Key findings of the
research include:
- The IoT
platforms market exceeded forecasts, growing 48% between 2015 and 2020,
according to IoT Analytics 2021
market report on IoT Platforms.
- Many large
multinationals have adopted IoT Platforms in recent years.
- Microsoft
and AWS have emerged as frontrunners in the market.
- IoT platform
architectures and business models have undergone large changes.
IoT
Analytics, a leading provider of market insights and competitive intelligence
for the Internet of Things (IoT) and Industry 4.0, this month launched a
230-page market report examining the IoT platforms market size & outlook
2021-2026 and found that the market has grown into a mature $5 billion market
over the last five years.
The growth is driven by
the adoption of large enterprises and increasingly dominated by hyperscalers.
2015
-2020: THE STORY OF A MARKET TRANSFORMATION
Five years ago, when IoT
Analytics forecasted that the IoT platforms market would have a
5-year compound annual growth rate (CAGR) of 35%, the team wondered if the
growth projection was unrealistically high.
Five years later, it has
become apparent that the forecast was too low. The IoT Platforms market between
2015 and 2020 grew to be $800 million larger than we forecasted back in early
2016, resulting in a staggering 48% CAGR.
Commenting on the
findings of the research Knud Lasse Lueth, CEO at IoT Analytics, says: “5
years ago, no one really knew what an IoT platform was, let alone how big the
market would be, which business models would work, how architectures would
evolve, and which companies/industries would adopt them. The only thing that
was “known” was that the IoT platforms market was a billion-dollar “blue ocean”
opportunity ready to be captured by innovative companies.”
Today we have a bit more
clarity on these topics, as the IoT platforms market has grown into a more
mature (but still rapidly growing ) $5 billion market. Based on our latest IoT
Platforms Market Report 2021-2026, this article looks at five things to know
about the IoT platforms market today and compares these things to the five
things to know about IoT platforms analysis we published in early 2016.
1. IoT Platform Definition: The Functionality of IoT Platforms has Expanded
“IoT platform” is still
a relatively ambiguous phrase that means different things to different people
(much like the term “edge computing”). Before answering the question “What is
an IoT platform?” one needs to answer the question “What is a platform?”.
A platform is a group of technologies
that are used as a base upon which other applications, processes, services, or
technologies are developed. Platforms can be hardware (e.g., chips, devices) or
software. Types of software platforms include operating systems, development
environments (e.g., Java, .NET), and digital platforms. Digital platforms are
highly configurable/extensible software tools that sit above traditional
development platforms. There are several types of digital platforms, including
social (e.g., Facebook, LinkedIn), marketplace (e.g., Amazon, app stores), and
IoT platforms. IoT Platform definition: An IoT platform is a type of
digital platform that is used for building and managing IoT solutions.
The functionality of IoT
platforms (and subsequent definition) has evolved as the volume, variety, and
velocity of data that IoT solutions deal with has increased over the past 5
years. IoT Analytics’ definition of an IoT platform has changed as the
functionality of IoT platforms has expanded. The picture above compares how IoT
Analytics defined 8 components of an IoT platform in 2016 with the IoT Platform
definition today – grouped into 24 subcomponents. Many of today’s components
are similar to those in the 2016 architecture, but modern IoT platforms have become
more specialized (e.g., focusing on device management or telco management),
more modular (e.g., via microservices), and more data-centric (by offering data
management/enablement components) in nature. The 2021 definition better
reflects the reality of today’s modern IoT platforms by segmenting them into
four distinct layers, each of which can consist of several components and/or
subcomponents. The four main layers are:
1. Application management /
enablement – providing the ability to rapidly develop, test, and
seamlessly manage IoT applications
2. Data management / enablement – providing the ability to ingest,
store, and analyze data from IoT devices
3. Telco management – providing telecommunications companies the
ability to manage the connectivity to IoT devices at scale
4. Device management – providing the ability to remotely configure,
monitor, and manage IoT devices, including over-the-air updates
2. IoT Platforms Market: Growth Has Exceeded Expectations, Driven by Cloud Hyperscalers
Back in early 2016, IoT
Analytics forecasted that the IoT platforms market would reach $1.3B by 2020.
