Editor’s note: Daniel Callahan is an analyst with Technology Business Research.
HAMPTON, N.H. – Cloud services revenue grew 48.2% year-to-year and increased as a percentage of total benchmarked Internet of Things (IoT) revenue from 12.4% to 15.8% year-to-year in 2Q18. Growth is driven by customers, especially those without deep legacy ties, moving their workloads to the cloud. The public cloud ecosystem is beginning to consolidate, with the top vendors competing on best-in-class tools, partnerships and business-problem-solving messaging.
Software, while still a sizable portion of benchmarked revenue, is experiencing slowing revenue growth, from 19% year-to-year in 2Q17 to 4.2% year-to-year in 2Q18. Software, along with ICT infrastructure, will continue to play a role in IoT solutions with the advent of edge computing, but as providers’ cloud platforms mature and tie-in deals with application partners are cemented, demand increases.
ICT infrastructure revenue grew 14.1% year-to-year in 2Q18 due to increased IoT deployments as well as hybrid IoT becoming an increasingly common IoT framework. ICT infrastructure gross margin rose 80 basis points year-to-year. TBR believes the increase stems from the need for more specialized or powerful hardware to handle the more advanced needs of IoT and its components, such as artificial intelligence (AI) and machine vision. Despite the increased utilization of ICT hardware due to hybrid IoT and the need for specialization, the long view for ICT infrastructure will be complicated by commoditization. TBR expects most ICT infrastructure companies to deeply invest in software and service components to buttress the profitability of customer engagements as the threat of commoditization looms.
Vendors across the technology spectrum are all fervently trying to crack the code for the “killer app” within specific verticals that can solve common business problems and be widely adopted by customers. The vendors that win with building the first widely accepted solutions will be set up for success, while others in the oversaturated market will at best become acquisition targets and at worst become history.
(C) TBR
