by Birgitta Cederstrom, Frost & Sullivan ,ICT Business Unit Leader for Africa
Every year, thousands of new companies are formed globally. In excess of 90 percent do not survive more than two to five years and only a handful survive beyond 50 years. A large contributing factor to their failure is that existing customer needs, which these companies were established to address, have become irrelevant over a period of time. Most companies also fail to scale their business and cross US$100 million in revenues. The information and consulting industry is worth US$366 billion globally and currently there are just slightly over 100 companies with revenues over US$100 million. Only 25 of them have a history of over 50 years and Frost & Sullivan, the global research & consulting firm, is one of them. Such trends, which have a profound impact on the business environment over time, are termed ‘Mega Trends’ by Frost & Sullivan. Mega trends are defined as global, sustained and macroeconomic forces of development that impact business, economy, society, cultures and personal lives, thereby defining our future world and its increasing pace of change. Mega trends have diverse meanings and varying impact on different industries, companies and individuals. Analysis of these megatrends and their implications forms an important component of a company’s future strategy, development and innovation process, and directly impacts product and technology planning. To address this very important issue amongst its global customer base, Frost & Sullivan embarked on an ambitious global project to identify the top 50 mega trends. A global team of 150 analysts and consultants, with expertise in various industries and economies, convened to brainstorm, scenario- plan and generate ideas for future growth opportunities for businesses. The result is an insight into how these trends will change the pace and scenario of life as we know it as well as the repercussions of these trends in business. Some of the mega trends identified by Frost & Sullivan include “smart” emerging as the new green; geo socialisation; innovating to zero; beyond BRIC; the next game changers; space jam; personal robots; e-mobility; and new business models – to name a few. Here we look at four mega trends that Frost & Sullivan expects to affect global technology companies: moving from connecting subscribers to connecting devices; cloud computing; urbanisation and smart grids.
1 Moving from Connecting subscribers to connecting devices
Prices of mobile devices, as well as the tariffs for mobile servic- es, have declined sharply resulting in unprecedented growth in subscriber and penetration numbers. Mobile penetration in most markets today exceeds 100 percent. The economic value that was added, based on providing mobility to consumers, has been sig- nificantly exploited. The Blue Ocean Strategy of creating new economic value is to shift the paradigm to connecting devices in- stead of connecting consumers. It is quite possible that, if executed well, penetration levels of 800 percent, or a total connected device ecosystem exceeding 80 billion devices by the year 2020, will be the result. Whilst the connecting devices trend, i.e. Machine to Machine (M2M), is not new, the current ecosystem is ripe for an accelerated take up of this trend. Rapidly declining prices of radio and telecom infrastructure is a key enabler. Added to that is the fact that most countries today have ubiquitous broadband coverage – both fixed and wireless. The availability of platforms such as Android and iTunes, amongst several others, helps leverage the collective inno- vation capability amongst millions of application developers glob- ally. The baton for discovery of the applications has been passed on to the consumer and this wisdom of the crowds’ phenomenon helps accelerate the development and innovation cycle. The consumer electronics industry will be a key benefactor of this Mega Trend. Devices which operate in a networked environ- ment will enable consumers to drive a greater degree of personali- sation. There will be an explosive level of innovation that will come through from the convergence of these two industries: consumer electronics and connectivity. In many instances, the connectivity piece will be completely transparent to the end-user. We have seen the first signs of this emerging business model in the offering from Amazon Kindle, with global connectivity and completely transpar- ent carriage charges for users. Carriage costs are marginal com- pared with the overall benefit for Amazon, as well as the consum- er, and hence the consumer does not get charged for the usage of data separately.