Our latest report sizes the market at $5.0B in 2020 – almost 4x bigger than we
projected in our 2016 report. However, this is a bit of an apples and oranges comparison,
as a large part of this underestimation can be explained by our expanded
definition of an IoT platform (from just considering application enablement
platforms to now considering 4 main platform types). Comparing only the
application management/enablement portion of the IoT platforms report still
yields a rather humbling (from a forecast accuracy perspective) result; the
market is ~60% (or ~$0.8 billion) larger than we forecasted it would be back in
2016. In fact, the IoT platforms market grew at a staggering annual growth rate
of 48% between 2015 and 2020, significantly higher than the 35% we forecasted.
Matthew Wopata,
principal analyst at IoT Analytics, says:
“A
big portion of the growth in the IoT platforms market can be attributed to
rapid revenue growth realized by the cloud hyperscalers (most notably Microsoft
and AWS), who were just barely dipping their toes into IoT back in early 2016.”
“In fact, AWS IoT Core
became generally available in December 2015 , and Microsoft’s Azure IoT Hub did
not reach GA status until February 2016. Companies like PTC, Ayla Networks,
General Electric, and Cisco entered the IoT platforms market earlier than the
cloud providers but eventually realized they needed to partner with (rather
than compete with) the cloud hyperscalers in order to stay relevant.”
A big part of the cloud
hyperscalers’ success is their massive investments in IoT, which have yielded
dozens of new value-creating products and services for IoT end-users over the
past 5 years. AWS started with one service called AWS IoT and now offers at
least 8 IoT-related services, including AWS IoT Greengrass, AWS IoT Device
Defender, AWS IoT Device Management, and others. Despite hundreds of IoT
platforms on the market, hyperscalers, according to our estimate, captured ~30%
of the total IoT platforms market in 2020.
3.
IoT Platform Business Models: New Pricing Strategies and Revenue Streams Have
Emerged
The entrance of the
cloud hyperscaler giants into the market in early 2016 provided validation that
the IoT platform market opportunity was real. The entrance (among other things)
also led to the emergence of new pricing and revenue strategies for new and
existing IoT platform vendors.
New pricing strategiesNew pricing strategies/themes that have emerged include:
- More
subscription pricing (e.g., PTC transitioned ThingWorx to 100%
subscription in early 2019)
- More
granular pricing (e.g., ThingLogix charges based on the number of
Foundry events consumed)
- More complex
pricing (e.g., AWS IoT Core was initially priced based on number of
messages sent, now each service has a unique pricing scheme based on a
variety of metrics such as “things registered”, “analytics compute units”,
and others)
- More (but
still rare) outcome-based pricing (e.g., Relayr’s “business outcome
as a service” solutions)
New revenue streams –
OEMs
Our 2016 article on IoT
Platforms highlighted the fact that data that is collected by IoT platforms
will lead to the creation of IoT services for connected businesses. Today,
product companies (OEMs) are using IoT platforms to efficiently add IoT
connectivity to their offerings and enable new connected software/service
revenue streams alongside their equipment/products (see our IoT
Commercialization & Business Model Report for more information).
New revenue streams –
Vendors
Today’s IoT platform
market provides revenue opportunities beyond traditional platform revenues,
including:
- Applications.
Both platform vendors themselves and 3rd parties are monetizing the
applications built on top of IoT platforms (e.g., Siemens’ Closed-Loop
Foundation application for MindSphere, Edge2Web’s Director application for
MindSphere)
- Compute
infrastructure. Cloud hyperscalers are realizing IaaS revenue by hosting
other companies’ IoT platforms on their infrastructure (e.g.,
MachineMetrics on AWS, Uptake on Azure, Oden Technologies on Google
Cloud).
- Services.
Platform vendors themselves as well as third party systems integrators
offer services related to designing, integrating, and operating IoT
platforms (see our blog post on IoT system integration services for more
info).
- Connectivity.
Telco companies are bundling their own IoT platforms with connectivity
services (e.g., Verizon’s network + ThingSpace) or integrating with
existing IoT platforms to provide seamless connectivity (e.g., Eseye +
AWS).
- End-to-end
solutions. As the platform layer becomes less differentiated, companies
are increasingly offering more vertical or use case specific solutions
that include hardware and software and leverage some underlying IoT
platform technology (e.g., ABB Ability solutions, AWS Monitron).
