Predictions

2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities
The Bottom Line
The mobile ecosystem has been experiencing dramatic growth for a number of years now. But in 2014, several segmentsnamely mobile commerce, mobile app development and mobile broadbandwill reach a tipping point as consolidation works to pare down the market. We expect to see new entrants and established players alike exit their respective markets. Elsewhere, the onward march of mobility into everyday lives will continue unabated. Predictions

December 2013
TABLE OF CONTENTS
2014: Consolidation Hits Many Mobility Markets 2 4 17

Further Reading

COMPANIES MENTIONED
Acision, Adobe, Aeris Communications, AnyPresence, Appboy, Appcelerator, Apple, Artisan Mobile, AT&T, BlackBerry, BT, Celcite, Comcast, Comverse, Deutsche Telekom (DT), Epson, Ericsson, Facebook, FatFractal, FeedHenry, Fitbit, GENBAND, Google, HBO, Huawei, Hulu, IBM, Infinite Convergence, Intel, Intucell, Intuit, Jawbone, Jibe Mobile, Jusp, KidoZen, Kineto Wireless, Kii, Kinvey, Kontagent, Kony, KORE Telematics, LINE, Localytics, Metaio, Microsoft, Misfit Wearables, Motorola, Movik Networks, Myanmar P&T, Newfield Wireless, NewPace, Netflix, Nike, NTT, Numerex, Omniture, Openmind Networks, Optimus, Optus, Oracle, Orange, Parse, PayAnywhere, Pebble, Pegasystems, Plantronics, Point.io, RACO Wireless, Recon, Reverb Networks, Salesforce, Samsung, SAP, SAS, Skype, Sony, Spring Mobile Solutions, Sprint, Square, StreamWIDE, Tektronix, Telecom Italia, Telefnica, Telsis, Time Warner Cable, T-Mobile, TEOCO, VeriFone, Verivo, Verizon Wireless, Viber, Vine, Vodafone, Vuzix, Webalo, WebTrends, WhatsApp, Wyless

Highlights
Mobile video viewing levels will equal those of PCs. A combination of factors (better devices, faster networks and more affordable data plans) is leading people to spend more time watching videoand not just short, viral contenton their mobile devices. In addition to reaching PC levels, mobile video viewing by some measures will begin to approach that of TV and DVR. Consolidation will come to the mobile point-of-sale (mPoS) market. For several years, the mPoS market has promised big things for the micro-merchant. But with an unabated stream of new entrants to the market, somethings got to give in 2014. We predict a surge of consolidation as several players look to exit the market. Kony will break out the For Sale sign. The time of the mobile enterprise application platform (MEAP) has come and gone. As new, agile app development players steal the spotlight, traditional vendors have a decision to make. For Kony, that means putting itself up for sale as it looks to join the likes of Antenna Software as an acquisition target. NFV will be the new black for mobile network operators. Increasing traffic and demand for highly performing networks have operators looking for new ways to deliver. By this time next year, we believe 70 percent of mobile network operators will have a network functions virtualization (NFV) trial in place, while another 20 percent will have solutions already implemented. Contrary to popular belief, small M2M deployments will pace the market. Although they may not grab the headlines of government-sanctioned, large-scale smart meter rollouts, we believe the small-scale machine-to-machine (M2M) implementations will drive the market in 2014. Already today, 66 percent of IT decision-makers we survey say their planned deployments will have no more than 499 devices.

2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities

December 2013

2014: Consolidation Hits Many Mobility Markets

This year will be remembered mostly as a positive one for the mobile industry. Deployment of 4G networks continued at a fast pace. Though economic challenges continued in several marketsmost notably Europecustomer demand for mobile devices and services held up well. In regions such as the U.S., network operators demonstrated that if the proposition and network performance is good enough, endusers are willing to pay more. Of course, 2013 also saw big things for the mobile commerce and apps spaces. In terms of the former, a number of new players jumped into fray with mobile wallets (both NFC and QR code), while retailers began to recognize the need for loyalty and engagement programs. As for apps, this year marked the beginning of the end for traditional enterprise development platforms as companies now require more agile approaches. As we look ahead to 2014 several of our predictions focus on mobile data, as well as MNOs attempts to deliver enhanced user experiences with profitable services. Though operators traditional service revenues (voice and messaging) will continue to come under pressure from over-the-top (OTT) applications, connectivity revenues will remain strong. Video will be a growing contributor, and we even expect that in the coming year mobile video watching will match PCs and begin to approach DVR/TV levels. Meanwhile MNOs will continue to respond to the growing OTT threat, and we expect more than half will have deployed at least one of their own OTT communications apps by the end of 2014. To cope with the growth in demand for data, MNOs will continue to invest in enhancing their network infrastructure and operational efficiency. Demand for more effective network management and planning tools will increase. For example, centralized self-optimizing network (SON) tools will be in big demand and will lead to consolidation among solution vendors. MNOs will also begin to invest in solutions that deliver operational cost savings. With this in mind, were predicting that by year end, 70 percent of Tier 1 MNOs will have network functions virtualization (NFV) trials in place and 20 percent will have a production implementation. Demand for data connectivity will also be driven by increased implementation of machine-to-machine (M2M) solutions. In this space we are predicting that relatively small mobile virtual network operator (MVNO) specialists will benefit the most in 2014 based on their strong focus on the needs of small and medium-sized businesses (SMBs).

During 2014 we will also see mobile technology continue to extend its reach into adjacent industries to deliver enhanced user experiences. Marketers want mobile to deliver flexibility, speed to market and new marketing management capabilities. To achieve this, more companies will begin to allocate significant investments for mobile customer experience solutions. Likewise the influence of mobile technology will be felt more strongly next year in the retail sector. But it wont all be smooth sailing for vendors. Indeed, during 2014 we expect to see a weeding out of vendors in the mobile point-of-sale (mPoS) market. The number of vendors serving this space has increased significantly during the past year. A combination of razor-thin margins and market maturity will begin to pull the rug out from under newcomers and established players alike. Consolidation will also come to the mobile backend as-a-service (mBaaS) market, which is due to undergo a survival-of-the-fittest scenario next year. Technology and commodification will drive out the weaker players, while market traction will define the winners. Sticking with the consolidation theme, in the enterprise applications space we also expect to see the market reach a tipping point. As demand for enterprise mobile applications grows, legacy mobile enterprise application platform (MEAP) solutions such as Antenna Software and Kony will continue to lose favor due primarily to their lack of scalability, flexibility and extensibility. Because of this, Kony will follow in the footsteps of Antenna and put itself up for sale. On a somewhat happier note, we expect that during 2014 consumers will champion smart watches and wrist-based applications; enterprises will gravitate toward heads-up displays (HUDs) and smart glasses-type solutions. As a result, we will see an influx of new entrants in the wearable tech space, and this will produce downward price pressures to divide the market by device and use case. With these developments in mind, Yankee Group presents its mobility predictions for 2014. For each prediction, we offer our take on industry winners and losers (see Exhibit 1 on the next page), as well as recommendations for players looking to capitalize on the changes we expect. Read on to see what organizations and technologies are best positioned to become leaders in 2014 and beyond.