Implications for Telecoms Service Providers
This Mega Trend is a huge growth opportunity for the telecom ser- vice providers (telcos). Whilst the revenue streams will possibly be as low as a few cents per device per month, the number of devices that will be connected is huge. The telcos undoubtedly will earn revenues from the connectivity piece. This will, however, be com- moditised and the margins will be under continuous pressure. The battle will be intense for the incremental revenues from the creation of the ecosystem. The first wave of the data connectivity phase has been won by Google, Apple, Facebook and other Over the Top (OTP) players. The upcoming wave of connecting consumer devices will attract electronic giants such as Sony, Samsung, Panasonic, Philips and others. These companies approach the market from a thoroughly global perspective and their scale will be significantly higher than the telcos. The competitive advantage for a telco resides in its strength in operational excellence, its monthly billing relationship with its customers and its strong local distribution presence. Telcos need to adopt a two-pronged approach to succeed. Firstly, they need to develop strong global partnerships with the likes of Sony, Apple and Google, and be an early entrant into the market to garner a significant share of the connectivity pie. Secondly, there are several areas that will favour the telcos more than global play- ers, including sectors like the development of smart cities, security solutions and other business to business solutions. Telcos are in a powerful position to be a one-stop solutions provider to enterprise customers by helping them navigate this connected device ecosys- tem. Telcos will have to develop capabilities or partner compa- nies with skills in business consulting and IT integration to make this possible.
Implications for System Integrators (SIS)
An important requirement for the connected device paradigm to become reality would be to stitch customised solutions to address both the consumer and enterprise requirements. This opens a new opportunity for the SIs of the world to work with ecosystem part- ners in order to design solutions such as transportation solutions for a smart city and/or home delivery systems for consumers. The SIs will, however, need to design these solutions with newer business models, which are OPEX-based, maybe using the cloud computing paradigm. In addition to the current SIs, other players from the eco- system and beyond, like automation players, and/or infrastructure players, are expected to enter the market.
Implications for Enterprises
The connected device ecosystem will enable companies to collect real time information on the usage of their products and services. This will significantly improve the quality of products, increase the pace of innovation and most importantly lead to better utilisation of global resources. Business models will change from outright purchase of products to pay as you go, as information about exact usage trends will be available. Insurance companies may offer cus- tomised annual premium packages based on a consumer’s driving habits, rather than the one size fits all approach they adopt today. The increased sophistication in cars will translate into the develop- ment of collision-less vehicles. Whilst a lot of these may sound futuristic, Frost & Sullivan believes strongly that many of these scenarios will be real by the year 2020.
2 Cloud Computing
There is a growing awareness among enterprises to access their in- formation technology (IT) resources extensively through a “utility” model; a development broadly called “cloud computing.” Cloud is the natural evolution of service delivery over a network. The big- gest benefactor of this trend will be enterprises, as they look to le- verage the innovation that cloud has brought to the consumer In- ternet ecosystem. Cloud represents the next wave in the computing industry, as it strives to eliminate inherent inefficiencies in the existing IT architecture and deliver “IT as a service” to the end-users. Cloud computing can be specifically defined as a pool of com- puter, memory and input/output resources, applications or operat- ing environments with seemingly infinite scalability, delivered as a service over a network, be it private or public. There are five key characteristics that help define the cloud com- puting business model: on-demand, pay-as-you-go, rapid elasticity, shared pools, ubiquitous access. The final piece of the jigsaw puzzle, with regards to the cloud computing business model, is how it will be delivered. There are two distinct models at play: private cloud or public cloud. Many companies may also opt for a hybrid option – some applications on the public cloud and some on the private cloud. The choice of which environment an enterprise chooses depends on various fac- tors including company size, business sector, risk appetite, cost considerations and type of service sought. In general, small and medium customers are likely to opt for affordable public cloud services, while the large enterprises will take a hybrid approach. Users also have the option to choose a fourth delivery model – com- munity cloud. Delivered through a private network, the community cloud serves a community of organisations that have similar infrastructure re- quirements. Currently, community clouds are witnessing adoption primarily by governments, especially in the US and Europe. Frost & Sullivan’s research suggests that the market for cloud computing in Asia Pacific (excluding Japan) had already exceeded US$1.1 billion in 2010. With a 91 percent share, SaaS is the domi- nant segment of the cloud market in the Asia Pacific region. Almost one in every four enterprises is already using some form of a cloud service. The majority of customers have started off with Software as a Service (SaaS) as their first step towards embracing the cloud. Today markets like Australia lead the entire Asia Pacific region in this trend. Cloud represents an opportunity, not just for the IT ven- dors and system integrators, but also for the telecom service provid- ers. To succeed, they must make the cloud as easy to use as the basic telephony service they provide. Whilst there is the well defined trend in migration to the cloud, there are also several challenges that are hindering adoption. The primary restraints are security and privacy issues, with customers apprehensive about factors like regulatory compliance, inadequate service level agreements, shared infrastructure (for public clouds), data storage issues, and unclear legal implications. The implementation of cloud computing is expected to have three key implications in the information and communication technology (ICT) industry in the long term:
• It will accelerate innovation in the ICT industry. It will reduce the entry barriers for new companies who want to offer com- pelling services
• It will shake up the ICT industry over a period of time. There will be a greater participation in the enterprise market by large consumer Internet companies such as Amazon, Google, Apple and Facebook
• The area of collaboration (convergence of social networking, unified communications, video and mobility) will be the big- gest benefactor
For end-users, cloud computing offers significant promise for enterprises saddled with inefficient IT infrastructure. It offers the critical promise of aligning IT with business needs and creating a truly agile business environment. Additionally, small and medium businesses will have access to applications that were traditionally limited to large enterprises, due to the huge investments needed in start up costs. Every large enterprise, including governments, should adopt a “Cloud First” policy; alternatives should only be considered if it is not feasible to have a cloud-based service.
