IoT Reality Check: How Solution Providers Are Making Money With Internet Of Things Today

"So, how real is this Internet of Things opportunity anyway?"

It's a question that many solution providers are asking as the buzz continues to mount and the projections continue to rise. The figures are staggering: Gartner says there will be 25 billion connected "things" in use by 2020; IDC predicts the market will hit $7.1 trillion by 2020 and Cisco Systems says $19 trillion of cost savings and economic benefits will be driven by IoT.

For some solution providers, it's very real. Eighty-three percent of more than 240 solution providers surveyed by CRN Intelligence, the research arm of CRN, said their companies are bringing in revenue from IoT-related products and services today. Ten percent of respondents said IoT accounts for more than 30 percent of their annual revenue today, while another 23 percent said IoT accounts for between 11 percent and 30 percent of revenue.

"We think IoT is going to be the cornerstone for growth for us," said Murray Wright, CEO and president of Zones, a national solution provider based in Auburn, Wash. "I'm currently looking at a three-year plan that's going to make [IoT] a significant business," Wright said, declining to disclose how much revenue the company gets from IoT today.

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Zones has already bet big on IoT, building out an international practice that delivers technology and professional services -- including architecture and design, implementation and managed services. It teams with Cisco for its IoT solutions, and is a Cisco Gold partner that has earned the vendor's Advanced IoT Specializations in Manufacturing as well as Connected Safety and Security.

In one large project, Zones was able to fully integrate IoT into a new 100,000-square-foot facility for Del Papa Distributing Company, an Anheuser-Busch distributor in Texas City, Texas, from the ground up – from providing connected video surveillance and unified communications at the construction site to security and data analytics services after the project was complete. Through monitoring, sensors and services, Zones' IoT solution helped reduce energy consumption by 27 percent and increase productivity by 18 percent.

New York-based Presidio is another marquis Cisco partner that's making gains in the IoT space by building and growing its truck and train fleet management solutions business.


10 Solution Provider Insights On The IoT Market


IoT is projected to explode -- but where is the opportunity for partners?

"We're not just putting a router in a locomotive; we're looking at the operational technology in the locomotive," said Shawn Rahn, vice president, IoT at Presidio. "It's not just getting communications on a locomotive so they can do simple things like track an asset. It's about being able to proactivity monitor the health of the operation of the locomotive in real time."

To be sure, IoT is a nascent market, and the numbers are still small for many solution providers: Thirty-one percent of solution providers responding to the survey said that while, yes, they are making IoT sales today, those sales account for less than five percent of their companies' overall revenue. And 17 percent of solution providers said they are not making any revenue from IoT today at all.

But 52 percent of solution provider said IoT represents a meaningful or huge opportunity for them within the next 18 months, with 42 percent saying they expect IoT to account for more than 10 percent to 30 percent or more of their revenue.

"Three years ago, we didn't even know what to call IoT," said Eric Alterman, CEO and founder of New York-based Flow Corp., whose division has built an IoT platform on IBM. "Fast forward, now IoT is the industry buzz word du jour. And for a good reason."

According to CRN Intelligence, some solution providers are still sitting on the sidelines when it comes to riding the IoT wave. Forty-one percent of partners surveyed by CRN said IoT would only represent a "minor opportunity" for their business in the next 18 months, while seven percent of solution providers said they see no IoT opportunity for their companies.

However, the majority -- 52 percent-- described the future IoT opportunity for their businesses as meaningful or huge.

For many solution providers, the key to IoT success will be focusing on vertical markets, industry observers say.

As Intel CEO Brian Krzanich sees it, the need for vertical expertise strikes at the heart of channel partner opportunities in the IoT space. Krzanich stressed the importance of partners having a deep knowledge base when working with customers to deploy IoT solutions in areas such as agriculture, automotive, and retail industries during a keynote address at Intel Developer Forum earlier this month.

"As you move across verticals, you can see that these end-to-end Internet of Things solutions provide an opportunity for a smart retail segment," he said. "This is the kind of solution that we believe we can build in every vertical, with our partners."

Columbia, Md.-based Eurotech is one such partner with vertical specialties, focusing on solutions for the transportation and retail verticals. Eurotech's solution is a horizontal Internet-of-Things-based platform, which captures the data coming into a gateway, feeds it into various cloud platforms, and makes it available to different back-end systems.

"With the Internet of Things, it's not just about who has the best chip or gateway anymore," said Larry Wall, CEO of Eurotech, which brings in 12 percent to 15 percent of its business from IoT solutions. "For us it's about the business use case for IoT applications, and in order to do that partners need vertical market expertise. It's a much more solution-oriented end game."

When it comes to vertical opportunities, not all IT sectors are created equal, survey respondents said. Twenty-four percent of partners said health care holds the biggest IoT opportunity for their businesses, followed by retail (19 percent), building automation (15 percent), logistics (14 percent) and manufacturing (12 percent).

To get to IoT prime time, however, solution providers say they're going to need a little help from their vendor friends.

Forty-four percent of channel partners said they are receiving "too little" partner enablement from their primary vendors with 21 percent saying they receive "no enablement". Only 31 percent said the enablement they receive from their primary vendor is the "right amount."

"We are at the start of a journey," said Dave Locke, product management ecosystem for IoT at IBM, Armonk, N.Y. "IoT is as new to IBM as it is to partners. We are investing heavily and helping shape the market both directly and indirectly through the channel."

But it's also possible that the companies that make up the IoT channel of the future will not closely resemble today's IT channel.