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities

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Exhibit 1: Yankee Groups 2014 Predictions

Source: Yankee Group 2013

Winners
More Than Half of MNOs in Developed Markets Will Offer Their Own IP Communications Apps

Losers

Leading independent OTT application companies such as WhatsApp, LINE and Viber, and whiteTraditional mobile messaging platform vendors label OTT communications apps from the likes of such as Acision, Comverse and Telsis GENBAND, Kineto Wireless and StreamWIDE Operators with the spectrum, capital and aggressive network planning needed to build networks that can unleash the potentially explosive demand for mobile video

Mobile Video Watching Will Match PCs, Begin To Approach DVR/TV Levels

Sprint and T-Mobile in the U.S. and Telefonica, Orange and Vodafone internationally

More Vendors Will Exit Than Enter the Saturated mPoS Market

Vendors such as Square and Intuit with value-added services that benefited from a first mover advantage Mobile app analytic providers that focus on marketerssuch as Appboy, Kontagent and Localyticsas well as mobile experience management providers such as Artisan Mobile Companies that bring a better technology into the market with solid market performance, including Kinvey, Kii, KidoZen, AnyPresence, FeedHenry While no single vendor currently matches the blueprint for app development success, platform vendors such as Appcelerator, FeedHenry, IBM, Spring Mobile Solutions, SAP, Salesforce and Verivo are nearer to it than the legacy approaches

Undifferentiated vendors such as PayAnwhere and Jusp that offer little beyond payment acceptance MAM vendors such as Adobe PhoneGap, Antenna (now Pegasystems) and Kony, as well as analytics firmssuch as Omniture, SAS and WebTrends that don't focus on apps FatFractal, Point.io and other vendors with no sales traction

Marketing Investment for Mobile Customer Experience Measurement Will Take Center Stage in 2014 The MBaaS Segment Will Become Polarized and Undergo a Survival of the Fittest Scenario

Kony Will Put Itself Up for Sale

Legacy platforms, as enterprises look for better ways to scale their mobilization

70 Percent of Tier 1 MNOs Will Test NFV and 20 Percent Will Have a Production Implementation

Vendors that are focusing on the SDN and VFN markets, such as Intel

Traditional IT vendors that are not faring well with their SDN and NFV trials

Consolidation of Centralized SON Players Peaks

Companies such as TEOCO, Reverb Networks and Newfield Wireless stand to gain in the coming months as LTE network deployments in Europe and Asia spread

New entrants hoping for market position

Low-Volume M2M Projects Deliver Growth to M2M Specialists

M2M MVNOs such as Aeris Communications, Tier 1 service providers that fail to capitalize on the Numerex, Wyless, RACO Wireless and KORE opportunity to attract smaller M2M deployments Telematics, which have shown strong growth by to their networks through a strong focus on maintaining focus and flexibility while meeting indirect channels and wholesale operations the needs of smaller customers

Fitbit, Misfit and Pebble will lead consumer Operators that turn a blind eye to the wearable markets if they stay true to their competitivelyAn Influx of Wearable Tech Entrants tech market, regardless of whether or not priced, fitness tracking or smart watch-based Will Open the Door for Downward todays offerings support direct network products, while companies with enterprisePrice Pressures To Divide the Market connectivity; others include companies that focused wearable tech solutionssuch as Epson, by Device, Use Case confuse the match between form factor and use Motorola and Vuzixwill move the HUD needle case (as demonstrated by Google Glass) by drawing from their vast resources

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2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities

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Prediction 1: More Than Half of MNOs in Developed Markets Will Offer Their Own IP Communications Apps
The Upshot: Different operators will take different routes. Some large players will build their own communications appsthe Telco-OTT approachwhile others will white-label existing apps from third parties. At the same time, several large operators will partner with leading OTT players to create differentiated connectivity propositions. Profound changes are taking place in the way consumers communicate. Long gone are the days when most individuals relied primarily on voice and SMS to stay in touch while on the move. A growing number of consumers are now using a variety of IP-based communications apps (see the April 2013 Yankee Group report Learning To Live With OTT). As shown in Exhibit 2, Europe is experiencing heavy use of Facebook Messenger, Google Talk, iMessage, LINE, Skype, Viber and WhatsApp, among several others. Exhibit 2: Europeans Use a Multitude of Messaging Apps on Their Mobile Phones
Source: Yankee Groups 2013 European Consumer Survey

MNOs are already taking steps down this path. Several have introduced new price plans that are data-centric and include generous allowances of voice and messaging as standard. This ensures MNOs are less exposed to continued reductions in customers use of traditional messaging services. But these defensive moves are not enough. As IP-based services begin to dominate, MNOs must ensure they remain relevant in the delivery of advanced communications services. They have several choices for how they achieve this. They can: Deploy Rich Communications Services (RCS). This can be achieved either via IMS-based or hosted RCS solutions. Though the level of commercial activity has been disappointing, RCS remains one option for MNOs to deliver more advanced messaging capabilities. Partner with OTT players. For example, in September 2013 Optimus launched its youth-oriented WTF price plans in Portugal. This bundles free use of OTT apps such as WhatsApp, Facebook Messenger and BBM with traditional mobile services. Develop an OTT app in-house. This is the approach taken by Orange with its LiBon application and Telefnica with TUGo. Sprint also recently launched its Messaging Plus app using technology from Jibe Mobile. White-label an OTT app. MNOs can also partner with vendors that bring the best of both worlds (IP and telecom) to end-users through operator-branded OTT services. This approach allows MNOs to get to market quickly with an established OTT app that can be offered under their own brand. Examples of vendors offering this type of solution include GENBAND (with fring), Kineto Wireless and StreamWIDE (see the September 2013 Yankee Group report GENBAND Helps Service Providers Address OTT Challenges and the October 2013 reports Kineto Wireless Enables MNOs To Blend RCS with Telco Services and StreamWIDE Bridges Telco and OTT Worlds With SmartMS).

Which of the following services do you use to communicate on your mobile phone? (n=729)
WhatsApp Facebook Messenger Skype LINE Google Talk Apple iMessage Viber Kik BlackBerry Messenger KakaoTalk Other None of these Base: People who own a mobile phone or smartphone

33% 31% 20% 10% 10% 9% 9% 6% 6% 5% 8% 43%

Increased use of these so-called OTT apps creates serious commercial challenges for MNOs, including reduced communications traffic and revenues, as well as more precarious customer relationships. For example, in July and August 2013 Vodafone revealed that its year-over-year mobile messaging traffic declined by 35 percent in Germany and 29 percent in both Italy and Spain. For this reason, we are predicting that by the end of 2014 more than half of all mobile operators in developed markets will offer their own IP communications apps.

The final two options listed above essentially involve MNOs bringing their own IP-based communications apps to market, which is sometimes referred to as Telco-OTT. Whatever approach they take, MNOs must maintain a central role in enabling andwhere possibledelivering the next generation of IP-based communications directly to consumers. Thats why well see an influx of these apps in 2014. And because they also recognize the importance of enabling consumers to easily access todays most popular independent communications apps, MNOs will also partner more extensively with players such as Facebook, Skype and WhatsApp.

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Recommendations
Place your eggs in several baskets. As demonstrated in Exhibit 2, communications is an increasingly fragmented business and is certainly not a winner-take-all market. Moving forward MNOs primary business will be data connectivity. On top of this they should offer services that can add value or that are a natural fit with their core business. Communications falls into the latter category. MNOs should pursue multiple strategies including partnerships with OTT players, offering their own-branded OTT apps and also adding RCS capabilities. Go the white-label route if youre small. Though further consolidation will lead to a reduction in the number of MNOs in some regionsincluding the removal of some of the smallest playersthere will always be a Tier 2 category of operator. For these companies that lack the scale of companies such as Vodafone, Telefnica and AT&T, launching OTT communications apps can be best achieved through a white-label approach. Taking this route also reduces an operators financial exposure in the event that its app is unsuccessful. Help MNOs combine the old with the new. Rather than selling stand-alone RCS platforms, messaging vendors should help MNOs bridge the divide between legacy and IP-based communications. RCS vendors that fail to address this opportunity are at risk. Examples include Comverse, Ericsson, Huawei, Infinite Convergence, NewPace and Openmind Networks. Winners: Leading independent OTT application companies including WhatsApp, LINE and Viber will only become more popular in 2014, and partnering with leading MNOs extends their reach and distribution. White-label OTT communications apps from the likes of GENBAND, Kineto Wireless and StreamWIDE also stand to benefit. Though not all operator efforts with white-labeled apps will succeed, vendors can certainly look forward to a healthy period of experimentation beginning in 2014. Losers: Traditional mobile messaging platform vendors such as Acision, Comverse and Telsis. There will be pockets of growth in some regions, but in general demand for capacity upgrades to SMS and MMS systems will begin to decrease in 2014. RCS platform vendors are also in for a long year. Although RCS will be deployed in several markets, momentum is slowing and most MNOs are not relying on the technology to maintain a role in future mobile messaging.

