- Large companies Like Google, SAP, IBM, and Ericsson have quit loss-making IoT businesses.
- Ericsson’s failure highlights the fragmented IoT value chain, which makes it difficult for players to capture a significant portion of the value.
- Aeris is expected to benefit from the scale of its operations following the closure of the deal with Ericsson.
- Further industry shakeout is expected in 2023 as an unsustainable number of players are trying to get a pie of the lucrative IoT market.
Ericsson has announced that it will be exiting the Internet of Things (IoT) market, joining a growing list of companies that have decided to quit this space. The Swedish company has agreed to sell its IoT connectivity management and connected vehicle cloud platform IoT Accelerator to Aeris for an undisclosed amount. Aeris is an MVNO purely focused on providing cellular connectivity for IoT.
Google IoT Core, SAP, Bosch Device Management, and IBM Watson are among the other major players that have decided to cease IoT operations in 2023. Ericsson’s decision is a reflection of the challenges and setbacks the company has faced in this market, as well as the broader challenges that the IoT industry has been grappling with.
Why Ericsson decided to hang up?
Ericsson’s announcement comes after several quarters of disappointing financial performance of its IoT business. Despite investing heavily in IoT technologies and solutions, the company has struggled to break even. Ericsson’s IoT business saw a loss of around SEK 1 billion ($98 million) on revenues of SEK 0.8 billion($78.6 million) in the 2022 full year. Ericsson attributes the limited returns on its investments in the IoT market to the fragmentation of the market, which has resulted in the company only capturing a small part of the value chain. As a result, Ericsson has decided to focus its resources on other areas, such as enterprise 5G and 5G private networks, that will continue to cross paths with IoT.
Aeris gets scale with acquisition
Aeris is a leading IoT MVNO having partnerships with major communication service providers such as Vodafone, AT&T, and SoftBank, as well as leading automotive OEMs. The recent deal is beneficial for Aeris as it will immediately increase the scale of its operations. Upon closure, Aeris will gain 95 million connected devices in addition to its current 5 million devices, while the number of customers is expected to increase from 400 to 9,400. The deal will also shift to Aeris Ericsson’s global connectivity agreements with 35 mobile operators. In a nutshell, Aeris will get the scale and geographical reach. However, the transaction is more like a reverse merger, which may bring new challenges for Aeris as it will have to manage operations at a much larger scale while rationalizing them to drive the combined company toward profitability.
Aeris is planning to combine its intelligent, software-defined IoT network with Ericsson’s connectivity management platform to create synergies and provide new value-added services. Aeris would be looking to bring down the operating costs by consolidating the platforms. However, execution of this strategy may be difficult, as Aeris may face the same challenges as Ericsson unless it partners with companies that bring complementary capabilities to the IoT value chain.
Our take
Despite challenges, the IoT market is expected to continue growing in the future. The increasing adoption of IoT technologies in various sectors, such as healthcare, transportation, and manufacturing, is likely to drive the market’s growth. Additionally, the development of new technologies, such as 5G and edge computing, is also expected to open up new opportunities for IoT companies.
Ericsson’s decision to exit the IoT market not only reflects the challenges and setbacks that the company has faced in this space but also the broader challenges faced by the IoT industry. These challenges include a lack of clear business objectives, a fragmented value chain, and the inability to generate decent returns on investments. This has led to many players leaving the IoT market, and it is likely that further consolidation or exits will occur in 2023. An industry shakeout would be healthy for the IoT market’s growth as an unsustainable number of players are trying to get a pie of the lucrative IoT market.
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