[Related: 5 Internet Of Things Questions That Still Need Answers]

"There is no question about it, IoT is creating new challenges in the way we create routes to market and build a channel," Locke said. "IoT partners are not going to be traditional meat and potato resellers of products and services." Locke said IBM's future IoT partners will be startups, niche IT players and MSP and ISVs that want to move into the IoT space. "IBM's IoT partners of tomorrow, we believe, just don't exist yet."

Like IBM, Cisco has also been looking beyond its immediate channel base to non-traditional partners such as industrial manufacturer Rockwell Automation. The company uses standard Ethernet and Internet protocols in conjunction with manufacturing equipment to boost productivity, enhance safety and make relevant information available at the right time throughout the enterprise.

To help broaden its reach, Cisco has also forged partnerships with municipal governments to create hyper-connected "digital cities" as well as sponsoring "Internet of Everything" innovation centers in hopes of attracting startups.

Solution providers surveyed by CRN said there are several things technology vendors need to do to help them grab the IoT brass ring, starting with building better IoT products, providing more technical training, embarking on more vendor-to-vendor technology collaboration, offering mores sales training and bolstering it all with more marketing.

But channel partners also face another challenge in selling IoT products and services – customer demand. Nineteen percent of solution providers said their customers are not expressing little to no interest in IoT. On the flip side, 26 percent of survey respondents said customers are expressing strong or significant interest in IoT solutions. That leaves the majority -- 54 percent -- with customers expressing who are lukewarm when it comes to buying IoT solutions.

"Customers don't hire us and ask for an IoT project," said Morris Hansen, director of networking solutions, with Sirius Computer Solutions, San Antonio. He said customers ask Sirius to solve a specific problem. "Most times, 'Internet of Things' never enters the conversation even though it's exactly the solution we deliver," he said.

Whether or not customers know they need an IoT solution, the opportunities are there today, solution providers said.

Sirius, which declined to disclose its IoT revenue, said analytics is the biggest IoT-related market opportunity for it. Last November, it acquired 60-person analytics firm Brightlight Consulting for an undisclosed sum. The company said the move was directly tied to its growing IoT line of business.

"There are no margins selling sensors, compute and storage for IoT," Sirius's Hansen said. The margins, he said, are in the services you layer on top of that. "IoT feeds the Big Data analytics beast. We can take that data and turn it into business intelligence."

Having that toehold in IoT, partners report to CRN, helps build on top of previous successes. When asked to predict the revenue opportunity around IoT in the future, 94 percent of solution providers said they expect to have revenue from IoT-related products and services in 18 months. Conversely, only 6 percent of respondents said they did not expect to have any revenue from IoT in 18 months, down from 17 percent who said they have none today. The biggest chunk of respondents -- 27 percent --predicted 5 percent to 10 percent of their company's annual revenue will come from IoT in 18 months, while 26 percent predicted less than 5 percent.

Nineteen percent of solution providers predicted IoT will account for 11 percent to 20 percent of their revenue, while 22 percent predicted it would account for at least 21 percent of revenue.

Presidio's Rahn declined to provide revenue numbers for its IoT business but said it has been growing "exponentially" over the last two years.

Unlike cloud, which some partners see as a technology that has the potential to disintermediate them from their relationship with customers, IoT by its nature, reinforces that partnership between solution provider and customer, Hansen said.

Digital Lumens, a so-called LED-as-a-Service firm that leverages the Internet of Things to help companies cut their lighting bills up to 90 percent by "intelligently" managing their customer's lighting.

In 2005 Tom Pincince, CEO of Digital Lumens, was selling VoIP services for Brix Networks. Pincince said intelligent lighting in 2015 is where VoIP services were in 2005. "There are a lot of analogs to selling intelligent lighting today and selling VoIP in 2005," Pincince said. "At the time we struggled with how to sell voice to an IT guy."

Today, Pincince said, IoT sales require new sets of relationships with new players. Where solution providers are used to talking to CIOs and the back office, Digital Lumens needs to be talking with facilities managers.

"The buyer on the other side of the table is not your traditional buyer," Pincince said. "For some reason the facilities [infrastructure] is seen as almost even more foreign than the voice network was. I think that is more of a disservice to the opportunities for VARs interested in delivering a fully integrated solution."

Pincince said while traditional solution providers are adept at selling business solutions to the back office they need to rejigger their pitch in the world of IoT to sell tangible business benefits such as cuts in energy costs to the front office facilities manager.

However, the rapid increase of connected devices in the IoT landscape has created the technology's biggest barrier to adoption – security.

For all the promise IoT holds, its goodwill within the channel is significantly diminished by security concerns. A whopping 51 percent say they are very or extremely concerned about security issues related to IoT. A paltry two percent said security is of no concern at all.

"Those who I've talk to who are evaluating or investing in IoT deployment… are all concerned about security," said David Formisano, director of strategy for the Internet of Things Solution Group at Intel . "Another challenge we hear about is interoperability—how to get those devices to become connected. These challenges are what we're working through with partners."

In that sense, IoT is much like the Internet in the early 1990s – a lack of standards, ecommerce rules, copyright protection and a paucity of security limited its appeal. Same goes for IoT today.

That said, the best is yet to come when it comes to IoT say partners and vendors. Only 7 percent of respondents said the IoT market is mature today with an overwhelming majority (42 percent) saying IoT won't hit its stride for another 2 to 4 years.

Here's to the future.

Lindsey O'Donnell contributed to this story