Prediction 2: Mobile Video Watching Will Match PCs, Begin To Approach DVR/TV Levels
The Upshot: Among U.S. consumers, TV will still win the pure minutes-per-day, time-sink battle, but better devices, cheaper 4G rates (not to mention more LTE services) and creative operator/ content provider partnerships will reward users who increase their mobile video consumption, including eventually more longform content, which will put pressure on operator networks. Mobile video is about to be unleashed, and some mobile operatorssuch as Verizon Wireless with its early-deployment LTE networkare already seeing heavy video usage. For instance, although only one-third of Verizon subscribers are on LTE, those users are nonetheless consuming 64 percent of its data, with a surprising amount of that being video content, according to Verizon executives. Yet elsewhere video consumption has been tamped down by the processing limitations of first-generation smartphones, hit-and-miss 4G availability and in particular tier-based mobile data fees, which make bandwidth-heavy videoespecially television shows and moviestoo costly for most users. Those challenges are reflected in the numbers: Daily/weekly video consumption on tablets in Q3 2013 was 60 percent, actually down from 64 percent a year ago, with daily/weekly phone-based video consumption falling from 45 percent to 43 percent during the same time frame (see Exhibit 3). Exhibit 3: 60 Percent of Tablet Users and 43 Percent of Phone Users Watch Mobile Video at Least Once per Week

Source: Yankee Groups 2013 US Mobile Apps and Cloud Survey, September

How often do you watch video on your (by video, we mean anything from TV, films, YouTube clips, etc.)?
TV (live TV) (n=2,350)

65% 43% 43% 34% 21% 29% 24% 26%

5% 14% 10% 6%

DVR (TV programs recorded on a DVR) (n=1,279)

PC/laptop (n=2,365)

10% 7% 12% 14% 13%

Tablet (n=961)

Video game console (n=1,589)

Handheld game console (n=832)

Mobile phone (n=2,240)

25% 12% 19% 11% 19% 18% 16% 8% 29% 14% 12% 7% 13% 10%

Digital media adapter (n=1,390)

8%

At least once a day At least once a month

At least once a week

Less frequently than once a month

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2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities

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We predict that trend will reverse itself in 2014 with the frequencyto be clear, not the volumeof tablet-based video viewing surpassing PC/laptop-based viewing for the first time, which will be the start of a rapid approach toward DVR and live TV viewing frequency levels (as shown in Exhibit 3). A number of trends and activities will drive increased mobile video consumption: LTE networks move from drawing board to reality upping video-ready bandwidth. As we saw in the Verizon example, true 4G services drive data consumption and video viewing. Yankee Group forecasts U.S. registered LTE lines to grow from 72 million in 2013 to 181 million by 2017, and globally from 123 million to more than 1.3 billion (for more, see Yankee Groups Mobile Broadband Forecast, September 2013). Greater bandwidth will improve the video experience and drive consumption. Tablets, smartphones and new classes of connected devices provide better mobile video viewing capabilities. Improved devicesthanks to more powerful processors, larger screens, etc.make mobile video viewing more enjoyable. Devices are also becoming more connected: For instance, the total number of cellular-connectednot just Wi-Fi-basedtablets will grow from 30 million in 2013 to 118 million worldwide by 2017, according to our Mobile Broadband Forecast. Those tablet connections will fuel more quality, on-the-go viewing. Also looming: the connected car, in which a combination of seatback screens and 4G connections will boost mobile video viewing as well. Long-form mobile video begins to find its place. Today, most mobile video consumption is centered around short, viral clips, with apps such as six-seconds-to-glory Vine only deepening that trend. For instance, according to Yankee Groups 2013 US Mobile Apps and Cloud Survey, September, U.S. subscribers today primarily consume user-generated video (53 percent of respondents) over full-length TV shows (21 percent) or movies (13 percent) on mobile phones. On tablets, those numbers rise to 36 percent for TV shows and 27 percent for movies. While it didnt happen in 2013, we do expect mobile operators and premium content providers such as HBOGo, Hulu, Netflix and others to cut so-called toll-free pricing deals to make it easier (and cheaper) for consumers to mobilize their growing OTT video consumption.

beast. Operators, especially those with tiered or shared data plans, should introduce special pricing or premium tiers that provide incentives for users to consume video without getting slammed by high pay-as-you-consume fees. Content providers, meanwhile, can help fuel adoption by cutting deals with operators that help subsidize optimized content delivery and underwrite end-user costs. Operators must prepare their networks for the deluge. Verizon provides a great illustration of how to support increased video consumption, while also sidestepping its dangers. With its mandatory shared data plans for LTE users, Verizon has set up a strong monetization environment as bandwidth consumption rises. With a few tweaks (broadening tier levels or crafting special video offers) it can continue to grow its data/video average revenue per account (ARPA) while delivering a fair priceto-value equation to mobile video consumers. Meanwhile, Verizon is rapidly moving to beef up its already fullcoverage LTE network with additional carrier-aggregated LTE, Wi-Fi and small cell overlays. Savvy mobile operators will avoid playing the scarcity card and rapidly deploy more and more bandwidth to support greater mobile video consumption. The good news: Yankee Group surveys show consumers strongly prefer to pay their mobile operator (43 percent) than a content provider such as Netflix (13 percent) or content owner such as Sony Pictures (7 percent) to access mobile video content. Winners: Operators with the spectrum, capital and aggressive network planning needed to build networks that can unleash the potentially explosive demand for mobile video will win. In the U.S., Verizon and AT&T can be expected to be aggressive mobile video players, ideally tapping the quad-play capabilities of their TV/broadband businesses as well. Globally, Asia-Pacific operators have aggressively deployed the LTE networks necessary to support strong video growth. On the content side, Netflix and HBOGo have used mostly fixed network OTT streaming to rapidly grow and are well-positioned to better serve on-the-go users if they can cut advantageous deals with operators. Losers: Sprint and T-Mobile, with trailing (though catching-up) 4G network rollouts and exposed to supplydemand dangers via their unlimited data offers, must be simultaneously cautious and savvy or risk falling behind. Elsewhere, Orange, Telefnica and Vodafoneoperators exposed to mature European and lower-ARPU Latin American marketswill be challenged to time network build-outs to meet growing video demand. On the content side, traditional TV and cable content providers such as Comcast and Time Warner Cable will see their lucrative ad-supported, bundling and syndicated content business models challenged by new video delivery paradigms. Like book and music sellers before them, traditional TV providers must evolve or get left behind.