Rome was one of the first cities in the world to reach a population of one million people. This was in the year 5 BCE. It took about 18 centuries for the next city, London, to boast the same number of inhabitants. This trend of urbanisation gathered incredible mo- mentum in the 20th century. The primary reason for urbanisation is best explained by the fact that the top 25 cities of the world today account for half of the world’s wealth. While the world population will continue to see continued growth, urbanisation will happen at an even more frantic pace in the coming decades. By 2020, we expect that close to 60 percent of the world’s popu- lation will live in cities. This mega trend has impacted businesses, societies and cultures in the past 100 years, benefiting many indus- tries such as real estate, infrastructure, and transportation. Frost & Sullivan studies have shown that the rate of urbanisation is much faster in developing countries. Frost & Sullivan believes that 50 percent of the top Mega Cities in the world will consist of develop- ing countries by the year 2025. Looking ahead into the next decade, the result will be the integra- tion of core city centres with suburbs and satellite cities, resulting in expanding city limits from the current average of 40 km to about 64 km. The future impact of the city development on mobility, working life and societies is going to be tremendous. Frost & Sullivan expects three concepts of urbanisation to emerge: mega cities, mega regions and mega corridors.
• Mega cities: Integration of core cities with suburbs and hous- ing over 5 million people
• Mega regions: Integration of two or more cities or expansion of a city to join with adjoining daughter cities to form mega regions housing over 15 million people. For example, Johan- nesburg and Pretoria (forming Jo-Toria)
• Mega corridors: Urbanisation corridors connecting two or more mega cities or mega regions, converging to form mega corridors. These can be 100 km long and have a population of over 25 million living within the corridor. The Hong Kong- Shenzhen-Guangzhou mega corridor in China has a popula- tion of 120 million people
Frost & Sullivan expects the emergence of 30 mega cities, 15 mega regions and at least 10 mega corridors with more than 20 mil- lion people by 2020. Urbanisation will lead to new hub-and-spoke business models for healthcare, logistics, retailing and many other functions, forcing organisations to rethink their “urban” business model. Mega cities, mega corridors and mega regions will be in a continuous race to attract the brightest talent and the worlds’ best companies. As the cities, regions and corridors get crowded; they will put tremendous pressure on the infrastructure and the planet. This will drive the trend towards the development of “smart cities”. The primary emphasis of the smart city will be to increase the productivity of the citizens, enhancing its competitiveness, whilst making the best use of scarce natural resources. This can be achieved through the effective use of ICT. Minimising CO2 emis- sions will be the other important component of the smart city plan. Frost & Sullivan expects over 40 global cities will emerge and be labelled as smart cities by the year 2020. Many of these cities will emerge from the developed markets of North America and Europe.
