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1
The battle for telcos in the digital
home can still be won if … June 5th 2012
Presentation to Telco-Forum/
Moscow
Arthur D. Little
Contact Person:
Dr. Karim Taga
Managing Partner
2
1 Crowded eco-system
2 Market and segment perspective
3 Strategic and opportunities for telcos
4 Conclusion
Agenda
3
For years, giants of electronics and software have developed “Smart Home” systems and
appliances but so far with poor success – the question is why is it a hot topic again?
Hype index1)
Source: Companies, Arthur D. Little analysis; Note: 1) The hype index is an indicative measurement of how much the “Smart Home” & “Domotic” topics have been
talked about; 2) Over-The-Top: Google, Amazon, Facebook
Societal trends
(more activities at home:
entertainment, work …)
Broadband everywhere
(fixed and mobile)
Technological convergence
(IP & smart-systems
everywhere)
Over-The-Top2) initiatives
(new devices and personal
data to manage)
1985 1988 1996 1992 1995 2000’s 2010’s
Screenfridge
Home Lab
Bill Gates’ full ICT house
1st centralized lighting system
control
Security remote control
1st full media integrated system
1st home system control
“Domotic” phase “Smart Home” phase Why is it a hot topic again?
1 Crowded eco-system – A hot topic again
4
In the past ten years, Homes and the way we live and behave in them have changed
dramatically
2000’s 2010’s
More and new devices
New families
Old devices and supports
New Homes
Old families
Old Homes
Size1:
105 m²
Price2:
112 k€
Size1:
111 m²
Price2:
270 k€
Family with
2 parents Collective usage
(eg. in front of TV)
Hybrid families /
Ageing society Individual usage
(3,6 screens / person3)
Source: Various industry sources, Arthur D. Little analysis
Note: 1) Size of individual houses in France: 2006 vs 1996; 2) Price for an apartment in Bagneux (92, France) with 4 rooms, in 1996 vs 2009; 3) Western Europe
1 Crowded eco-system – Homes have changed
5
Source: Arthur D. Little analysis
Four fundamental trends will drive the take-up of the future Smart Home
Fundamental societal
and consumption trends
Time allocation
and activities @home Digital addiction
Value capture
by large players
Societal trends
Ageing society
Hybrid families
Aspiration to well-being
Job & House nomadism
Consumption trends
Energy scarcity
Green consciousness
Increasing role of end
consumer
Instantaneism (make
the most of every
minute)
Current trends
More free time
Entertainment at home
Increasing confidence
in e-Commerce
More intense and
shared digital life
New trends
e-Education
e-Health
New e-Commerce
experience
Connectivity
Broadband for all
More bandwidth (fixed
and mobile)
Convergence
Needs for content
everywhere
Devices
More screen per person
More usage per screen
Multi-tasking
Smart systems
RFID / NFC / sensors
Over-The-Top
Players such as Google
and Microsoft through
applications and OS
Service providers
Players such as
Telefonica and E.ON
through the customer
relationship
Appliances
manufacturers
Players such LG,
Philips and Bosch
through their devices
1 Crowded eco-system – Fundamental trends
6
Smart Home trend example (1/2)
“Societal”: Ageing society
Elderly adapted house example
“Time allocation”: More free time
Life time share by activity
Stair lift
Easy route from
bedroom to bathroom
Sockets,
controls… at a
convenient height
Adapted
WC, shower…
Width of doors
allow wheelchair
Bedroom at the
entrance level
Source: Various public sources, Arthur D. Little analysis
11
3010
1124
2013
2842
11
1900 2009
Work
Physiologicaltime
Childhood,scolarship
Transports
Free time
(15h/day) (16,5h/day)
Selected examples
Awaken time per day
1 Crowded eco-system – Trend example
7
Smart Home trend example (2/2)
“Digital addiction”: More screen
Screen devices installed base in WE
“Market evangelization”:
Appliances manufacturers ecosystems – LG
Source: Euromonitor, Strategy analytics, Nielsen, LG, Arthur D. Little analysis
Note: 1) Tablet, eReader, PND
1,7 3,6
0,7 Bn
1,0 Bn
1,3 Bn
1,5 Bn
3,3 2,6 Screens per person
Selected examples
LG THINQ System
Appliances, energy, food
management
Remote/local user interface
Only supports LG appliances
1 Crowded eco-system – Trend example
8
Smart Home has become a hot topic again and players from various industries are now
placing their bets
2 1 3
4 6
IT equipment players Service
providers
Assistance specialists
Devices /
appliances
manufacturers
Over-The-Top
5 Smart Home pure players
Selected examples
Source: ADL
1 Crowded eco-system – New bets
9
Some pure-players are positioning themselves as gateways to the Smart Home and growing
fast Example
Source: Control4, Arthur D. Little analysis
Control revenues
M$
Product
portfolio Key Success factors
23
41
57
68
2006 2007 2008 2009
CAGR:
+44% /
year
Devices inter-
operability
Market
evangelization
