VDC Research: Enterprise & Government Mobility Market Blog

2016 Predictions Part II

Predictions for 2016 Part II

This is part II of a two part series of posts which provides the Enterprise Mobility and Connected Devices Team’s predictions for 2016.  The following predictions were written by:  David Krebs, Eric Klein, Cameron Roche, and Matthew Hopkins.  To contact the team, please e-mail us at [email protected]

Top 5 Growth Industries for Mobility in 2016

Companies in just about every industry have the opportunity to benefit from a mobile strategy that improves productivity and engagement. However, mobile penetration among industries varies significantly due to a number of factors including, regulatory drivers/inhibitors, security barriers, killer applications, competitive pressures, work force demographics, etc. Despite these drivers/inhibitors, VDC expects software and hardware mobile investments to increase in 2016 as companies adjust to a world that continues to move towards mobile computing. Specific impetuses and impediments to mobile investments by sector will undoubtedly dictate the pace of mobile adoption, but all companies will nonetheless feel pressure to expand their mobile initiatives. Whether employed to improve business processes or engage customers, mobility’s ability to provide employees and consumers with critical information just about anywhere will continue to transform the enterprise.

Modernization and mobility are disrupting just about every industry, but VDC believes that these five industries in particular will be among the greatest investors in mobile technology in 2016.

1. Following several years of heavy ecommerce investments Retailers are again shifting their focus back to in-store solutions and particularly in-store customer engagement. A key challenge for retailers as their digital and physical presences continue to meld is data and record management and creating centralized inventory and customer datasets. Another key theme for retailers will be around them optimizing the omni-channel initiatives especially addressing their increased delivery cost exposure. In addition, a key focus for retailers will be to create a consistent experience for their workers and customers across multiple platforms.
2. The postal/courier industry, spurred by ecommerce growth, will be expected to deliver a higher volume of packages and meet the growing delivery expectations of customers. To live up to these demands, organizations need robust mobile applications for engagement as well as comprehensive track and trace solutions that provide individuals with near real-time package information. 2016 will see continued modernization of legacy mobility solutions to address customer’s increasingly sophisticated requirements.
3. The healthcare segment has great potential for mobility because its workforce is inherently mobile. However, a general resistance to change within the industry as well as security and patient privacy concerns have provided some road blocks to greater mobile adoption. Nonetheless, many companies in the space have made significant investments to reach out to their customers and provide them with the tools to manage their accounts.
4. Hospitality companies have significant customer engagement needs and the age of information has transformed their business model and increased competition. Market disruptors such as Airbnb and travel websites like Orbitz leverage mobile and Internet platforms to compete with more traditional players in the space. This dynamic is pressuring the larger, traditional organizations to more strongly infuse mobility in their go-to-market strategy.
5. The Transportation industry, like the hospitality sector, has faced its fair share of market disruptors—Uber, Lyft,etc.—that are driving companies in the space towards mobility. In particular, mobile device use among employees in the space for GPS, logistics, and other application-based services has also proved effective in improving productivity. These dynamics should result in increased investments in 2016.

 

Microsoft Surface:  Some Serious Market Share Ahead

While Microsoft has traditionally ruled the desktop space, challengers like Apple and other devices based on Android platforms have forced Microsoft to renew their efforts in other hardware sectors.  Looking at mobile devices, Microsoft has brought their line of Surface products to the market.  Using the Surface Pro 3 and 4 for their current flagship tablets, Microsoft has been able to successfully redefine a market domain which for years was dominated by high-cost high-performance iPads and lower-cost Android devices. The recently released Surface Book has also seemingly hit a sweet spot boasting top-notch performance at a competitive price. While Tim Cook thinks it’s a “product that tries too hard…to be a tablet and notebook” while succeeding at neither, this also comes from the man who said that the iPad Pro would kill the PC. If that’s true, then he may need to keep his guard up as the Surface Book sold out within the first few days. Couple its popularity with the power of a laptop, the mobility of a tablet, and generally better specs than a MacBook Pro, and Microsoft should see their Surface series of products more than double in market share from 8.9% to nearly 20% by 2020. With this kind of success, Microsoft will likely release a Surface Phone in the future. This Surface Phone would shoulder a heavy burden of possibly being the last true chance for a Windows powered phone to become a significant player in the smartphone space. Otherwise, Microsoft may need to investigate partnering their Windows 10 OS with other smartphone OEMs.

