When Nokia announced their “rebranding”, I blogged on it to cover their main points and to note that there’d better be something to it beyond a new logo. Shaun McCarthy, Nokia’s President of North America Sales, offered on LinkedIn to give me a briefing, and late last week we had our talk. It was, as you’ll see, insightful and useful.
The most important point Nokia made in their just-before-WMC announcement was their goal of expanding their enterprise business. While McCarthy reinforced Nokia’s commitment to the service provider space, he noted that the CSP market had a 1% CAGR, which isn’t the sort of thing you’d like from your primary market segment if you’re a vendor. In contrast, the enterprise sector has roughly a 9% CAGR, so expanding Nokia’s business there (currently 8% of their revenues) to their goal of 30% makes a lot of sense.
Finding high-growth market segments is good, but only if you can address them. I noted in that early blog that there was plenty of competition in the enterprise space, and that Nokia was going to have to fight to gain a respectable position. I also said that their private wireless push had only limited appeal among enterprises. My latest model run, in fact, said that the total private wireless and “hybrid” wireless (private combined with a public offering, which in 5G might mean a network slice) would amount to only about 8% of enterprise network spending. That’s not a great number, and I indicated that, to get to a 30% enterprise revenues level, they’d have to work out a strategy to increase enterprise revenues significantly over what private wireless can offer.
What I learned on my call is that they already have a strategy, and one that was not only working but had some pretty significant potential for success. We could call it “facilities automation”.
The overwhelming majority of IT spending today is directed at what could be called “office automation”. Workers who sit at computers and access applications in the cloud and data center make up this opportunity, and while this is the market that’s driven enterprise network spending too, it’s also a market that’s slipped largely into sustaining mode. That 30% expansion Nokia wants in their enterprise business would be a challenge in a market where incumbents were strong and growth was limited.
Neither of those are true in the facilities automation space. “Facilities” automation means the automation not of office work but of industrial/manufacturing and other core business processes, the stuff that creates and moves products and coordinates services. McCarthy calls this targeting “non-carpeted” areas. How much opportunity is there? According to my data, a lot. In fact, most of the opportunities that seem ripe for IT investment have more dirt on their floors than carpeting.
The most “empowerable” industries are those with the highest unit value of labor. In the entire spectrum of industries tracked by the government, there are only seven who have median unit values of labor in the “highly empowerable” category, and all but two are in those non-carpeted areas. The industry most represented is the energy sector, then various manufacturing sectors. As it happens, Nokia’s enterprise successes focus on these sectors already, and McCarthy mentioned the energy sector in our talk. And, also as it happens, these are the sectors most interested in private 5G.
The challenge in the facilities automation space is that it depends heavily on domain expertise. Office automation benefits from the fact that, well, an office is an office. Running a business is accounting, orders, shipments, and all sorts of stuff that doesn’t vary much across the verticals spectrum. Automating a factory or warehouse depends on knowing something about the way work is done, and influencing it as it’s being done rather than playing around with records of the money and order flows. Nokia has to depend more on partners, what could broadly be called “value-added resellers” or consulting firms that focus on the spaces you’re interested in. Their relationship with the Kendryl spinoff from IBM is a good example of how to get domain expertise, and the partner strategy has worked for Nokia so far, and will likely continue to create opportunities to fully realize private wireless potential.
Nokia wouldn’t sneeze at getting even 8% of enterprise network spending, according to McCarthy, but there may be more to that on the table if Nokia can work its way out of the private-5G space and into broader facilities automation and even into the service provider space. That may be possible because of the connection between private 5G, facilities automation, and edge computing.
Right now, over 95% of edge computing is done on-premises using customer-owned equipment. Private 5G is most useful as a better form of WiFi in manufacturing and related applications, and one reason for that is latency control and connection security for real-time process management running on these customer-owned edge devices. Having a foot in the private wireless door could thus open the larger door of IoT, edge computing, and real-time communications. It’s this secondary push that could represent the pathway to Nokia’s goal of having 30% of their revenue come from the enterprise. And it would be possible without having to face entrenched competitors in the office automation piece of the market.
Best of all, there’s another dimension to facilities automation, one that could be really significant. You can empower office workers in a bunch of ways, and that’s why we see a broad IT and network initiative aimed at them. However, office workers make up only about 30% of the workforce. The problem in getting to the 70% is that you can’t empower them with information, you have to empower them with automation. You have to step into the work itself and influence how it’s done in real time.
I continue to believe that the key to doing this is the digital twin concept. You can’t influence work without moving into real-time systems, and you can’t influence real-time systems without a digital twinning of the system to organize sensor data and to assess and take actions. McCarthy mentioned the “industrial metaverse” in our call, so they may be seeing this potential already, and seeing a role they could play there to boost enterprise sales.
While Nokia’s strategy for facilities automation is dependent on domain specialists at the sales execution and application level, all of the knowledge of the work has to be reflected eventually in implementations based on servers, platform software, and networks. There are major differences between how a farm and a nuclear power plant work, but if you dig downward toward and into the IT piece, you find middleware that’s creating the underpinning stuff like digital twinning and a metaverse concept based on it. One inclusive of the industrial metaverse but aimed at the broad facilities automation space. Nokia can’t develop custom software for every vertical, but they could develop middleware for a digital-twin metaverse that would support that custom vertical software.
And they could do it with open technology. When enterprises talk with me about Nokia (which is less often than they talk about Cisco or Juniper), the technical differentiator they see most often is “openness”, which surely comes from Nokia’s open-RAN 5G position, which has gotten them a lot of ink and is often cited as the reason they’re doing better in the service provider space than competitors. Could Nokia create an open-model digital-twin process? Sure. Would they, given that vendors typically try to lock up customers not open them up? That’s a question we’ll have to wait to answer.
Another of those “wait-for-it” questions is in the positioning and marketing. If you are a company who necessarily focuses your revenue-generating initiatives through partners, it’s easy to lose your identity. Truth be told, players like Kendryl aren’t going to work with Nokia alone. Suppose a Nokia partner decides to build something like digital-twin middleware? Facilities automation is a stack of function-to-IT mappings, and you can standardize that stack by starting at the top or at the bottom. Sure, open middleware for digital twinning is a risk, but is it a greater risk than just being made invisible by higher-level players? It might present a benefit, something you could market to become visible, and to set up the belief that the evolution you offer to facilities-based automation is critically valuable. It might also be something that service providers could use to create 5G edge applications, and that would then be a win for Nokia on the service provider side as well.
All this adds up to a real opportunity for Nokia, and even a value for private 5G, as long as you don’t expect it to carry all the revenue-gain water by itself. Exploiting the full opportunity could mean that Nokia’s “rebranding” is really a whole new initiative that could realize their enterprise goals and boost their service provider position too…providing they can get the word out.
I think Nokia’s position in facilities automation is strong, and that it will boost their enterprise sales and justify their new “branding” or strategic initiative. I think there’s a chance that it could be great, and give Nokia a lead position with edge computing and digital twinning for facility automation. Part of that will depend on whether Nokia evolves the capability, but perhaps a bigger part will depend on whether they can get aggressive with their positioning/marketing. Facilities automation needs buy-in from a lot of stakeholders, particularly ones in line organizations that Nokia couldn’t expect to call on even if they had a sales force big enough. Only marketing can reach everyone, and get them onboard, and that’s essential if the full scope of this opportunity is to be realized.