Managing IoT Costs with Managed Service Providers

Introduction

From banking and bitcoin kiosks to the autonomous industrial edge, next-generation digital transformation initiatives are reshaping nearly all corners of the IoT market. Beyond keeping pace with customer requirements and competitive pressures, organizations’ pursuits of IoT projects are overwhelmingly grounded in one fundamental goal – generating net new revenue and service-oriented businesses models [See Exhibit 1].

However, these IoT opportunities generate both new and existing challenges. New business models can produce new complications, both in predicting market demand as well as in coordinating internal development and operational teams. For years, the composition of tech market’s leadership has remained rather stagnant. Now, however, IoT initiatives are increasing the magnitude of the benefits associated with agility and lowering barriers to entry. Established organizations – as well as newcomers – must ensure that their chosen business processes and technologies support new market demands and the pace of innovation required to compete. Deploying enterprises and engineering organizations alike must identify new solutions that can drive additional efficiencies and allow them to better focus internal resources on differentiation.

Connectivity challenges expose an entrenched need for change within the industry. With connected devices playing an increasingly important role to enterprises’ revenue, finding ways to effectively and efficiently manage that connectivity has emerged as a new acute requirement. However, the need to improve connectivity management extends far beyond preserving revenue streams. In fact, missed sales are often far down the list of issues associated with lost connectivity, with many organizations recognizing the operational and opportunity costs that result from any downtime [See Exhibit 2].

More than ever, it is important to recognize the impact of connectivity solution choices. System, solution, and vendor selections have lasting impact on development costs and organizational success. Over the course of this paper, we will assess key trends and opportunities for cost savings when planning your next connected product implementation, and highlight how using a managed service provider (MSP) can help.

Background on VDC Research

VDC has been covering the product development and deployment technology market since 1971. The analysis and supporting discussions in this paper are based on VDC’s ongoing research in this market and by findings from a survey of over 150 IoT decision makers using long-range wireless communication technology in their projects. This survey offers insight into leading business and technical trends impacting IoT organizations as well as the best practices implemented to address them. The respondents come from a range of industries including aerospace, healthcare, industrial automation, retail automation, and transportation.

New Trends Forcing Change to Old Practices

IoT Driving Reevaluation of Development Economics

IoT ambitions are moving many organizations into uncharted territory where they lack the resources and/or expertise to efficiently bring connected solutions to market. Reducing cost and improving performance are still two of the biggest IoT project challenges many organizations face. Other challenges such as ‘enabling greater security’ and the ‘lack of experienced/technical staff’ can exacerbate the above and underscore the need for new, external solutions and partners [Exhibit 3]. However, when asked to compare all challenges associated with designing and deploying their products, 48% of respondents said that designing and managing connectivity was one of – if not the most – challenging elements of their project.

Already navigating requirements for more complex systems, organizations now must also mitigate the expanding impact of schedule and time-to-market challenges. Facing new development and operational capacity challenges, project schedule adherence remains a significant obstacle. In fact, one-third of projects are reported as behind schedule, driving added operational costs and missed sales and/or market windows. Beyond the potential cost savings from on-time completion, one must also consider the inherent value of predictability. Greater operational predictability can help earn trust with clients and facilitate additional internal investments based on improved visibility into OpEx. In the future, the magnitude of IoT-fueled business model and development changes will require additional investment just to maintain current levels of schedule adherence, let alone improve upon them.

At a time of industry transformation, many organizations are fighting cultures of in-house and manual technology asset management [See Exhibit 4]. With connectivity, organizations can choose from a sliding scale of solution integration and third-party management. However, far too many organizations are still dependent on in-house development and management. Across a range of project performance metrics, it is clear that this status quo no longer suffices. The importance of connectivity and the cost of its failure is now too high to rely on internal assets. In light of this dynamic, the use of third parties for communication solutions management provides:

Needed expertise and supply chain management
Simplified device-level monitoring and streamlined cellular plan management
Single-source assistance, support, and accountability
Direct cost savings through integrated, optimized solutions
Ability to focus scarce internal resources on other areas of corporate value add

With many organizations still trying to contend with internal solutions, an opportunity exists to act quickly and work with a managed service provider, such as OptConnect, not only to add reliability to IoT solutions, but also to identify ways to help save costs.