Recommendations
Mobile ecosystem players must encourageand more importantly give incentives forvideo usage. Until now, mobile operators havent done much to promote mobile video. In some casesmost often through punitive pricing theyve actively discouraged it at least in part because their networks werent ready for it. Its time to unleash the

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2014 Predictions: Mobility Hits a Tipping Point as Markets Consolidate, Players Build Out Capabilities

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Prediction 3: More Vendors Will Exit Than Enter the Saturated mPoS Market
The Upshot: The number of vendors serving the mobile pointof-sale (mPoS) market has increased more than threefold in the past year. A combination of razor-thin margins, market maturity and the upcoming EMV liability shift will begin to pull the rug out from under newcomers and established players alike. In the coming year we expect a number of mergers and exits from the market. Todays small merchant mPoS market is analogous to the U.S. automotive industry in the early 1920s: High levels of saturation have resulted in unsustainability. On a monthly basis, new vendors jump into the fray with solutions that are by and large undifferentiated from the scores of existing competitors, and competing on price instead of functionality has been the strategy de jour (see the January 2013 Yankee Group Perspective The mPoS Bubble Shows Signs of a Slow Leak). Initially, demand for mPoS was through the roof and business models centered on razor-slim margins and scale were relatively sustainable. However, with mPoS available to lowvolume merchants for more than three years this is no longer is that the case. As illustrated in Exhibit 4, the slowest area of mPoS growth during the next 12 months will be merchants with one to 20 employeesthe core clientele of vendors such as Square and PayAnywhere. With the market becoming increasingly congested and its growth potential becoming limited, opportunities to sign on small and micro-merchants are quickly evaporating. Exhibit 4: Micro-Merchants Represent the Smallest Growth Opportunity for mPoS Vendors
Source: Yankee Groups 2013 Mobile Marketing and Commerce Survey, September

Throughout 2014, we foresee a number of vendors following VeriFones lead by cutting their losses and seeking a graceful exit from the mPoS market. This will be fueled by: Unprofitability. Theres a reason smaller merchants are underserved by acquirers: Theyre highly unprofitable (see the January 2013 report Squaring Payments: The Exploding mPoS Market). At the standard per transaction rate of 2.75 percent charged by most mPoS providers, small dollar transactions are often losing propositions. For instance, a typical $5 debit card purchase at a coffee shop costs a vendor such as Square somewhere close to $0.23. But it only collects 2.75 percent of the total purchase, or about $0.14, resulting in a whopping loss of 64 percent. This is the case for every debit transaction under $8 or $9. For a larger transaction of $10 to $20, there is some profit, but once an mPoS provider gives up 2 percent or more on interchange and fees to the card brands and issuers, the margins are next to nothing. Clearly, targeting merchants with both low volume and small dollar transactions isnt the most lucrative business strategy. Market maturity. Its important to remember that mPoS is a game of scale. Vendors must sign on many merchants to turn a profit on a fraction of a percent. In the world of mobile payments, mPoS is no longer a new technology, having been around for more than three years. The majority of smaller merchants that were longing for cost-effective card acceptance have already adopted the solution of their choice. While new merchants will undoubtedly adopt mPoS long into the future, the size of the opportunitywhen paired with the number of competitorsis significantly smaller than it was just one or two years ago. EMV. With the U.S. liability shift less than two years out, the traditional mPoS business model of providing merchants with a free magnetic-stripe dongle will soon be turned on its head. EMV card readers are considerably more costly to manufacture and giving them away would be cost prohibitive. Paying for what was once free will be a tough pill to swallow for small, cash-conscious merchants.

Plans to deploy mPoS within the next 12 months by company size

Very large (more than 10,000 employees) Large (2,500-9,999 employees) Medium-large (500-2,499 employees) Medium (100-499 employees) Small (20-99 employees) Very small (less than 20 employees)

30% 27% 26% 29% 30% 19%

Recommendations
Target emerging and underserved markets. While the small- merchant mPoS opportunity may be drying up in the U.S., other markets hold potential. We suggest targeting countries where credit card penetration is on the rise. Working with partners in other nationssuch as financial institutionsis a lucrative and relatively easy way to expand internationally. The first mover in any market will benefit.

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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Add value beyond the transaction. Incorporating tools that go beyond payment acceptance is essential. Squares recent launch of Square Market and Intuits integration of QuickBooks with GoPayment serve as excellent examples. By providing merchants with a full suite of products that revolutionize the way they do business, mPoS vendors can stand out from the pack. Move upmarket. Small and medium-sized businesses (SMBs) have a thirst for easy-to-use PoS equipment that offers tools such as analytics and customer relationship management (CRM). With larger merchants, mPoS vendors can leverage a software-as-a-service (SaaS) pricing model, providing a far more lucrative revenue stream than transaction-based pricing. Winners: Vendors such as Square and Intuit with value-added services that benefited from a first mover advantage. Losers: Undifferentiated vendors such as PayAnwhere and Jusp that offer little beyond payment acceptance.

Today, engagement needs to be able to occur anywhere and on any device. Its all about providing an immersive experience: Situational context and personalization will become increasingly important throughout 2014. Any device can be tuned to its user, but context should encompass much more. By leveraging analytical insight, context as it relates to mobile can be determined using an individuals location, stated preferences, behavior (e.g., purchases) and social interaction with a brand in order to build a customized experience. Mobile applications are a great strategy to not only acquire new customers, but also enhance loyalty campaigns because a well-made app can provide a much better user experience. Our IT decision-maker survey data shows 93 percent of marketers place a significantly high importance on the ability to use data to track and measure user experience, as well as to monitor customer retention and engagement (see Exhibit 5). This is 20 percentage points higher than their IT counterparts. There is clearly a need for a next generation of technologies geared toward marketers that provides not only the insight necessary to understand mobile user behavior, but also the agility to take action on that insight. Successful customer engagement tools will retain the robust functionality and security of the originally developed native apps, while also providing critical user experience insight, speed to market, creative execution and testing/analysis flexibility. The goal is to provide rich mobile experience management functionality that enables marketers to achieve their desired outcomes through mobile app optimization, analysis and personalization. Exhibit 5: Context, Apps Represent the Future of Highly Relevant Experiences
Source: Yankee Groups 2013 US Mobile Marketing and Commerce Survey, September

Prediction 4: Marketing Investment for Mobile Customer Experience Measurement Will Take Center Stage
The Upshot: As customers individual preferences, behaviors and attitudes toward mobile drive business priorities, chief marketing officers (CMOs) are increasingly demanding solutions that ensure a positive mobile experience. The exponential growth of unstructured data from Bluetooth smart and Wi-Fi sensors, connected devices and social media is providing CMOs with the data to change business and transform the customer experience. At the same time that apps are winning the hearts of mobile consumers (Yankee Group survey data shows consumers spend 60 percent of their browsing time in apps), 63 percent of businesses are prioritizing mobile as a way to improve customer responsiveness. Still, many marketers struggle to achieve the right combination of personalization and flexibility in their deployments using modern development tools (see the November 2013 Yankee Group Perspective New Technology for New Immersive Customer Experiences). What marketers want is the same flexibility, speed to market and marketing management enabled by Web tools such as Adobe Omniture and Google Analytics. To gain such capabilities on the mobile side of the equation, companies in 2014 will begin to allocate more of their investments on mobile customer experience. Two years later well see this spend begin to outpace that of IT development.

The Future of Highly Relevant Experiences

100% of marketers vs. 75% of IT personnel want to analyze customer segments and leverage that insight to further fine-tune mobile app marketing 43% would share personalization information for better rewards

85% of consumers are interested in mobile coupons 93% of marketers place a significantly high importance on using data to track and measure user experiences to see customer retention and engagement

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December 2013

Recommendations
Customer experience management vendors must translate best practices from Web to mobile apps. Marketers have infinite opportunities to modify, test, analyze and personalize their Web sites. However, mobile apps and the Web are not the same. Apps are a unique channel and thus require a platform that has been purpose-built for managing the ongoing life cycle of customer engagement in a mobile environment. Vendors must also empower non-technical users with better tools. Ninety-three percent of marketers are highly interested in testing multiple variations of apps to create a personalized experience for customers. Furthermore, 100 percent of marketers and 75 percent of IT personnel want to analyze customer segments and leverage that insight to further fine-tune a mobile marketing campaign. They also must be able to analyze which customer segments have the highest total lifetime value and leverage that insight to further fine-tune the mobile app. To achieve all this, nontechnical employees need tools they can understand and that are easy to use. Winners: Winning companies will provide the tools that help marketing focus on the customer journey across not just the Web, but also mobile apps. Winners include not only mobile app analytic providers that focus on marketers such as Appboy, Kontagent and Localyticsbut also mobile experience management providers such as Artisan Mobile, which not only provide insight, but also the ability to optimize and personalize the application without the need to resubmit to app stores. Losers: When comparing different mobile customer engagement strategies and tools, the market is ripe with opportunity. However, many tools not only dont meet the needs of non-technical users, but also dont offer all the necessary requirements to truly personalize the experience. These include mobile application management (MAM) vendors such as Adobe PhoneGap, Antenna (now Pegasystems) and Kony. Others in danger of falling behind include analytics providers such as Omniture, SAS and WebTrends that just focus on the desktop and mobile Web. There are a lot of mobile Web analytics options, but very few vendors that focus on understanding the user behavior within the mobile application.