Android Makes a Significant Dent in the Rugged Handheld Market

Over the past decade, Windows CE and Windows Embedded Handheld (WEH) 6.5 have become the OS platforms of choice for the majority of enterprise (rugged) mobile devices contributing to an installed base of well over 15 million devices. The platform has offered its enterprise customers a broad portfolio of devices to select from; as well as strong development tools, a stable developer community and wide support among enterprise mobility-focused ISVs. In addition, with support from Microsoft for 10 years, enterprise customers received the stability critical to their enterprise mobility investments. However, as of January 2015, WEH 6.5 is completely off Microsoft mainstream support with only security patches provided until 2020 when it fully reaches its end of support lifecycle.  Microsoft’s answer to the next generation platform for rugged handheld devices is Windows Embedded Handheld 8.1. The platform has been adopted by a small number of OEMs, however, the devices available supporting this platform today is limited as is their functionality. Moreover, support for WEH 8.1 is expected to expire by 2019. More recently Microsoft has shifted focus towards Windows Mobile 10 (or Windows 10 IoT for Mobile Devices) for this category of devices. This version was beset by many delays with OEMs now estimating product availability by mid 2016. However, Microsoft is expected to more tightly control the specs for devices running Windows 10 eliminating options such as wearable form factors or handheld computers with hard keyboards.

This has opened the door for alternative OS options to fill this void with Android emerging as the primary candidate. Enterprise (rugged) mobile OEMs have been investing in Android solutions over the past several years with shipment volumes beginning to reach critical mass in 2015. We expect this to continue in 2016 with Android supplanting Microsoft as the leading platform for enterprise handheld devices.

2016 Predictions

Predictions for 2016 Part I

This is part I of a two part series of posts which provides the Enterprise Mobility and Connected Devices Team’s predictions for 2016.  The following predictions were written by:  David Krebs, Eric Klein, Cameron Roche, and Matthew Hopkins.  To contact the team, please e-mail us at [email protected]

Point: Microsoft Progresses towards Gaining Critical Mass in Mobile

Microsoft’s Windows operating system currently accounts for less than five percent of the smartphone market despite many efforts—most notably its acquisition of Nokia—to revitalize its mobile portfolio. However, 2016 will mark the first full year of Windows 10. This new operating system enables applications to work across all Microsoft devices; thus countering an argument that critical mobile mass is necessary for robust application development. The Windows Continuum allows developers to develop for all devices in the Microsoft ecosystem, thus ensuring an extensive marketplace of enterprise and consumer apps. Moreover, smartphones have largely become commoditized, and with differentiation fading, Microsoft has a new opportunity to enter a static market with new, sophisticated, and affordable mobile devices. A window of opportunity is opening for Microsoft in the mobile space as the previous barriers to success are fast eroding. Microsoft should gain market share because Windows 10 creates a stronger “mobile” developer community that will design applications for sophisticated devices in various form factors that meet the needs of consumers and enterprises alike. Moreover, the novelty of Apple products is declining while their price remains the same, and the gap between high-end and low-end phones continues to blur. From an enterprise mobility perspective, in segments such as retail, we are witnessing a strong desire to create consistent experiences – from POS to clienteling – and the Windows 10 Continuum value proposition aligns well with those requirements. These dynamics present Microsoft with a unique opportunity in 2016.

Counterpoint: Mobile OS is No Longer Strategic to Microsoft

Yes, it is hard to consider something strategic that is teetering at 1-2% market share globally. However, following Steve Ballmer’s bombastic “My way or the highway” approach to conquering the mobile market, one of Satya Nadella’s greatest accomplishments during his still young tenure at the helm of Microsoft is recognizing that Microsoft can be successful and have a lot to offer to mobile users even though it does not dominate the underlying OS. This OS and hardware agnostic approach has seen Microsoft enable and optimize its core services – from Office to Skpe – to work on Android and iOS, the two clear mobile OS leaders. Not to mention that Microsoft makes $2 billion in royalty payments from Android OEMs. Yes, Microsoft would still love to see its mobile OS share grow and, yes, Windows 10 does offer unique differentiation with Continuum. However, outside diehard Microsoft supporters and those curious enough to make the switch, it is unlikely that adoption will be sufficient to propel Microsoft market share to double digits.

