Editor’s Corner—The IoT’s startup LPWAN market is showing signs of stress

It looks like the shakeout in the IoT network provider space has begun.

Recent troubles at companies including Sigfox and Ingenu, and new directions from the likes of Silver Springs Networks and Senet, highlight the growing pains in the space. This doesn’t come as a total surprise—new markets often undergo upheavals as they develop—but it’s certainly worth noting as the IoT sector slowly moves from concept to reality.

The current trough in the market for low-cost, low-power, wide-area wireless networks (LPWAN) definitely stands in contrast to the initial rosy business prospects touted by upstart players in the space. See, several years ago, it became clear that the nation’s biggest cellular carriers had a major hole in their IoT business strategy: They didn’t have a reliable, cheap way for IoT devices to connect to their networks. At the time, solution providers that wanted to connect things like water meters or smoke alarms to the internet had to buy cellular modems that cost $50 or more, and then had to manage monthly service fees that looked more like smartphone bills than something for the IoT.

Into this hole stepped a number of LPWAN startups promising to build relatively cheap wireless networks using relatively small slices of licensed or unlicensed spectrum, offering modems that cost a few dollars and services that cost pennies a day. Expectations were high.

Demand from customers in the United States is "overwhelming," Sigfox’s Allen Proithis said at the beginning of 2016.

Similarly, near the end of 2016, Senet’s Will Yapp predicted the company could be generating hundreds of millions of dollars in annual revenues with three years.

To be clear, both Sigfox and Senet are still working in the U.S. IoT market, and both have promised continued growth, but Proithis and Yapp have since moved on to other opportunities. And that’s reflective of the wider changes in the market.

Stumbles in the market

For example, Ingenu CEO John Horn abruptly left the company in the summer of last year. Similarly, Sigfox confirmed earlier this year that its U.S. chief is no longer with the company. The company also said it did not reach its network coverage goals for 2017.

And companies that once trumpeted ambitious network build-out goals are no longer providing that kind of guidance. Senet, for example, told me it is continuing to expand its network through its own managed sites as well as through new partnerships with carriers, enterprises and others, but the company stopped short of providing an updated calculation of square miles covered or 2018 coverage goals. Sigfox likewise didn’t provide its 2018 build-out targets, nor did Ingenu (though Ingenu did tell me that its network currently covers around 45 million POPs).

That isn’t stopping some upstart LPWAN players from offering a positive message. Itron, for example, said recently it closed its acquisition of Silver Spring Networks, and it promised the move “strengthens its ability to deliver a broader set of solutions, increase the pace of growth and innovation in the smart city and industrial IoT markets, and provide customers with greater choice and flexibility when deploying technology to improve their operations and services.” And Comcast’s MachineQ confirmed to me that it expects to complete its previously disclosed build-out of LoRa network technology in 12 major markets by the first half of 2018.

So, what to make of all this?

“The challenge facing both Ingenu and Sigfox is the need to drive a technology and get networks deployed,” wrote Peter Jarich, who is the chief analyst for telecom and IT at Global Data (and who has written extensively about the LPWAN space). “Being a technology innovator and network operator is no small feat. Do you focus on broad coverage that can garner mass uptake? Do you focus on specific customers (and densify your networks) in order to scale revenues quickly? Can you convincingly make a case for why your tech is better than others when networks are still being built? It’s a very different model from leveraging an existing technology and ecosystem to build out networks—spreading the risk over a larger set of players.”

Indeed, research firm Dell’Oro Group recently predicted that IoT services based on cellular technologies (think LTE M or NB-IoT) are expected to account for over 98% of the nearly $33 billion in service provider and vendor revenues the space will generate by 2022.

“Service providers have invested in cellular technologies for the past 30-plus years,” Stefan Pongratz, senior director at Dell’Oro Group, said in a release. “And they are now in a unique position to capture new revenue from a diverse set of IoT use cases with minimal incremental mobile infrastructure investments.”

Cellular players respond

Dell’Oro’s Pongratz has a point. Remember that hole I mentioned? The one that cellular operators created for upstart LPWAN vendors by trying to sell bulky, smartphone-centric LTE equipment and services to IoT players? Verizon and AT&T sought to plug that hole by launching their LTE M networks last year. And T-Mobile and Sprint are working to do the same this year with their forthcoming IoT-focused LTE M and NB-IoT networks.

LTE M (which offers voice calling) and NB-IoT (which doesn’t) promise to offer the same cheap, simple, battery-friendly connections that Sigfox, Senet, Ingenu and others are offering, thereby closing the hole in cellular carriers’ IoT strategies.

Does that mean the industry should write off the likes of Sigfox and others that are looking to challenge the market’s established, cellular providers in IoT? I don’t think so, at least not completely. After all, startup firm M2M Spectrum Networks launched in 2014, and it appears to still be offering IoT network services. (Though, to be clear, the company didn’t return my call seeking details on its network coverage and operations.)

So, yeah, I’m inclined to agree with Dell’Oro: For the startup LPWAN providers, 2% of the market sounds about right. — Mike | @mikeddano