Analyst Angle: Emerging connected devices – service provider nightmare or nirvana?

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
For years, service providers have both discussed and offered triple-play and quad-play services as ways to generate additional revenue. Increasing attach rates for carriers has been a successful way to increase average revenue per subscriber.
For the past couple of years, a similar logic has permeated the minds of wireless service providers. In the same ways that triple- and quad-play offerings raise user revenues, additional connected devices, aside from the traditional cell phone, will also drive average revenue per user.
Moving to this new and hyper-connected wireless world begins with the “opening” of networks. But what does that really mean? In his keynote at the 2009 CTIA event, Ivan Seidenberg, CEO of Verizon, discussed how wireless has evolved and how the new wireless Web is a complex series of relationships, joining devices to one another, to sensors, to the wireless network and the Internet. Seidenberg spoke about how Verizon Wireless was “opening” its network, adopting new policies, and fostering development through creation of a 4G development center for its partners.
Additionally, around the same time, AT&T Mobility Consumer Markets President and CEO Ralph DeLaVega stated in an interview: “Wireless, and in particular mobile broadband, is going to change the way the world lives and the world works. Mobile broadband, with the capability it has to connect people and machines, is going to dramatically change the way we conduct commerce. Our daily rituals are going to be significantly different and hopefully change for the better. Businesses will be more efficient, and people will be more effective. I really think this is going to be huge for the world.”
But what does all this mean?
In his book on changing economics of Web commerce, “The Long Tail,” Chris Anderson illustrates how the Internet is changing the laws of distribution from digital products and from entertainment (movies and CDs) to manufactured products. “Wireless networks are, too, growing a long tail, as billions, maybe even, trillions, of devices are being connected to an increasing pervasive and integrated array of wireless networks powering the mobility generation,” he said.
We at Frost & Sullivan believe that we’re entering a period that we call hyper-connectivity, where every device that can be connected will be connected to the Internet and/or other devices. And we’re not the only ones.
A trillion? Really? With a T?
As part of the Smarter Planet initiative, a recent IBM television commercial that I saw states: “Soon there will be 1 trillion connected devices in the world. …”
And leading OSS/BSS provider Amdocs has recently coined the term “Teraplay” to address a future where we have a trillion connected devices, most of which won’t be phones, used from a trillion locations and connecting a trillion services and apps. Basically, all your devices will be able to talk to each other and to all of the online services that you use.
This thesis – that all your devices will be able to talk to each other and to all of the online services that you use – is attractive and shows real possibilities for growth. The big question, the trillion dollar question, is who will make this happen, and how to monetize it?
Embedded vs. non-embedded
Amazon and Sprint proved the concept of consumers purchasing a device that is connected to a carrier network without even knowing it, and using the carrier network to download content quickly and easily with the launch of the Kindle a couple years ago. “So what?” you ask. “Is that the future, books?”
Yes and no. Granted, it’s not sexy, but it does prove the concept. Connecting a consumer electronics device to a service provider network does work.
The Kindle isn’t the first device with an embedded cellular chip. Embedded laptop solutions (for consumers and enterprises) have been around for a number of years. However, sales of these embedded laptops and now netbooks have been slow. First, PCMCIA cards with wireless access were sales winners, and now USB dongles rule the marketplace, all the while having a device where the manufacturer embeds a chip makes much more sense.
Why? As my IT manager pointed out to me recently:
–It’s hard to break the embedded solution (I bent and subsequently broke a PCMCIA card).
–You really can’t lose the embedded solution unless you lose the entire device (and I’ve lost two USB dongles).
–There is no additional inventory/management cost for an overworked MIS staff.
Sure this makes sense to the enterprise IT manager, but what about the general consumer? Yes.
Every argument for the enterprise holds true for the consumer.
What else is there?
But what about the plethora of additional consumer devices that can have the usage enhanced by connecting to a service provider network? What kinds of devices make sense to connect?
Smartphones, netbooks, PCs, thermostats, building controls, sprinkler systems, vending machines, rapid transit systems, trucks, trains, shipping containers, appliances, automobiles, roads (traffic lights, etc.), game stations, stereos, cameras, healthcare monitoring solutions, home security systems, home automation and energy management solutions, distance learning, telemedicine, health and wellness, gaming devices, televisions and home entertainment systems are just some of the things that will create the interdependent web of hyper-connectivity. But really, what’s next?
Service providers and infrastructure companies are working hand in hand, developing platforms and ecosystems today that will shape tomorrow’s business models, driving hyper-connectivity. One such example is the ngConnect organization.
Recently I met with Derek Kuhn, VP of emerging technology and media at Alcatel-Lucent, who is leading the ngConnect initiative. (If you haven’t met with Derek, I recommend it, as his passion for all things connected is second to none.) NgConnect has membership that you wouldn’t normally affiliate with the telecom industry and is busy breaking down barriers and creating new business models to enable the connected world. Creating new business models and conceptualizing services is important as the wireless service provider moves away from the comfort zone of providing voice service and text messaging into the new reality of hyper-connectivity.
We’re not sure about the number of connections (billions, trillions, quadrillions or even googols) that we’ll eventually get to. But the rapid growth of connected devices and applications, or “hyper-connectivity” is real, although many obstacles are still in the way. In my next column, I’ll share challenges and solutions taken directly from discussions with service providers, hardware and software companies, and consumer electronics organizations.
As a consultant for Frost & Sullivan’s Telecommunications and IT Practice, James Brehm’s primary responsibilities are to increase client value by evaluating, recommending, and creating innovative growth strategies for Frost & Sullivan’s high-tech clientele. The scope of his work deals with all aspects of the IP value chain; from delivery infrastructure and communication management to end user content and applications. Brehm is frequently quoted by media outlets such as The New York Times, Business Week, Computerworld and Wireless Week. He is a regular contributor to RCR Wireless News and has an ongoing blog titled “James Brehm’s Unwired Experience.” Brehm has also spoken to various groups on topics including mobile applications, mobile commerce, emerging wireless devices and ver
tical market deployment of Web-enabled services. 
Prior
to joining Frost & Sullivan, Brehm worked in marketing, sales management and business development roles for Rackspace Managed Hosting and Interland (now Web.com), two of the largest pure play Web hosting companies in the U.S. His responsibilities included research on the competitive landscape of the market, developing new product offerings, assessing emerging markets, improving the over all value chain for Global 1000 clients, due diligence, and acquisition analysis. Brehm entered the high-tech arena in the mid-1990’s working in sales management within the telecom arena for MCI and later working for Gateway Inc. in multiple roles including product marketing, product management, training and sales management.