Prediction 5: The MBaaS Segment Will Become Polarized and Undergo a Survival-of-the-Fittest Scenario
The Upshot: Technology and commodification will drive out the losers, while market traction will define the winners. Mobile backend as a service (MBaaS) is a relatively recent development, with most vendors dating from only 2011. In the time since, the segment has quickly evolved, and many new players have entered the space; there are currently approximately 40 providers in the U.S. alone. Some vendors such as KidoZen and AnyPresence focus exclusively on the enterprise market; others such as Kinvey got their start with consumer mobile apps and are expanding into the enterprise segment (see the November 2013 Yankee Group report AnyPresence Set to Increase Footprint in a Crowded Space With Meta-Platform and the October 2013 report Kinvey Creates Competitive Advantage as BaaS Provider With Best Practices in Sales and Marketing). We have also seen interest from big players including Facebook, Google and Microsoft, as all have entered the space in different ways. Facebook became a mobile apps development tools provider when it acquired MBaaS startup Parse in April. In June, Google and Kinvey announced a partnership, bringing together platform as a service (PaaS) and MBaaS. We expect this trend will continue, with backend storage providers moving into the space via partnerships or acquisition. Exhibit 6: Market Footprint and Sales Revenues Will Define MBaaS Segment Winners and Losers
Source: Yankee Group, 2013
Most demanding customers

Point.io FatFractal KidoZen AnyPresence FeedHenry

Level of capabilities

Kinvey

Kii

Least demanding customers Low

Number of deployments, customers, sales revenues

Market performance

High

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In 2014, the MBaaS segment will become polarized and undergo a survival-of-the-fittest scenario with: The fittest enterprise-focused vendors remaining standalone solutions. Not all vendors have the technology to meet the requirements of the most demanding customers in the enterprise segment. These requirements include the ability to deliver both cloud and on-premises deployments, data-level management capabilities and compliance with strict industry regulation in verticals such as finance and health care. Examples of companies that fit into this category are AnyPresence and KidoZen. The fittest developer/consumer-focused vendors becoming targets for acquisition by larger cloud providers. Less demanding customers, usually developers working with consumer mobile apps, or common use cases for the enterprise, require a low-cost business model. We consider this to be unsustainable for small players in the long term, as it requires a huge effort to build momentum in the market. Examples include Kii and Kinvey.

differentiation that can place them in the Winners category, but they need sales traction to build market presence and validate their technology.

Prediction 6: Kony Will Put Itself Up For Sale

The Upshot: Kony will put itself up for sale, giving way to newer, more agile mobile application platform solutions. Applications are becoming a very hot area in enterprise mobility. Yankee Groups IT decision-maker survey data show that 54 percent of all companies will be increasing their budgets for mobile applications in the coming year. As demand grows the marketplace of platform solutions used to develop, deploy and manage these applications is at a tipping point. Legacy MEAP solutions such as Antenna Software and Kony are quickly losing favor for their lack of scalability, flexibility and extensibility. Antenna Software has already sold itself to Pegasystems at what anecdotal evidence points to as a bargain basement price of around US$30 million. Kony too is struggling to convince prospect customers that it has longevity as a stand-alone platform solution. Yankee Group recently independently sourced and surveyed customers of 10 different mobile application platforms, and only 26 percent of Konys customers reported that they get high business value (scores of 9 or 10 out of 10) from their platform compared to 54 percent of customers of both IBMs Worklight and Salesforces Force.com and 43 percent of SAP customers (for more see the September 2013 Yankee Group reports Scoring Todays Return on Mobility for Mobile Application Platforms and Mobile Application Platforms: A Blueprint for Future RoM Success). This predicament is made worse by an emerging model for much more agile cloud-based mobile middleware, which is gaining mindshare. In 2014, this scenario will come to a head and force Kony to put itself up for sale. The typical closed MEAP model, of which Kony has been a proponent, is conceptually and pragmatically dead for a number of key reasons: Proprietary, binary and on-premises (only) solutions greatly limit enterprises mobile strategies. The traditional MEAP approach of offering proprietary integrated development environments (IDEs), limited partnerships, proprietary frameworks, binary architectures and on-premises deployment is now considered oldfashioned. Not to mention it is severely limiting to the intentions of a growing swath of enterprises looking for greater extensibility and scalability from their platform provider in order to become more mobile-mature.

Recommendations
BaaS vendors should identify their key strengths and build a strategy around them. For some, market share can be a key strength; for others, technological capabilities are key. Which category they fall under will determine if a BaaS vendor is a better fit for the enterprise or the consumer segment. Each segment requires not only different levels of technological capabilities, but also different pricing models, sales approaches, and sales and customer acquisition cycles. It will be very difficult for one company to deliver and excel in both segments. No matter the segment, vendors must focus on market presence for survival. Start-ups with strong technological capabilities that are fit to serve the most demanding enterprise customers will need to build sales traction and generate sales revenues to stay afloat (e.g., Point.io, FatFractal). Companies in the consumer apps space will need to validate their technology with enough paying customers and sales revenues to be an attractive target for acquisition. Winners: Next year is looking good for companies that bring a better technology into the market with solid market performance. Candidates for this include AnyPresence, FeedHenry, Kii, KidoZen and Kinvey. Cloud providers that expand their offering to include BaaS also stand to benefit in 2014. Losers: Vendors that have no sales traction will not survive a negative cash flow. Those at risk include FatFractal and Point. io. These companies have the technological capabilities and

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MEAPs offer a poor Return on Mobility (RoM). Just as much as budgets are growing for mobile solutions so too is the pressure from executive leadership and the CFO to justify investments. More than that, the immediacy of the interface between mobile solutions and their users turns corporate data into corporate inventory. Companies need new metrics to measure how their platforms allow them to use and reuse this data in their mobile applications to reap greater continuous value. The inflexibility of the MEAPs means they are being used to really only deploy point solutions and not allowing companies to think more expansively and in an agile manner about continuously reaping value. They are too little too late. Realizing the challenge, several MEAP vendors have tried to open their platforms and provide more cloud-based deployment. However, bogged down by legacy architectures and often multiple acquired assets over the years, in most cases this is too little too late. Of all of the vendors in our RoM research, Kony customers had the least confidence that it will be a leading platform in the future. In addition, it was rated poorly for both company strengths such as the vibrancy of its ecosystem and technical features such as its ability to mobilize legacy processes, where only 20 percent of the customers we surveyed believed it was highly effective. That score was about half the proportion of the next worst vendor score, Xamarin, with 35 percent. These scores from Kony and Antenna Softwares customers are testament to a lack of deep customer engagement with the MEAP approach.

as Verivo are more effectively making the transition. And a raft of newer, cloud-based platforms including Appcelerator and FeedHenry and infrastructural solutions such as Webalo are driving new more agile and scalable models. Look for real-world customer feedback and a quantified RoM. Winners: The leading platforms will be those that provide open and extensible architectures, vibrant developer ecosystems, embedded API management and data orchestration capabilities, integrated analytics, a broad ecosystem, and agnosticism to tools, infrastructures and standards. While no single vendor currently matches this blueprint, platform vendors such as Appcelerator, FeedHenry, IBM, Spring Mobile Solutions, SAP, Salesforce and Verivo are nearer to it than the legacy approaches. Losers: Although this is less of a problem now for Antenna Software after having been acquired by Pegasystems (which is likely to choose the bits of Antenna that fit best in its portfolio and de-prioritize the rest), legacy platforms such as Kony will struggle to compete as enterprises look for better ways to scale their mobilization. To guarantee any kind of longevity their best bet will also be to find a strong acquirer.