Managing Costs with Managed Service Providers

It is no secret that more complex problems often require more sophisticated solutions. This dynamic is especially true when those more complex problems are met with tighter timelines in which to solve them. One of the biggest challenges in recent years has been reliably providing and maintaining connectivity for IoT solutions. The selection of a managed cellular connectivity solution, such as that offered by OptConnect, has emerged as a key mechanism to address this challenge, presenting new cost saving solutions over traditional/DIY connectivity management [See Exhibit 5].

The evaluation of managed cellular connectivity options leads to consistent conclusions. In fact, organizations using a managed service provider are twice as likely to have undertaken a ‘detailed/rigorous financial analysis of all identifiable costs and benefits’ than those not using one. Those not using a managed service provider are more likely to have just relied on ‘their experience and intuition’ during the evaluation. Research results make it clear that when organizations look for quantitative evidence to inform their connectivity solution decision, managed service providers offer the best option to reduce cost and improve reliability.

Total Cost of Development Calculations

The IoT market is incredibly complex and heterogeneous, yet this diverse market offers consistent saving opportunities. There are a number of factors that drive the selection of specific hardware and software solutions, influenced by both current requirements and investments made during past projects in legacy technology. Despite organization- and project-specific requirements, certain trends and inferences can be drawn when comparing similar projects. A number of different costs may impact the total cost of ownership, such as hardware/system costs, development and deployment costs, operational costs, issue and repair rates – as well as the direct and indirect costs of downtime. Unfortunately, many organizations that develop and/or deploy IoT solutions using cellular connectivity only focus on the cost of the cellular service rather than the system’s total cost of ownership (TCO). Survey results by VDC highlight a few of the significant cost savings available across these dimensions that help organizations better evaluate available solution and partner selection.

Upfront savings from managed service provider solutions are clear, and are only the beginning. Using a managed service provider is likely to reduce both the time and the cost of developing projects – with the potential to save millions of dollars over the course of a project. Not only can using an MSP for connectivity cut development costs related to long-range wireless by 60% [Exhibit 6], but it can also help reduce total project costs by half [Exhibit 7]. Beyond observed cost savings, the use of managed solutions offers organizations an opportunity to address other needs and challenges. In fact, only 4.8% of those respondents using a managed service provider stated that designing and managing connectivity was the most challenging part of their project, vs 13% of those respondents not using an MSP.

Using an MSP for connectivity can help reduce total project costs by 50%

The use of a managed service provider yields significant schedule benefits. Projects were completed 25% faster, based on average development/project duration. Furthermore, the use of a managed service provider limited the extent of delays when they occurred. Projects not using an MSP were about three times as likely to be three months or more behind schedule [See Exhibit 8]. In addition to the direct labor costs of extending the development and deployment cycle, such delays result in additional losses in the form of delayed or lost sales revenue, opportunity costs due to subsequent project delays, reputational damage, and the like.

Managed connectivity solutions yield a range of operational benefits. Although many organizations can engage low-cost connectivity services if their devices have minimal connectivity needs, DIY connectivity management for devices requiring more complex connectivity often costs more than using a managed service provider. VDC’s survey found that projects not using a managed service provider were twice as likely to have the average monthly connectivity cost per device exceed $20.

In addition, using a manager service provider often improves the reliability of the communications services. Such providers, for example, may employ routers with dual-SIM cards and have agreements with multiple cellular network carriers, such that a system automatically switches to an alternate carrier if the primary carrier’s system is temporarily unavailable or operating at reduced efficiency. Dual-SIM technology can be particularly important in locations where cellular service is spotty or inconsistent.