Distribution 1,600 dealers in the US and
Canada + international distribution
in 70 countries
6,500 consumer electronics devices
(+1000 in 2 years)
“Intel inside”
partnerships
Partners such as Sony, Pioneer,
and Panasonic embedding
Control4 technology
Leader of the Smart Grid
Consumer Collaborative involving
players such as GE, Best Buy, IBM
“keyboard” + software for
Home control:
1 Crowded eco-system – Pure players
10
Many topics can be covered by telcos in the Digital Home, most often through partnerships
with firms form other industries
Source: DT, Arthur D. Little analysis
DT example
e-Health / Well-being Access
Media & entertainment
Home Automation e-Education
Private data
management
Smart cities
Partnership with device
makers (connectivity)
“Eduxnet” learning
platform
Smart metering,
Appliances control
Health, Education, e-
Government, Transport…
“Mediacenter”
T-Home Entertain (IPTV)
Stores: music, videos, apps…
Digital Home Services
“Instant IT Service”
1 Crowded eco-system – Telco examples
11
Ecosystem
Example: Home automation
Comment
Fully-integrated home automation is in a nascent
stage
– only costly premium offers
– Customers show low interest in fully integrated
services
Only little involvement in Home automation
services next to specialized manufacturers
– telecoms mostly involved in security an
entertainment solutions
– utilities focusing on energy management
Security
Energy
management
Motorization
Lighting
Entertainment
management
Manufacturers Automation
specialist
Utilities /
telecoms Home
systems
How can a dominant home automation standard emerge and what will be the level of integration
between the various systems?
As an example, the Home Automation market is still highly fragmented lacking common
standards and “the one” market leader (or partnership)...
Source: Arthur D. Little; company information
1 Crowded eco-system – Telco examples
12
Telcos such as DTAG are developing partnership based Eco-Systems with numerous players
to develop into full service providers...
Text
Competence center for
development of intelligent energy
networks
Establishing transparency on
energy consumption and intelligent
management
Platform for data collection,
transmission and management
Smart Metering & Home Management
Development of networked home
automation
Intelligent home (energy consumption)
Innovative smart grid
developments
Energy surveillance and
management of
decentralized power
generation
Smart Grid / Network
technology Smart Grid / Load management
Data management
White goods
Source: Arthur D. Little; company information
1 Crowded eco-system – Telco examples
13
Verizon and AT&T have recently made significant moves towards Home System
Management
Energy management: energy
reader, smart appliance switches
and thermostats,
Security : smart door and
window locks
Video-camera : in-door, out-
door
Anytime/anywhere value
proposition
Remote control via:
– Smartphone
– PC
– FiOS TV product
Launched a pilot to develop a Verizon home
systems management solution
(Jan 2011)
Acquisition of Xanboo, home system
management solution specialist
(Dec 2010)
+
Security / video
Energy Healthcare
Lighting
In Jan 2010, Verizon Wireless and 4Home* announced
partnership to develop Home control applications
Source: Public information, Verizon, AT&T, Arthur D. Little analysis Home Automation specialist
1 Crowded eco-system – Telco examples
14
Example of move around alliance
Telefonica alliance “Beywatch”
Telecom operators are also active in the Smart Home field with initiatives around CPE or large
alliances, mainly to response to OTT closed and integrated ecosystem
Example of move around CPE
Freebox Revolution
NAS storage server DLNA media server
Gaming
Gyro remote control
Internet on TV
Apps store
Other players involved
Source: Arthur D. Little analysis
1 Crowded eco-system – Telco examples
15
FreeBox Revolution key features
Free in France launched the FreeBox Revolution to attack the Digital Home market – it
includes many disruptive features
Source: Operators, Arthur D. Little analysis New
Internet
access
(up to 100 Mb)
Phone
(DECT1
technology)
TV
(Catch-up TV,
VOD developed
by Hubee)
Blue ray
player and 3D
capabilities
Gaming
Platform
(appstore)
Network
attached storage
(250 Mb hard
disk)
Connected TV
(Web browser,
apps…)
Designed by P. Starck
Gyroscopic
remote
AirPlay and
AirSync
compatibility
Linux distribution
(BusyBox)
1.2 GHz Intel
processor
400 MHz graphics
card
“With the Freebox Revolution, you
are going to get rid of everything
that is connected to your TV”
X. Niel (Free Founder)
Case study
1 Crowded eco-system – Telco examples
16
PCCW introduced a compelling offer of digital home services
Source: Arthur D. Little analysis, PCCW *HKD/EUR exchange rates as of 09/02/12
Key company facts Systems for- and actual product-provisioning
Established in 2000, subsequent acquisition of cable and
