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Selling IoT: Connected Retail Business Models

By James Brehm August 23, 2017

Retail decision makers globally are looking to the Internet of Things (IoT) to transform their businesses. Whether it is improving the customer experience, driving new sources of revenue, driving inefficiencies out of the supply chain, or simply enabling mobile point of sale (PoS) solutions, IoT is setting itself up to be as revolutionary to retail as online retailing was a decade ago.

The management of a retail organization involves maintaining stores (or restaurants) across different regions with multiple equipment vendors, franchise agreements, management and HR challenges, suppliers and inventories, a vast logistics and distribution network, payroll, cash flow, marketing and commercial promotions, and continuity of operations.

Market Size
At the end of 2016, there were 4.35 million retail cellular IoT connections in the United States. That was up nearly 1.8 million cellular connections the past 3 years with a compound annual growth rate (CAGR) of a 20.5%.

Retail Cellular Connections

Device Type

Number Connected

1H 2017

U.S.  Total Addressable Market (2022)

Device Type

Number Connected

1H 2017

U.S.  Total Addressable Market (2022)

ATM

250 Thousand

735 Thousand

Beacon

80 Thousand

155 Million* (*non-cellular)

Casual Dining and Hospitality

399 Thousand

2.4 Million

Digital Signage

350 Thousand

10 Million

Enterprise Gateway

980 Thousand

11.5 Million

Kiosk

220 Thousand

1.1 Million

PoS

953 Thousand

5 Million

Unattended Retail

23 Thousand

1 Million

Vending

885 Thousand

7.5 Million

Wifi Access

356 Thousand

1.2 Million

Excluding beacons, the addressable market for retail IoT looks to be 40.5 Million devices by 2022. (And if you include beacons, the number could climb to near 200 Million.) We exclude beacons from our TAM as we normally exclude Bluetooth, ZigBee, Z-wave and other short-range technologies as a unit of measure from this study as we are looking solely at the number of wide area network (WAN) connections, and view the short-range connections as “daughter devices” to the cellular IoT gateways we’ve counted.

Drivers and Restraints
While IoT may seem like science fiction, it is becoming reality faster than most of us can comprehend. The IoT is becoming a disruptive force in retail operations and, as companies begin to form an IoT strategy, one question must be at the forefront: what’s driving this bus?

First and foremost is uptime. The first time you say you have a connected product or service, 24x7 uptime is a necessity.  Next is cheap connectivity. Moore’s law met Metcalf’s law and they are in the driver’s seat. Customers want to be connected while in the store, branch office, or restaurant. Today’s families communicate by text, and they take Aunt Siri and Aunt Alexa with them everywhere they go.

We are a nation of “on-demand” buyers. Today you can get a new Bluetooth headset out of a vending machine at the airport, get a USB charging port out of a kiosk, purchase fresh sandwiches, fruits and vegetables from an unattended kiosk (or micro market), and rent movies from a big red box outside many retail locations.

Finally, there’s the customer service aspect. IoT in retail provides a frictionless way to procure the things we want. 

Restraining the Market
Retailers are going to try to do what retailers do, and that’s sell. But many customers are very cautious about what kind of information they may or may not give up.

Beacons could play a very important role for IoT in the retail sector if retailers use them right. Technology-driven, ‘in your face’ marketing might just leave the customer with a bad taste in their mouth. And if a retailer sells a customer’s personal data without an opt in notification…forget about it.

It’s hard right now to understand the kind of value required where consumers will gladly give up their location in store. Retailers need to remember that the most personalized offer in the world is useless if it doesn’t make it to the right shopper at the right time and in the right context.

Definitions
Retail can mean a lot of different things to different people. Retail can be a horizontal solution set, or a vertical market.  Vending machines, online merchants, casual dining, bank or insurance branch offices, supermarkets, convenience stores, big box, chains, and on and on are all retailers using point of sale, digital signage, and connected solutions.

We define retail solutions as:

Definitions

Retail Digital Signage

solutions that enable electronic displays of content including advertising and information that enable commerce

Point of Sale

solutions that facilitate prompt and secure payment transactions

Vending and Kiosk

solutions for machines that dispense merchandise and/or consumables.   Solutions can include, but are not limited to, payments, inventory monitoring, and environmental control

Banking

Currency Distribution and Banking Via Automated Teller Machines

Hospitality and Casual Dining

solutions that enable payments and commerce within restaurants and hotels.

WWAN – Failover

solutions that provide backup connectivity solutions for wired internet connections and can provide wi-fi for employees/patrons




Edited by Ken Briodagh

Founding Analyst and Chief Technology Evangelist

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