Prediction 7: 70 Percent of Tier 1 MNOs Will Test NFV and 20 Percent Will Have a Production Implementation
The Upshot: Network functions virtualization (NFV) is too enticing in terms of operational savings for the telcos to ignore. In response, operators are being proactive with trials and proof-of-concept (PoC) tests. They are also being opportunistic: Disruptions in infrastructure caused by technology upgrades are resulting in procurements that specify an NFV product roadmap or, better still, a virtualized solution. In an industry more than accustomed to hype cycles and the inevitable crash that follows, we predict that NFV will buck the trend in 2014. We believe that while 70 percent of Tier 1 MNOs will have live NFV trials, another 20 percent will have product implementations in place. Much of the usual ramp up in hype was short-circuited by the operators. Rather than coming out of academia or the vendors, NFV was the brainchild of the operators, and was launched with the Network Functions Virtualisation Introductory White Paper, published at the SDN and OpenFlow World Congress in Darmstadt, Germany, in October 2012. The 13 operators that sponsored the whitepaper were, in many cases, already well into tests at the time.

Recommendations
Procuring enterprises must look for a strategic platform partner. Now is the time to lay the groundwork for a more strategic approach to mobilization. Look for a strategic mobile application platform partner that has a futureoriented roadmap that will provide extensibility (think 100s or 1,000s, not single-digit applications), scalability (rapidly from a few to potentially millions of customers and back down again) and flexibility (prioritizing opensource standards and some degree of agnosticism to tools, standards and infrastructures). This is unlikely to be on offer from a MEAP vendor, but looking for these capabilities will give you a better chance of reaping a positive RoM and longevity in your investment. Question the traditional pecking order. At one time Antenna Software and Kony were front runners. While these MEAP pure-plays are falling by the wayside, platforms from the larger service providers such as SAP, IBM and Salesforce and legacy MEAP providers such

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The ETSI NFV Industry Specification Group (ISG) did not start work on the standard until January 2013. However, in the short time since, that group has already published five documents: four ETSI Group Specifications (GSs) covering NFV use cases, requirements, the architectural framework and terminology, and a fifth GS that defines a framework for coordinating and promoting PoC testing. A more detailed spec is due out from ETSI in 2014 (we estimate not until Q4). Nevertheless, this has not stopped service providers and their vendors from plowing ahead with trials. Given how guarded operators are about publicizing trials, it is a testament to the degree of interest in and early commitment to NFV that just a year after the publication of the NFV whitepaper, we are aware of a wide variety of tests, trials and implementations from the likes of AT&T, BT, Deutsche Telekom, Myanmar P&T, NTT, Optus, Orange, Telecom Italia, Telefnica, T-Mobile, Vodafone and Verizon. To give a few examples: BT has executed a variety of virtualization tests with positive results including: a virtualized BRAS, hierarchical QoS, virtualized content delivery networks (CDNs) and virtualized IP SEC. Deutsche Telekom is involved in a PoC for an IP multimedia subsystem (IMS) platform. Orange is using its Orange Silicon Valley subsidiary as a test bed for a virtualized evolved packet core (vEPC).

Telefnica is jointly testing software-defined networking (SDN) and NFV in Brazil in an interesting trial of home gateways. The carrier is also trialing virtualized deep packet inspection (DPI) and carrier-grade network address translation. Are we suggesting that it will be smooth sailing from here on out for NFV? Far from it. Despite the advantages that NFV brings in terms of scalability, flexibility and operational efficiencies there will be disillusionment along the way for those who do not have a pragmatic view of the technology. Firstly, it is unlikely to result in appreciable capex savings and may, in fact, carry a slightly higher price tag than a nonvirtualized version. Further, we believe that NFV will have little effect (positive or negative) on floor space or power. Secondly, early implementations are unlikely to have the feature/function parity of their metal-box equivalents. Performance of early virtualized DPI, for example, suffers when inspection is turned on up to layer 7. All the kinks have not been worked out of automatic scaling of the virtualized solutions. Management, policy and charging features and interfaces are still limited. Likewise, security features have been lacking early on. Lastly, initial NFV implementations represent incremental costs to the operators, since they will insist on running the virtualized and metal box versions of the network app in parallel until they are certain that the NFV version is safe to unleash on the network by itself. Operators under a budget crunch will still move to NFV, but will do so more slowly than they might like (see Exhibit 7).

Exhibit 7: NFV Market Opportunity Is Emerging Now: Will It Track High or Low?
Source: Yankee Group, 2013

$3,500 $3,092 $3,000

Overall move to virtualization Move to cloud Rich developement community Feature/function parity

USD (in millions)

$2,500 $2,000 $1,500 $1,000 $500 $131 $0 $327 $268 $759 $533 $1,610 $1,793

Early pilots/trials Carrier capex limitations Unclear ROI Market drag of incumbents

$1,004

2013

2014

2015

2016

2017

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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Recommendations
Vendors in the discrete network application product space (security, DPI devices, network policy control) have run out of lead time and need to start developing an NFV version of their solutions. Operator RFPs require an NFV roadmap, regardless of when the operator intends to implement NFV. Operators need to start small and must be rigorous in their testing of the NFV solutions. Feature and functional parity will be the challenge for NFV solutions in 2014. We believe some will succeed (DPI, domain name system and dynamic host configuration protocol) and some will fail (security). Operators must examine their goals closely and compare them to the available solutions. The ROI on an NFV solution is not self-evident in all cases. Winners: NFV is a tide that is raising all ships in the telecom ecosystem. All operators, but cloud operators especially, are anticipating NFV just like dads anticipate a universal remote. Most of the network application vendors, from firewalls to packet gateways, readily admit that the majority of their value is already in software and few are dismayed at turning into a virtual appliance. Nevertheless, there will be winners in NFV. As these applications transition to standard compute platforms, much of the differentiation will be enabled at the subcomponent level and vendors that are focusing on the SDN and NFV markets such as Intel will benefit. We also believe that the Tier 2 operators are likely to benefit as they will be willing and able to implement NFV into the production environment more aggressively than their Tier 1 counterparts and will be able to capitalize on operational efficiencies, increased flexibility and improved time to market for services much earlier. Losers: SDN and NFV are opportunities for non-traditional vendors to play in the telecommunications space. However, operators are very different even from large enterprises. We are already hearing of cases where traditional IT vendors are not faring well in SDN/NFV trials.

