Why Verizon’s Quest For IoT Revenue Will Help It Move Beyond Mobile
The telco’s Q1 earnings saw Internet of Things’ business drive $195 million in revenue, but T-Mobile derides its rival as having a ‘mid-life crisis.’
If Verizon’s Q1 performance is any sign, its methodical focus on expanding its Internet of Things in order to ensure its relevance to Millennials appears to be paying off. The company reported that IoT-related revenues rose 25 percent to $195 million over the same period last year.
That $195 million represents “new” revenue streams that Verizon never had before. And the company isn’t done adding to its IoT foundation. Although $195 million is a smaller than the revenue streams of Verizon and other telcos, how many pure play IoT companies can claim to have generated dollars amounts close to that in a single quarter? Not many, if any.
In just the past six months, Verizon’s spent billions of dollars to fund a shopping spree of tech businesses such as AOL (which includes relevant tech subsidiaries such as MapQuest, Millennial Media), trendy male-oriented Complex Media, and virtual reality video studio RYOT (pronounced “riot”).
From both a customer subscription and advertising perspective, IoT and video are quickly becoming the way telcos are adding and retaining customers. Over the past few years, younger consumers have demonstrated a sustained willingness to cut expensive cable cords.
At the same, the a la carte content from streaming services via connected devices command more of their spending.
“[If you look at] the investments that we’ve made in the platforms, a lot of the tuck-in type investments that we made with acquisitions… these are small acquisitions. But they’re real critical,” said Verizon CFO Francis Shammo during last week’s analyst earnings call. “If you just look at the most recent acquisition we just did with RYOT, this is a real unique 360-degree video production. This goes to our strategy in attacking a certain population that quite honestly Verizon is under-penetrated in: Gen Z. About 73 percent of [RYOT’s] audience is Millennials.”
In an unusual riposte to Verizon’s attention-getting acquisitions around IoT, rival T-Mobile sought to dampen investors’ enthusiasm by suggesting its competitor was going through a “mid-life crisis.”
“It’s tough to watch,” T-Mobile said in an official blog post. “Verizon is having a full-on midlife crisis right in front of our very eyes. The telltale warning signs are all there.”
Among the signs T-Mobile pointed to:
- Eyeing shiny new things (AOL, AwesomenessTV, Complex Media, Yahoo!)
- Getting new clothes (Wait, is the new logo different from the old one?)
- Idealizing the past (“the subsidy model has served the wireless industry well” – Verizon CFO)
- Contemplating a career change / questioning its purpose (They really want to do something other than wireless and wireline service, and they’ll spend a lot chasing that dream!)
- Flirting with younger people (Fact: Verizon talked about “the millennials” every 5 minutes on average in their last earnings call. Another Fact: That’s creepy.)
“And most tellingly, Verizon is blowing the inheritance. Verizon has made boat loads of money by punishing, penalizing and overcharging wireless customers for years. And they’re burning through that money – more than $5.52 billion and counting in the past 2.5 years — trying to become a cool kid,” T-Mobile charged. “Verizon really wants to be a content company. They have Netflix envy. And YouTube envy. And HBO envy. So, they’re buying advertising technology and mobile content studios and everything that sounds like ‘the Millennials’ might like it.”
Is IoT A ‘Mobile Killer?’
While T-Mobile is mostly looking to maintain its credibility with younger consumers at Verizon’s expense, all companies in the space, whether they admit or not, are looking to IoT a natural step in evolution of telecommunications.
In his analysis of telcos and IoT, Forrester analyst Thomas Husson suggests that “reports of IoT killing mobile are greatly exaggerated, if not completely inaccurate.”
Instead, all B2C marketers’ road to IoT success will pass through mobile, Husson said.
“Within two years, marketers will respond to mobile moments to unlock IoT experiences,” Husson said. “You need to define engagement scenarios where smartphones are the primary interface and remote control of connected experiences. It means designing app experiences that automatically connect with other sensors or connected objects and deliver relevant information via micro moments.”
Looking ahead five years, marketers will anticipate those mobile-based “micro-moments” in ways that seek to unify IoT use cases.
Using the data from the relationship established when responding to mobile moments, Husson said that marketers must start anticipating consumers’ needs and proactively send targeted information.
“It means leveraging smartphones as proxy identifiers for consumer identities to provide a continuity of experience between various connected environments (e.g., from your car to your home),” he wrote. “Within 10 years, marketers will deliver blended experiences as mobile dissolves.”
From a practical standpoint, mobile moments will still matter but will progressively become almost invisible, Husson argued. For example, lights will turn on and your preferred music will play automatically based on your mood and context.
As technology shifts to more to allowing consumers to use technology to craft the way they organize the electronic items that surround them, the IoT technology will become less screen-based to a clear degree. But consumers will always be drawn to view items through a prism of the choices and options that their mobile items will allow them.
For companies like Verizon, being the ultimate online-to-offline point of entry and connection is where these recent deals are taking it. And even if some of the cooler kids like T-Mobile are laughing, Verizon knows everyone grows up eventually.
The bottom line: IoT is more than about “cool tech toys” (though that’s part of the excitement). The business of IoT is wrapped up in management of large scale consumer data and providing the signals that connect consumers with the content and commerce they want in a given moment. And that’s what Verizon is moving towards. And for businesses like T-Mobile or Verizon, generating revenue and profits will never go out of style.