Enhanced Privacy:  A BlackBerry Resurgence?

In the wake of the 2015 expansion of ISIS, hardware and software companies were pressured by governments to reduce encryptions or create back-end ways for monitoring potentially dangerous activity. The hardware and software communities will continue to push against these requests as their own quest for secure data continues in light of hacks and breaches. Expect to see more complex encryption techniques from software, mobile payment, and app creators. Additionally, expect to see hardware vendors leverage advanced biometrics. With the introduction of iris scanning into consumer-grade cell phones (e.g. Microsoft Lumia 950); look for further penetration of iris technology. Also, with fingerprint scanning penetrating both high and mid range consumer-grade devices, some rugged or semi-rugged devices may also see enhanced biometrics in 2016. Finally, the focus on privacy and security may also provide BlackBerry’s hardware endeavors with another chance at life.  The relatively positive reception of the BlackBerry Priv and rumors about a modernized design on their next smartphone are indicators that 2016 will provide BlackBerry with an opportunity for success not only in software, but also in hardware.

Graduating From BYOD and Basic MDM…Resetting Enterprise Mobility Expectations

2016 will be pivotal year for the technology industry writ large. Mobile and cloud computing will continue to disrupt how IT services are provisioned, as both personal and corporate computing continues to migrate to mobile platforms. However, how strategic is mobility really to today’s workforce and is the opportunity appropriately aligned with IT vendor’s initiatives? When it comes to customer engagement in segments such as retail then, absolutely, mobility initiatives or digital transformation (or whichever buzzword is currently trendy) are strategic and represent critical competitive initiatives. However, what about today’s workforce? Our research suggests that the workforce is increasingly mobile – estimated at approximately one third of the workforce or 1.4 billion workers. And, yes, the adoption/penetration of sophisticated mobile devices continues to scale – in 2015 global shipments of smartphones and tablets reached 1.6B units. However, when looking at how enterprises are truly leveraging these mobile devices to support or enhance mobile workflows the reality is that we are barely out of the starting gates. Outside of task or line workers such as warehouse workers, delivery drivers, retail associates, service technicians who rely on mobile solutions to support very specific and critical workflows, this opportunity has had a very slow burn rate. In fact, VDC’s research suggests that of the overall 1.6B smart device shipments in 2015, only 50M were deployed to support enterprise mobility workflows (this excludes the use of smart devices for email and basic productivity applications).

Yes, enterprise mobility is extremely challenging as is accurately conveying the ROI of many B2B opportunities. As a result we are seeing a shift among larger IT/technology powerhouses and their enterprise mobility initiatives. Standalone (enterprise) mobility practices will be a thing of the past as organizations realize the value of mobile as an enabling technology of a broader initiative (hello, Digital Transformation) rather than a standalone solution. This will represent a huge challenge for some of the pure-plays especially as some mobile capabilities – MDM representing the obvious example – become commoditized to the point that they are given away for free.

Hip to be Enterprise: New Enterprise Focused Tablets Stealing the Show

With the broader tablet market in the midst of an identity crisis one segment receiving increased attention are enterprise end users. VDC’s recently published 2015 Enterprise and Government Tablet analysis confirms this opportunity, forecasting annual growth of enterprise tablets – which represent approximately 15% of the overall tablet market – at 12.1% annually through 2019. A flurry of new products targeting the enterprise user from mega-brands Apple and Microsoft and specialty rugged mobile vendors Zebra and Xplore are directing the spotlight on this segment.