Prediction 8: Consolidation of Centralized SelfOptimizing Network Players Will Peak

The Upshot: Scale matters and SON players failing to fall into the camps of larger operators risk becoming irrelevant. Getting maximum performance out of mobile broadband networks is now a business imperative for leading MNOs around the globe. The days of good enough voice quality supported by customer joy at simply establishing a scratchy and occasionally unintelligible conversation when away from home or officeis no longer acceptable (see the August 2013 Yankee Group Perspective When the Wind Blows: Stepping Up to Resilient Mobile Broadband Networks). Today, highspeed mobile data services are the vehicles for navigation, traffic updates, video, gaming and social interaction. As a foundation for these rich networking interactions, the mobile network must be robust and resilient. Anything less is quickly detected as end-users experience poor performance, which is typicallyand quicklyblamed on the mobile operator. To keep the networks foundation sound, operators employ optimization tools that tune base station and antenna parameters to meet needs of shifting traffic patterns. Without tools, mobile network optimization is tedious and costly. Operator staff must conduct drive tests to determine network performance. Following analysis of test results, base station configuration parameters must be recalculated to determine ideal power characteristics. Likewise, antenna tilt characteristics must be re-evaluated. When analysis is complete, engineers hunker down to the painstaking task of changing base station parameters and re-setting antenna tilts. Fortunately, a new generation of automated optimization tools eliminates much of the hassle. With centralized and de-centralized approaches, these SON tools accelerate the cycle of monitoring, analyzing and adjusting. New companies offer centralized SON tools that complement distributed SON capabilities built into network equipment. In the past year, two companiesIntucell and Celcite were snapped up by larger industry players. Yankee Group believes there will be further consolidation, but M&A in the centralized SON market will peak during 2014. In the coming year, we see companies such as Movik Networks, Newfield Wireless and TEOCO as M&A candidates as large players move to bulk up SON portfolios. Among those companies looking to do the acquiring, the likes of Oracle and Tektronix appear to fit the bill.

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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Market players should consider that: SON expertise remains an excellent pathway to relevance. It is no secret that large software companies crave a place in the center of the radio access network (RAN), but translating desire to success is a tough challenge. With centralized SON, clever startup companies have delivered value to mobile operators by automating traditionally costly and cumbersome optimization processes. By acquiring a successful SON startup, companies with minimal relevance to network operations teams suddenly gain a prominent role. Because mobile operators look to centralized SON deployments as a needed multi-vendor overlay delivering status information and optimization across equipment from different vendors, failure to have a base station portfolio is not a liability. In fact, operators may view software-centric vendors as a neutral party with no axe to grinda benefit, not a problem. M&A activity is driven by scale. Beyond large players accretive desires, the increasing pace of M&A activity is driven by a need for scale. Operators value start-up companies with clever innovations, but a small outfit raises questions about longevity and depth of resources. As centralized SON deployments become more important to operators, so does the need to consolidate the sector. There are limits to new entrants. Gaining operator trust is never an easy proposition. With SON, however, the challenge is even steeper. New companies with brilliant ideas requiring the operator to open interfaces into mission-critical operational support systems must convince skeptical technical staff that no harm will come to the network. Beyond having to make a convincing argument that the proposed approach has overwhelming benefits without risk, the new supplier must wrest time and effort from an operators technical staff. Once an operator settles on a SON approach, switching vendors becomes a costly and impractical exercise. As existing SON companies gain traction it becomes much more difficult for new players to enter the picture. And with fewer new entrants, the pressure to acquire existing players gets more intense.

Recommendations
Software players should move to secure a SON position. Companies such as Tektronix and Oracle should consider M&A to bolster their growing presence among mobile operators. The move would create opportunities to leverage existing sales resources and grow scale. Because SON is fundamentally a software-based technology, it fits well into these large software players. Network equipment providers (NEPs) should think twice about centralized SON offers. Mobile operators benefit when a centralized SON suite embraces all deployed vendor equipment equally. An NEP that seeks to supply the SON offer may lack credibility when it comes to consistency across product lines. While professional and managed services business units may seek to add centralized SON capabilitiesas Ericsson did when it acquired Optimithe value of adding this portfolio asset may not be realized. Winners: Centralized SON players that have gained the trust of major mobile operators to touch sensitive parameters will be winners. Companies such as TEOCO, Reverb Networks and Newfield Wireless stand to gain in the coming months as LTE network deployments in Europe and Asia spread. Losers: New entrants hoping for market position stand to be the losers. Selling to mobile operators is always a difficult challenge. As time goes by and operators make decisions on centralized SON architectures, new players will find fewer and fewer open-minded operators willing to invest time and effort evaluating incremental improvements to existing toolkits.

Prediction 9: Low-Volume M2M Projects Will Deliver Growth to M2M Specialists

The Upshot: A select group of M2M MVNOs will continue to grow faster than the overall market based on the attention theyve paid to the needs of small and mediumsized businesses (SMBs), while exhibiting the flexibility and expertise required to serve the needs of smaller deployments. Today, the cellular M2M connectivity market is served by two camps: MVNO specialist providers such as KORE Telematics, RACO Wireless, Aeris Communications, Numerex and Wyless, and their large network operator frenemies (AT&T, Sprint, Telefnica, Vodafone, Verizon and T-Mobile) that on one hand are quite happy to sell MVNOs wholesale connectivity but on the other wish to compete with them for larger deals via dedicated enterprise sales units (see the May 2013 Yankee Group report Handicapping the Battle for End-toEnd M2M Market Supremacy).

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While the massive device volumes associated with government-mandated smart meter deployments and rollouts of connectivity-enabled vehicles from major automakers such as Audi, BMW, GM, Honda and Mercedes grab news headlines based on deal size, device volumes and fanfare, smaller deployments for specific vertical use cases remain the bread and butter of todays M2M marketplace. In 2014, Tier 1 MNOs with global operations will compete aggressively for an overall minority of large-scale projects while smaller deployments fly below their collective radars and into the arms of appreciative MVNOs. Yankee Groups 2013 US Mobile and Connected Devices Survey, September, reveals that for those IT decision-makers with plans to deploy M2M solutions, 66 percent plan for those projects to have fewer than 499 total devices. On the flip side, only 8 percent are planning deployments with more than 5,000 devices (see Exhibit 8). Exhibit 8: Majority of IT Decision-Makers Plan for Small-Scale M2M Deployments

The M2M market isnt mature enough for Tier 1 operators to expect to bring small deployments on board without a high-touch sales engagement strategy and a great deal of flexibility to ensure the ROI works for its downstream customers. These are the very attributes that the MVNOs have honed during several years of operation and will continue to do so through the next several years of market maturity. In the meantime, there are several areas where MNOs can focus to ensure maximum market coverage.

Recommendations
Operators should take a decidedly holistic approach to M2M business planning. They must take into consideration a go-to-market approach that maximizes direct opportunities while also ensuring that wholesale partners are trained and ready to pursue and capture smaller deployments. A strong spirit of collaboration between enterprise business units and wholesale operators should be encouraged. Rather than competing with their MVNO partners, a divide and conquer mindset should prevail. M2M MVNOs should position themselves aggressively to their cellular network suppliers as friendly and preferred channel partners to address smaller implementations. That consideration may come at a price of deferring to their downstream network partners for high volume M2M deals. For their part, MVNOs must recognize the pricing sensitivities of SMBs and offer innovations that reduce capital expense for connected devices either on their own or with the support of their upstream network partners or downstream device suppliers. Winners: M2M MVNOs such as Aeris Communications, KORE Telematics, Numerex, RACO Wireless and Wyless, which have shown strong growth by maintaining focus and flexibility while meeting the needs of smaller customers (see the August 2013 Yankee Group reports RACO Wireless Drives Growth by Offering M2M Easy Button, Aeris Communications Looks to Europe and Cloud Services To Drive Growth and KORE Telematics Relies on M2M Experience and Flexibility To Fight Off Larger Competitors, and the November 2013 report Wyless Champions Partnership and M&A Opportunities To Fuel International Expansion). Losers: Tier 1 service providers that fail to capitalize on the opportunity to attract smaller M2M deployments to their networks through a strong focus on indirect channels and wholesale operations.