wireless operator Hong Kong Telephone Company
Business fields and key services
– Integrated communication, fixed line, broadband internet,
access, mobile, integrated global communications,
infrastructure, contact centers, IPTV, advertising and
interactive services, IT solutions, data centers
Innovation driven by strong customer orientation
– Digital living, multi screen viewing, high speed access
Basic financial data for the year ended 2010*
– Revenues €2.2bn
– EBITA €0.7bn
– EBITDA margin 32%
Access (Broadband, fiber, city wide Wi-Fi, HSDPA, 3G,
home wireless, etc.)
All IP-NGN infrastructure
Services (Content aggregation, interactive services, news
and sports production, entertainment production, key
segment partnerships)
PCCW expands its content value proposition to enable future growth
Case study
1 Crowded eco-system – Telco examples
17
PCCW addresses many of the outlined growth opportunities and its device strategy is highly
compelling
Source: Arthur D. Little analysis, PCCW
Broadband
telephone
Multi Screen, full IP-based NGN deployment (eye x broadband telephone – , superior user experience, android platform, market access, access to youtube, google maps, google search, Gmail, online banking, cinema ticketing etc.)
PCCW ubiquitous consumer side broadband offerings
Expansive horizontal and vertical integration enable provision of superior customer experience that
leads to customer “wowing” and retention
Cloud
e-Health
U-hub cloud storage service
maximum flexibility through fixed and mobile access (multi platform and device support and synchronization, automatic video format adjustment)
Health and fitness tracking, prerequisite affordability to general public, targeting various market segments, automatic data capturing (heart rate, blood pressure, activity monitor, weight scale, etc.)
Quad play Quad play fosters in-home digital convergence. To be leveraged in combination with
complementary digital home products and services
Wide range of own productions (etc. Sports, entertainment)
Case study
1 Crowded eco-system – Telco examples
18
1 Crowded eco-system
2 Market and segment perspective
3 Strategic and opportunities for telcos
4 Conclusion
Agenda
19
Telcos are hoping to generate and benefit from new sources of revenue
Smart Home market growth in 3 large European Countries
0
50
100
150
200
250
300
350
400
450
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Other
Assistance
Automation
Remotestorage
Health
£m
Source: Arthur D. Little analysis
Index
100 = Market revenues in 2010
2 Market and segment perspective – Market growth
20
Digital Home market could contribute significantly in 2020 to Telco’s topline (not including
access and content revenues)
Source: Arthur D. Little estimates 1) High-level assessment only 2) Total population equals 266m
34
5
Best case
23
2
4
8
Worst Case
9
2
1 1
2
Private Data Management
DH Services
Home Automation WC
e-Education WC
e-Health
Digital home market forecast 2020 (8 countries2)
Addressable market
(bn EUR 2020)
Potential revenue share
telco footprint
(best case – bnEUR)
Digital Home
Integrator
11.4
2.1
4.3
1.2
1.4
2.4
All in Telco &
Entertainment
2.6
1.7
0.7 0.0 0.1
0.1
Potential revenue
share telco footprint
(best case – mEUR)
38
0
34
2
45
All in Telco &
Entertainment
35
25 6 2
Digital Home
Integrator
178
38
24
Based on project example
2 Market and segment perspective – Market potential
21
New activities,
in evolving houses
More,
of the same
Concentrated giant
ecosystems
Fragmented patchwork of alliances
“iHome”
“Entertainment
@Home, the
battlefield of Giants”
“My World @Home”
“Chaos
in the Living Room”
We have identified four Strategic Scenarios for the Digital Home of the future
Axis 2: Ecosystem
Axis 1: Usages
1
2
3
4
Source: Arthur D. Little analysis
2 Market and segment perspective – Market Scenarios
22
New activities,
in evolving houses
More,
of the same
Concentrated giant
ecosystems
Fragmented patchwork of alliances
Based on these future Digital Home scenarios, we have identified 4 possible Business
Designs for Telco according to each configuration
Axis 2: Ecosystem
Axis 1: Usages
1
2
3
4
My Digital
Home
Integrator
My Digital
Home Life
Simplifier
The
Connectivity
Partner in My
Home Service
alliances
The All
Inclusive
Telecom &
Media
Provider
Source: Arthur D. Little analysis
2 Market and segment perspective – Operator response
23
1 Crowded eco-system
2 Market and segment perspective
3 Strategic and opportunities for telcos
4 Conclusion
Agenda
24 Arthur D. Little - Exane BNP Paribas 2012 Report – Findings
On the way to 2020, telcos have a need to rethink drastically their business models
as business as usual won’t work
Source: ADL
3 Strategic and opportunities for telcos
5
1
2
3
Best practice network operators
Network developer (network as a
service...)
