Editor’s note: Ezra Gottheil is Principal Analyst at Technology Business Research.

HAMPTON, N.H. – Internet of Things (IoT) offers long-term sustained growth for many IT vendors, especially vendors that can successfully position their offerings as critical components for a wide range of IoT solutions. This opportunity, however, is accompanied by challenges in product or service design, market targeting, partnering, and reaching decision makers within customer organizations. IoT’s diversity of solutions, its operational technology (OT) market, and the multicomponent and multivendor nature of its solutions all demand new approaches from vendors.

TBR will focus on three areas relevant to IT vendors navigating the murky waters of IoT: the current and future state of vertical markets in IoT, new go-to-market (GTM) strategies and tactics for IoT, and the growing importance of ISVs and independent hardware vendors (IHVs) in expanding the IoT market.

The IoT vertical horse race

Vertical and subvertical market segmentation is more important in IoT than in other types of technology products and services because IoT is diverse. Most vendors are trying to tame the breadth of the IoT market by prioritizing specific verticals. TBR believes the IoT market is beginning to stabilize if not mature, and this is a good time to focus on vertical markets and use cases within those markets. Not only will this help our clients allocate their
resources, but we also believe an analysis by vertical gives us insight into the current and future maturation of the IoT marketplace.

While we tend to treat IoT as a new phenomenon, there have been IoT solutions for decades; the recent interest eflects a drastic lowering of barriers to IoT, including costs as well as availability of technology and expertise. The verticals with the longest and deepest histories of using IoT are oil and gas, manufacturing including automotive, and logistics. Despite increased interest in other segments, including public, healthcare, retail and financial
services, the segments with most experience with IoT continue to generate the greatest amount of IoT-related revenue.

We believe this pattern reflects the relative immaturity of the newer IoT vertical markets, but growth in healthcare will accelerate starting two to four years from now, followed by the public sector, subject to global economic conditions.

New GTM strategies and tactics

Traditional IT GTM strategies and tactics are not adapted to the challenges of IoT. It is difficult to sell solutions when the right solution varies from customer to customer and from situation to situation, as it does in IoT. This difficulty is increased when almost all solutions are composites of components from multiple vendors, as in IoT.

The challenge is made greater by the fact that most of the current growth in IoT is in smaller solutions, distributed throughout large organizations, and often not under the purview of IT departments. In fact, our research indicates that IoT projects are most often initiated and implemented by OT departments at the line-of-business or factory  level, with minimal involvement of IT. In many cases, these projects use public cloud platforms, constituting what may be called “shadow IoT.”

It is difficult for IT vendors to reach these potential customers. The small size of the projects makes it hard to justify the expense of finding and reaching out to project implementers. The OT-based implementers tend to be unfamiliar with IT vendors, even vendors that work with their own companies.

TBR is focusing on GTM strategies that address these challenges. Partnering is one approach that most vendors use. Partners are critical because most IoT projects include components from several vendors, and very few of those vendors have a relationship with the customer. The more successful companies appear to be taking a strategic and structured approach to partnering, and we are noting what works well.

Another approach to selling IoT-related products and services throughout customer organizations is encouraging IT to disseminate them. This is a difficult approach, because it requires educating IT in how to simultaneously encourage and manage multiple projects where IT lacks critical expertise. TBR believes this is the wave of the future and that it applies to all digital transformation projects, but we are seeing only a small number of this type of approach.

ISVs and IHVs are gaining traction

Custom IoT solutions are only one part of the IoT market; many customers gain the benefits of IoT from standalone solutions that include IoT. Increasingly, IoT is embedded in both predominately hardware and mostly software products, leading to the term “independent hardware vendor” (IHV) but still requiring ISVs. Hardware solutions include production machinery and vehicles in business and appliances and home devices in the consumer market. ISVs must include or operate with hardware for the solutions to be part of the IoT, but the emphasis is on
the software and on the value added by the ISV.

IT vendor companies are focusing on both large- and small-scale ISVs and IHVs as ways of bringing their technologies to a much broader market beyond that of those providing custom solutions. There is considerable potential for these vendors to grow their customer bases, even if their customers are not aware of their presence in the solution. In many cases, vendor revenue is based on eventual sale and use of ISV and IHV solutions, requiring vendor investment in and management of sales and marketing efforts.

TBR believes the growth of embedded IoT solutions, created by ISVs and IHVs is accelerating, and acceleration will continue for at least five years, as many of the solutions will be purchased and deployed as current equipment is replaced.

The IoT marketplace is wide, diverse and active, and TBR believes trends relevant to verticals, evolving GTMs, and ISVs and IHVs will continue to play an important role in vendor decision making.