4 Smart Grids
Smart grids is the emerging paradigm in the global utility and elec- tric power industry. The electric grid architecture we have today is almost a century old. While there have been incremental advances in technology, there has never been a wholesale restructuring of the system. The grid is very inefficient and often the operator has lim- ited real time knowledge of what is going on in the system. The existing grid has evolved on the principle of “build and grow”. The utilities have been creating infrastructure with the assumption that power demand growth will keep increasing. While this is certainly true because of the changing lifestyle and massive demand of the energy hungry digital world, the utilities have long ignored the need to strike an optimum balance between growth and efficiency. Increased concerns about global warming, pressure on bottom lines, proliferation of intermittent but clean energy sources like solar and wind in the grid, combined with advances in ICT, have forced the utilities to rethink their business model and technology evolution. Smart grids consist of a web of technologies aimed at automating, improving efficiency, and increasing availability of the electric grid ranging from generation and transmission to distribution levels. Au- tomation also includes tools to conduct predictive, preventative and supply analysis based on data collection that is conducted at the transmission and distribution level.
Key Components of Smart Grids
To progress from conventional grids to smart grids these are some the features that need to be overcome:
• Centralised power generation dominates, resulting in substantial
• Ageing infrastructure in most regions results in a strained grid
• Current philosophy is to do one-way metering of power con- sumption: this means the customers have no control over what they consume and no say in making choices
The emerging smart grids solution will look to address most of the inefficiencies and challenges of the conventional grids, by effectively marrying digital ICT and clean energy technologies with the power grid.
Key Characteristics of Smart Grids include:
• Advanced metering infrastructure (AMI), facilitating two-way communication between customers and the utility
• Integrating several small generating facilities (including mi- cro-generation) like wind and solar into the system
• Facilitating large customers like offices and hospitals to sell excess energy (they self-generate) back to the grid
• Planning and supporting the large scale advent of electric vehicles. These vehicles will also store energy that can be sup- plied back to the grid during peak demand periods
• Increased efficiencies and reduced operational expenditures and environmental effects
Key drivers for Utilities
Smart grid development depends on the prevailing regulatory re- gime in the country, level of deregulation, varying business drivers, and of course progressive thinking on the part of the company’s strategic planners. However, the following have been the broad business drivers for utilities to embark on smart grids planning:
• Government mandates and funding: Governments have beenpushing the idea of smart grid through regulatory mandate as well as funding for smart grid implementation. Australia, South Korea and Japan have already committed a total of US$258 million to smart grid development. Government push is the most important reason driving the utilities towards smart grid.
• Cost savings: Catering to peak load power requirement, man- power cost and line losses are the major cost components for the utilities. In several countries, the power requirement peaks at certain times of the year. To provide for this excess power, utilities have to build special power plants that only operate for a limited number of hours in a year. By implementing a sound demand response system, the utilities can save billions of dol- lars by removing the need for these plants.
• Higher revenues: The US economy currently loses US$150 billion every year due to power outages. By accurately pin- pointing the outage location and rapidly responding with the use of technology, utilities can restore power and thus start generating more revenues. Also, in certain competitive mar- kets like New Zealand, where customers can switch power retailers fairly easily, companies can expand their customer base by providing better service with the use of smart grid technologies.
The Mapping of Business Opportunities Include:
• Metering companies: Smart metering is the most critical and fundamental part of an advanced metering infrastructure (AMI). A smart meter costs almost US$200, which is about 10 times the cost of a normal digital meter. Currently, smart meter deployment presents the maximum opportunity to the firms involved in smart grid area.
• Network communication providers: A secure and robust net- work is required at local area network (LAN) level, wide area network (WAN) level and home area network (HAN) level to ensure the interaction of the different modules of a smart grid and an efficient data transfer – so that objectives such as self- healing, demand response control, time of use pricing, etc may be met. Network layout is a major opportunity area in the AMI infrastructure as it is critical to help a smart meter meet its purpose.
• Software solutions developers: Data management systems form the brain to analyse the wide array of data collected through a plethora of sensors and smart meters.
Companies focusing on the evolution of these global trends tend to be growth driven and innovative in a rapidly changing environ- ment. Mega trends can be used as a base for strategic decision- making by understanding their impact on organisational functions such as marketing, research and development budget spending, product planning and development, human resource management, technology planning, and innovation scouting. Identifying uncon- tested marketplace opportunities and new competition arising from non-traditional sources will help organisations innovate to meet ex- pected accelerating change in future technology and align current strategies to address the needs of the “Customer of the Future”. AT