Source: Yankee Groups 2013 US Mobile and Connected Devices Survey, September
How many total connected M2M devices do you plan to deploy over the course of your entire planned project? (n=871)
2 to 49 50 to 99 100 to 499 500 to 999 1,000 to 4,999 5,000 to 9,999 10,000+ Unsure/Dont know

18% 23% 25% 14% 9% 4% 4% 4%

While some Tier 1 MNOs such as Verizon have made overtures in offering solutions downmarket, the reality is they are operating in a world ruled by very large numbers: To move the needle, they need big deals and their sales investments and go-to-market structures must be aligned accordingly. M2M MVNOs, on the other hand, have a vastly different business profile. These players are often delivering recurring revenues of less than US$100 million per year and have fewer than 100 employees, yet have experience and domain expertise in deploying M2M projects. These players have both the financial incentive and the experience required to do the difficult work to make small deployment customers happy.

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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Prediction 10: An Influx of Wearable Tech Entrants Will Open the Door for Downward Price Pressures To Divide the Market by Device, Use Case
The Upshot: Consumers will champion smart watches and wrist-based applications; enterprises will gravitate toward heads up displays (HUDs) and smart glasses-type solutions. Wearable tech currently lives in the accessory/companion category, with no one device taking the market by storm (see the October 2013 Yankee Group Perspective Wearable Tech Readies for Takeoff and October 2013 report Samsung Galaxy Gear: Still Just an Expensive Accessory). But as advancements in OS interoperability, plug-and-play functionality and stand-alone connectivity approach fruition, the market will embark on an iterative journey destined for lateral sprawlincluding considerable division by: Device type. While Google Glass-type HUDs put wearables on the map, consumers havent expressed a willingness to pay the technologys hefty price tag (US$1,500 for Google Glass, for example). As shown in Exhibit 9, fewer than 10 percent of respondents to Yankee Groups 2013 US Consumer Survey, September, state they plan to pay more than US$200 for a connected fitness/wellness device; more than 90 percent plan to pay less than US$200. This is why companies such as Fitbit, Jawbone, Misfit Wearables, Nike and Pebble have been able to commercialize their respective smart watch- or dongle-based products, while others, such as Google, Motorola and Vuzix, have not. Use case. Wearable tech is as much about a devices capabilities as it is about how, when, where and by whom the device is used. Consumer-focused fitness tracking companies such as Fitbit have really dialed in on this notion by creating a platform upon which real-time data collection, analytical tools and results-driven metrics are unified for easy access on either a mobile device or a PC. For those focused on the enterprise, HUD companies such as Vuzix have found partnerships with augmented reality (AR) software makers such as Metaio and systems integrators such as SAP to be among their most complementary assets. And while fitness tracking products are often designed with subtlety top of mind, more robust, productivity-focused wearable solutionssuch as HUDtype devicesdemand that aesthetics be compromised.

Operating system (OS). Consumers and enterprises alike have become accustomed to siloed software architecture, and todays wearable technologies follow suit. But this doesnt mean hardware-agnostic solutions will reign supreme; whether its battery life, price or form factor, todays wearable tech hardware plays a zero-sum game in which software innovations hold the key to success. The challenge moving forward will be for developers to expand device capabilities via over-the-air (OTA) updates without overburdening the hardware ecosystem. Companies looking to get an early jump on wearable tech OS interoperability might execute such a strategy by supporting co-opetion and co-creation initiatives, as evidenced by Pebble, Plantronics, Recon (an Intel Capital portfolio company), Sony and Vuzix (see the August 2013 Yankee Group report Wearable Tech Conference & Expo Shows Early Innovation, Serious Promise). Exhibit 9: Price Will Determine Wearable Tech Adoption, Perceived Value
Source: Yankee Groups 2013 US Consumer Survey, September

Price Planned To Pay for Connected Fitness/Wellness Device

9.5% 16.9% 73.6%

$0-$100 $100-$199 $200+

Recommendations
Operators must adhere to consumers sensitivity to price. Given that most of todays solutions cant connect directly to the network, operators should be cognizant of the fact that costs passed through to consumers will compromise a devices perceived value. For this reason, wearables that lean toward the stand-alone device side of the equation will serve as a better targetthese are the more industrial, enterprisefocused solutions tooled to improve worker productivity.

Copyright 1997-2013, Yankee 451 Group, LLC. All rights reserved.

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Wearable tech solutions providers must understand the eye of the end-user. Creating a winning wearable tech value proposition requires that a solutions target audience be clearly defined: Although the addressable market for enterprise use cases is smaller than that of the consumer category, its a hopeful first foray for MNOs to get some skin in the game. When courting the enterprise, MNOs must be mindful of the fact that such customers are often challenged to balance fiduciary requirements with active, strategic investments. Since productivity-enhancing wearables will deliver a clear ROIand therefore a certain stickiness factorMNOs competitive advantage will be derived from the proper identification of early entry points to enterprise-grade wearable tech connectivity. Winners: Companies such as Fitbit, Misfit and Pebble will lead consumer markets if they stay true to their competitively priced fitness tracking or smart watch-based productsthough we expect scope creep will be a challenge moving forward. Companies with enterprise-focused wearable tech solutionssuch as Epson, Motorola and Vuzixwill move the HUD needle by drawing from their vast resources, including capital, partners/alliances and supply chain management. Losers: Operators that turn a blind eye to the wearable tech market, regardless of whether or not todays offerings support direct network connectivity, will struggle in 2014. The fact that wearables predominantly rely on their companion counterparts means that end-users will start to find more value in non-networked devices. Other losers include companies that confuse the match between form factor and use case (as demonstrated by Google Glass).

Further Reading
Yankee Group Perspectives and Daily Insights New Technology for New Immersive Experiences, November 2013 Wearable Tech Readies for Takeoff, October 2013 When the Wind Blows: Stepping Up to Resilient Mobile Broadband Networks, August 2013 The mPoS Bubble Shows Signs of a Slow Leak, January 2013 Yankee Group Research Wyless Champions Partnership and M&A Opportunities To Fuel International Expansion, November 2013 AnyPresence Set to Increase Footprint in a Crowded Space With Meta-Platform, November 2013 Probing the Network: An Essential Tool for Driving Customer Experience, November 2013 Samsung Galaxy Gear: Still Just an Expensive Accessory, October 2013 Kinvey Creates Competitive Advantage as BaaS Provider With Best Practices in Sales and Marketing, October 2013 Kineto Wireless Enables MNOs To Blend RCS With Telco Services, October 2013 StreamWIDE Bridges Telco and OTT Worlds With SmartMS, October 2013

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GENBAND Helps Service Providers Address OTT Challenges, September 2013 Scoring Todays Return on Mobility for Mobile Application Platforms, September 2013 Mobile Application Platforms: A Blueprint for Future RoM Success, September 2013 RACO Wireless Drives Growth by Offering M2M Easy Button, August 2013 Aeris Communications Looks to Europe and Cloud Services To Drive Growth, August 2013 KORE Telematics Relies on M2M Experience and Flexibility To Fight Off Larger Competitors, August 2013 Wearable Tech Conference & Expo Shows Early Innovation, Serious Promise, August 2013 Revolutionizing Retail With mPoS, June 2013 Handicapping the Battle for End-to-End M2M Market Supremacy, May 2013 Learning To Live With OTT, April 2013 2013 Mobility Predictions: Time to Place Your Bets, December 2012 Yankee Group Data 2013 US Consumer Survey, September 2013 US Enterprise Mobility: IT Decision-Maker Survey, September 2013 US Enterprise Mobility: Employee Survey, September Global Mobile Forecast, September 2013 2012 European Consumer Survey

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About the Authors

The following Yankee Group analysts contributed to this report: Declan Lonergan, Ral Castan, Rich Karpinski, Sheryl Kingstone, Chris Marsh, Ryan Martin, Jordan McKee, Brian Partridge, Jennifer Pigg, and Ken Rehbehn.

Copyright 2013. Yankee 451 Group, LLC. Yankee Group published this content for the sole use of Yankee Group subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of Yankee Group, One Liberty Square, 6th Floor, Boston, MA 02109. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.