The ability to limit and efficiently address connectivity issues generates a range of cost savings. Connectivity issues will invariably happen for a variety of reasons (carrier downtime, local IT updates, device issues, etc.), so it is important to have solutions in place to minimize disruptions. The use of a managed service provider does just that, reducing the frequency of connectivity issues. The survey found that projects not using an MSP had, on average, two-and-a-half times as many connectivity issues per year [See Exhibit 9]. This omission can result in service disruptions and dissatisfaction among users, not to mention the direct costs to remedy the problem.

Managed service providers also help reduce the hours needed to fix issues. On average, organizations can cut the operational hours spent resolving issues by 70%. Although the majority of connectivity issues can be remedied remotely, depending on the nature of the connectivity issue and the location of a device, resolving the problem may require a “truck roll” (i.e. sending a technician to the site to effect repair or replacement of routers, antennas, SIM cards, etc.). More than one quarter of connectivity issues required a truck roll at a fully loaded cost (including labor and vehicle expenses) of more than $450. By reducing the frequency of these issues, cost savings can quickly multiply with fewer service calls, truck rolls, and replaced hardware.

MSPs can help organizations cut the operational hours spent resolving connectivity issues by 70%

Aggregating this range of benefits, organizations can save over 60% in costs from connectivity-related downtime per year by using a managed service provider [See Exhibit 9]. With some connected fleet deployments involving thousands of devices, the cost savings from using an MSP can scale to millions of dollars in this area alone. In addition, further reducing costs is possible, based on MSP selection. OptConnect, for example, offers free lifetime hardware replacement for defective devices as part of its fully managed connectivity service plan. Without the benefit of an MSP like OptConnect, deploying organizations can be straddled with hundreds, if not thousands, of dollars more in annual hardware replacement costs.

Organizations can save over 60% in costs from connectivity-related downtime per year by using a managed service provider

VDC’s View: Summary & Recommendations

More Connected Solutions Require More Intelligent Management

Traditional system development and management practices have fallen short, exposing and exacerbating existing expertise gaps. The complexity wrought by new IoT use cases and business models certainly does not improve outcomes. Nearly a third of all projects are already behind schedule and 48% of all respondents cited that ‘connectivity design and management’ was one of the most challenging elements of their project. As a result, organizations must identify new methods for monitoring and managing the connectivity of deployed devices. With a need to focus on delivering value and maximizing asset operation, clear benefits emerged from selection of managed service provider connectivity solutions.

Hidden Costs of Downtime Expose Clear Need for Change

While lost revenue from disconnected solutions remains a key issue, many organizations are drowning in costs from operational overruns related to downtime. From troubleshooting to truck rolls, many organizations are wasting time and resources on connectivity issues that could otherwise be reduced or otherwise eliminated altogether. Fortunately, solutions from managed service providers like OptConnect have emerged as a key mechanism to accelerate time to deployment, reduce downtime, and minimize impact on organizational resources.

Identify Partners Capable of Supporting Connected Solution Goals

The recognition of value in managed connectivity solutions must be followed by the selection of a partner capable of providing the needed combination of products, plans, and service. OptConnect is an example of one such company that has built a foundation of products and expertise serving the IoT industry over the course of 20 years. With the complexity of IoT deployments on the rise, it is critical to identify a partner that is likewise invested in continued improvement and success. In fact, the greatest testament to benefits of MSP is perhaps retention. Once development and deployment teams have experienced the benefits of using an MSP like OptConnect, they are highly unlikely to switch to manage these tasks internally. In fact, 72% of survey respondents currently using a managed service provider were ‘very’ or ‘extremely satisfied’ with their decision – a rate nearly unheard of in the rapidly evolving IoT market.

Introduction

Background on VDC Research

New Trends Forcing Change to Old Practices

Managing Costs with Managed Service Providers

VDC’s View: Summary & Recommendations

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