Cloud hyperscalers are capturing an increasing amount of platform revenue (via PaaS) as well as compute infrastructure revenue by providing IaaS for other platform providers moving their offerings to the cloud. Not wanting to compete with the hyperscalers, non-hyperscaler vendors are increasingly focusing on more vertical-specific applications (e.g., GE Digital is now focusing on purpose-built applications as opposed to being a core platform player), services (e.g., Accenture seemingly stopped promoting its IoT platform), and solutions (e.g., Siemens’ shift of MindSphere to an “industrial IoT as a service” solution).
4. IoT Platform Adoption: Large Enterprises Have Made Their (Initial) IoT Platform Decisions
5 years ago, very few
large companies had adopted IoT platforms, and those that had were in the very
early stages of their rollouts. Today, large, multinational corporations have
gone through extensive decision-making processes and selected their platforms,
and there are several deployments approaching 1 million endpoints. Companies
like Walmart (Azure), Volkswagen (Siemens, AWS, and Azure), and Enel (C3.ai)
have all made large investments in one or more IoT platforms that will
eventually collect data from millions of IoT endpoints.
5.
IoT Platform Architectures: Modernized, More Modular, And In The Cloud
Changes in end-user preferences
over the past 5 years have caused application and hosting architectures for IoT
platforms to evolve significantly.
Application
architectures for IoT platforms have evolved from monolithic to modular,
leveraging modern technologies like containers and serverless computing.
Several vendors who were relatively early entrants in the IoT platforms space
(such as Braincube, MonoM, Jellix, and Siemens) have redesigned their platforms
to leverage modern technologies, and start-up companies like ThingLogix have
built platforms that are 100% serverless.
“Our platform
architecture in 2016 was based on a core (monolithic) module that we
continually added services to. If a customer only wanted a portion of the core
module, we just gave them the whole thing – back then we did not think that was
a problem. Over time we realized that every customer need and deployment is
slightly different, and that is why we completely redesigned our platform to be
based on containers. Today, containers are a must-have.” – Head of Industrial
Solutions at IoT Platform Company
Hosting architectures
for IoT platforms, over the last 5 years, have evolved from private on-premises
being the most popular deployment type to public cloud being the most popular
deployment type. Hybrid architectures (where some compute is on-premises and
some is in the cloud) are quickly catching up to public cloud architectures as
end users look to move some capabilities on-premises (e.g., data filtering,
real-time decision making) while leaving others in the cloud. This move to the
cloud is being led by end-users who are investing in the cloud across their
entire organization. IoT platform vendors with modern architectures are helping
customers leverage their massive cloud investments by deploying the platforms
within the customers’ own cloud environments instead of on the vendor’s cloud.
“5 years ago, 99% of our
IoT platform instances were running on our own hosted servers. Today that
number is closer to 80%, as large companies insist that the IoT platforms are
hosted on their virtual private networks which have been established with the
hyperscalers.” –
CEO at Industrial IoT Platform Company
Conclusion
and 5-Year Outlook
The way IoT platforms
evolved over the past 5 years is truly transformational: Hyperscalers are now
dominating the market, platforms are more modular, hosting preferences have
shifted to the cloud, and end-users realize value from IoT platforms at scale.
Despite the surprisingly
high growth over the past 5 years, all signs point to continued strong growth
(~30% CAGR) in the IoT platforms market for the next 5 years. Growth will be
driven by both existing customers (that are expanding their IoT platform rollouts)
and new customers (that will increasingly opt for IoT platforms instead of
home-grown solutions). Hyperscalers (specifically AWS and Microsoft) are
particularly well-positioned to maintain their market leadership and capture a
good chunk of this growth.
While we cannot fully
predict what the IoT platform market ecosystem will look like 5 years from now,
we can say that it will be at least partially shaped by the way a few key
questions are answered by the hyperscale vendors and everyone else in the ecosystem.
For hyperscale vendors, the key questions include:
- “How
supportive will we be of multi-cloud architectures?”
- “How much
should we compete with our partners?”
The key questions for
all other players in the ecosystem (e.g., non-hyperscale vendors, end-users,
service providers) include:
- “Which
hyperscaler(s) should we partner with?”
- “How deeply
should we integrate with them (e.g., IaaS or PaaS)?”
The correct answer to
each of those questions will vary for every organization and be further
complicated by uncertainty around other developing trends such as the adoption
of multi-cloud setups and the emergence of IoT platform marketplaces.