Industrial Technology Research Institute
M2M APPS: How do you see the IoT value chain shaping up in Taiwan?
JEREMY TUNG: From components at the bottom to consumer applications at the top, the Internet of Things (IoT) value chain is composed of eight links, according to IBM. The lower down the chain, the more homogenous and standardized the components are. They can even be used in a wide variety of applications. Once devices become homogeneous and standardized, market competition ensues, driving down potential added value. Higher up the value chain, system planning differs depending on customer demand. “Things” at the top of the value chains are less likely to be replicated, thus enhancing added value. Take smart traffic control systems in cities for example. Components at the bottom of the value chain may include pressure censors, MCUs, and wireless communications components in traffic flow sensors, or video sensors, DSPs, and memory in cameras. These components are shared in many applications and produced by a great number of manufacturers. With price competition comes low gross margin. Despite the low price, components manufacturers are able to make a slim profit on demand and volume. However, components demand will be gradually squeezed by continued technological advances. The surveillance system in China’s Lake Tai is a good example. Different sensors that detect water quality, oxygen, etc. were required to do the job in the past. Today, the number of sensor components in Lake Tai’s surveillance system has fallen sharply thanks to functionality integration. This serves as a reminder that components suppliers are feeling the heat of shrinking demand and prices. By contrast, integrated service providers (ISP) enjoy high added value. Expectations for the IoT differ from client to client. Even with any given application, diverse backgrounds and needs of clients mean that ISPs have to provide customized services. Moreover, high levels of integration expertise across the ecosystem is vital in bringing out the service value of the IoT. In other words, a strong command of core competencies in different areas is a must. As a result, ISPs are well-positioned in the IoT value chain.
M2M APPS: What factors do you see as key to sales growth?
JEREMY TUNG: In addition to expansion into the global market, product positioning holds the key to sales growth. Even without a global presence, components suppliers that move on to position themselves as ISPs will make more sales than local components peers. This trend has prompted most suppliers to lean toward the system end of the value chain. Companies capable of integrating barebone systems already play the role of ISPs. Telecom operators are a case in point. Given providing only telecom networks would restrict their sales stream to fees from data transmission, telecom operators across the world are expanding into the IoT market by positioning themselves as ISPs.
M2M APPS: Where does Taiwan receive their largest competitive edge and how can they take advantage of this advantage?
JEREMY TUNG: Manufacturing has long given Taiwan’s electronics industry a competitive edge. Aside from product quality, low cost is a major source of this manufacturing advantage. The result is cost-driven sweatshops and a low-margin industry climate. Such business models were lucrative while the consumer electronics market was expanding fast. But as the end-market has been shrinking at a slow pace, manufacturers are setting their sights on reducing cost to stay competitive. Taiwanese manufacturers, accustomed to creating competitive advantage by manufacturing single devices, will find themselves faced with the new IoT challenge. Rather than a single device, the IoT is a network of Internet-enabled objects and web services. This highly fragmented industry is a departure from the long-standing business model in Taiwan. Components/device manufacturers not up to speed with end-market demand will not know how to maximize the value of the IoT. Addressing the IoT from the perspective of components will blur the insight into its true meaning and fail to maximize business opportunities it presents.