Description
On-line distribution & customer care
Web based services and processes
High customer experience & agility
• Digital Home: service and content
aggregator
• Customer and service interface
Universal service provider- from IT to
telecom to energy to entertainment...
American tower
GTL
Ericsson
Alcatel Lucent
Economies of scale
Technology mgmt
Finance/ capital
Comparable
business
models
Operational
features
Amazon Online retail portf.
Self-service process
/agile
Process automation
Apple
Geek Squad
Apps/ services
innovation
Partnership / 3rd party
brand mgmt.
Utilities
Best-buy
Limit complexity
Scale single service
Partnership
Recruitment in
adjacent markets
BTGS
OBS
T-systems
20-25 %
EBITDA
35-45 %
40-45 %
10-20 %
5-15 %
Lean Telco
Network mgmt
Focus
B2C/B2B2C
Platform
Portfolio
B2C/B2B2C
Broad portfolio
Customer
interface
“Me too”
Cost
effectiveness
B2B (2C)
Vertical enabler
Home assistance
M2M/ Internet of Things
Vertical champion - the engine and
backbone for other industries
Infrastructure as
a Service
The ”On-line”
company
Service
excellence
One-stop-shop
Mastering IoT
4
M2M: Machine to Machine OBS: Orange Business Services BTGS: BT Global Services
IoT: Internet of Things B2C: Business to Customer
IT: Information Technology B2B: Business to Business
25
Telcos should select from four different flavors for entering the Digital Home market
The All Inclusive Telecom & Enter-tainment Provider
The Connectivity Partner in My Home
Service alliances
My Digital Home Life Simplifier
My Digital Home Integrator
The integrated solution provider for your Home
Telecom & Entertainment needs
Key technical player within large alliance serving new Digital
Home needs
The service expert for your Digital Home needs
related to IT & Media / Entertainment
The all-in-one solution for all your Digital Home
needs
Offer connectivity and
access to content
Protect existing content
revenues by bundling
(customer lock-in)
Offer connectivity and
data management
infrastructure
Offer advice,
installation, integration,
maintenance and
support solutions
Focus on media &
entertainment
Provide end-to-end
offers incl. advice /
installation / support
Address entire DH1
market (including new
usages)
Source: Arthur D. Little analysis 1) Digital Home 2) Players do not fully follow flavor, but are considered as closest to outlined business model flavor
Flavors
Value
Proposition
Description
Access and content
distribution revenues
Access and content
distribution revenues
3rd party revenues (B2B)
Access and content
distribution revenues
Address all DH IT and
media/ entertainment
revenues
Access and content
distribution revenues
Address new revenue
pools beyond classical
telco revenues
Revenue
pools
addressed
n.a. Closest
benchmark2
3 Strategic and opportunities for telcos
26
1 Crowded eco-system
2 Market and segment perspective
3 Strategic and opportunities for telcos
4 Conclusion
Agenda
27
There is a unique opportunity for telcos to capture value in the digital home and use this
opportunity as growth engine provided smart partnerships are built
Key take aways
There is a significant potential revenue growth in the considered footprint
addressable by Telcos
Multiple players are entering the game
There are few levers and insurances to control and eventually capture the value
generated in digital home for telcos
Best go-to-market strategies balancing partnership vs stand-alone shall be
considered
4 Conclusion
28
Interesting future …
…high impact …
high uncertainty