endpoint security
Most IoT players are reluctant to require
device authentication, a process in which a machine’s credentials are compared
to those on an authorized list to determine if it has permission to access the
system. But the cybersecurity threats to IoT may require them to reconsider
this stance. For instance, they might decide to ask device users to enter
passwords before connecting a device to IoT, and would thus need providers who
can support this capability. IoT device manufacturers must also fortify their
systems through signature detection (determining that a device is infected and
communicating with hackers) or by looking for traffic anomalies. The ability to
spot traffic aberrations in real time could give providers a great advantage.
Encryption standards
Cryptography—the process of transforming
plain text into encrypted text—is essential to protecting the integrity of data
transmitted over IoT and keeping them confidential. But companies should keep
in mind that all encryption processes are not created equal when evaluating
providers. For example, they should seek providers with encryption methods that
allow for agility—in other words, those with base algorithms that can easily
adapt and evolve in response to an attack. In addition, companies should ensure
that providers follow best practices for cryptography. Consider issues related
to crypto keys—the algorithms that encrypt text. If a provider uses a system-wide
crypto key, hackers that unlock the code could breach its entire organization.
While many connectivity providers are
strong in one or two of these areas, few offer comprehensive security solutions
that incorporate all three defenses. Unless they step up their game, IoT
players will need to contact cybersecurity specialists for additional
protection.
IoT
connectivity expertise
As IoT connectivity requirements increase
in complexity, and as options continue to multiply, companies will need
providers who can advise them about the best solutions and potential
partnerships. These providers may include both start-ups specializing in IoT
and established players in the mobile sphere.
As discussed, companies appreciate
contracts that include tailored pricing based on data usage and roaming. But
the best providers will take customization beyond that by looking at each
customer’s top use cases and considering their specific requirements—for
instance, the typical frequency of data transfer and reliability needs. With
this information, they can identify the best connectivity solutions.
Consider, for instance, requirements
within the connected-car sector, where one company could offer multiple IoT
applications, including those for fleet management, in-vehicle entertainment,
and stolen-vehicle recovery . Each use case has different data requirements for
rates, frequency of transfer, and data per report. However, all use cases
require the same degree of reliability, security, and coverage. By contrast,
industrial and retail applications often have strikingly different data
requirements, as well as varying needs for coverage, reliability, and security.
To determine the best connectivity
solution, companies must identify their top one or two use cases. (In some
cases, the top use cases may relate to IoT applications used internally, rather
than those used by customers.) They should then work with providers to identify
optimal connectivity solutions and develop tailored contracts.
Companies will also appreciate providers
that can advise them on the best connectivity technologies. Some IoT players,
for instance, will soon need to find alternatives to 3G networks because these
are being discontinued in their areas. Others might want to investigate LPWANs.
Although these networks now cover only 20 percent of the global population,
this may increase to 100 percent by 2022. As their name implies, LPWANs allow
long-range communications among connected devices while optimizing both costs
and power-consumption requirements. Despite these benefits, the move to LPWANs
is not always advisable because they do not provide the most reliable coverage.
Enterprises might not understand such nuances, but a knowledgeable provider
would.
Both new and established connectivity
providers are aggressively trying to win business in the IoT sphere. Their
proliferation, combined with the emergence of new technologies, creates more
connectivity options than ever. While companies may be tempted to focus on
cost, as they have done for many years, the best players will take a more
thoughtful approach by developing a detailed understanding of their
connectivity needs—often for the first time—and then seeking providers who
combine top capabilities with tailored solutions. With the right connectivity
provider, companies will be able to take IoT to a new level—and their bottom
line will reflect the results.
By Kim Baroudy, Sunil Kishore, Sumesh Nair,
and Mark Patel March 2018
https://www.mckinsey.com/industries/high-tech/our-insights/unlocking-value-from-iot-connectivity-six-considerations--for-choosing-a-provider?cid=other-eml-alt-mip-mck-oth-1803&hlkid=a7593578eaec47ffa7a612f8f089a41d&hctky=1627601&hdpid=7da3859f-a164-4d25-bdbc-13b693baa29e
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