In comparison to other mobile form factors, tablets are an increasingly popular selection for enterprise line of business (LoB) applications. According to recent research conducted among enterprise mobility decision-makers, tablets are selected 33% of the time among devices issued to employees by enterprises in support of LoB applications. As the number of mobile deployments in LoB workflows continues to grow, consumer mobile devices are setting the benchmark for what any mobile device should look and feel like, resulting in the emergence of a new breed of enterprise tablets. Beyond enterprise-focused rugged OEMs, consumer-grade vendors are also turning their attention to the enterprise market through both their consumer portfolios and the introduction of more durable, enterprise-minded devices.

Enterprise Issued Mobile Devices Used to Support LoB Workflows by Form Factor

  

New Rugged Tablets from Zebra Technologies and Xplore Technologies

Zebra Technologies held its much anticipated Tablet Plus launch announcement on September 15 during which it unveiled the details of its new ET 50 and ET 55 tablet computers. As Zebra’s first new tablets to be released since the launch of the ET1 in 2011, notable features included support for both Windows 8.1 and Android Lollipop 5.1 in addition to Wi-Fi and/or LTE connectivity. Designed with a consumer feel and equipped for the enterprise, the tablets look to penetrate a still unsaturated enterprise tablet market. With a rugged design, comprehensive accessories to meet industry demands and unique scanning capabilities the ET 50 and ET 55 look to address a number of business use-cases, most notably those in the direct store delivery (DSD), field service, and retail verticals. However, a challenge for Zebra in our estimation will be aligning their tablets with the most appropriate use cases and target industries. Although tablets are being widely adopted in markets Zebra typically serves, these are mostly lower priced consumer devices. Demand for rugged tablets with the specifications and price points featured by Zebra’s new products is mostly concentrated in public safety, utilities, telecommunications and manufacturing environments, segments outside of Zebra’s traditional “sweetspot”. Another challenge, not uncommon in the rugged mobile market, will be the price points of the ET 50 and ET 55 which are $1,850 to $3,000, depending on the configuration. Although the benefits of rugged mobile devices are calculated by their lower failure rates, higher reliability and ultimately lower cost of ownership, even these target prices are high when compared to competitive rugged tablets.

Not to be outdone, Xplore Technologies unveiled the XSLATE B10, a fully rugged 10.1” tablet running Windows 8.1 (Windows 10 upgradeable), also on September 15th. The device is a fully featured tablet with multiple I/O and configuration options targeting field worker applications in transportation, manufacturing and telecommunications segments.  Xplore has undergone some significant changes in 2015, none more impactful than its acquisition of Motion Computing’s assets in April. According to VDC’s most recent rugged mobile research, boosted by the Motion acquisition and strong performance of its existing business, Xplore was the leading rugged tablet supplier in Q2 2015. Now with the target on their back Xplore will need to provide staying power and consistency in performance – especially surrounding support services for its increasingly global customer base – in order to build on its recent successes. 

   

Not the only new tablets in town

The Zebra and Xplore announcements comes on the heels of Apple’s release of the iPad Pro on September 9. The iPad Pro makes a stronger enterprise use-case argument as compared to Apple’s past consumer-focused tablets. Features including a large 12.9” display, the new A9X chip for increased speed and responsiveness and new iOS capabilities such as split screen viewing. In addition, accessories such as the new Apple Pencil and Smart Keyboard enable the device to more adequately serve end-users in corporate environments. Borrowing liberally from Microsoft’s playbook (which will be introducing the Surface Pro 4 in October), this device is Apple’s first foray into the rapidly growing 2-in-1 market. However, at the end of the day the iPad Pro is an iPad running iOS at a price point that makes it competitive with Apple’s MacBook Pro. While iOS9 does introduce some interesting features that make the platform more friendly to corporate users – for example, multi-tasking and app management including app-specific VPN management – it cannot be considered an enterprise alternative to Microsoft’s Surface Pro or other 2-in1s powered by big OS/x86 architectures.  

The enterprise limitations of the iPad Pro when compared with PCs is clear including the lack of file management capabilities and scripting technologies designed for PCs, compatibility with most productivity applications, lack of AD support and limited I/O options to name a few. At the end of the day this is just another, somewhat larger, iPad, albeit with a high end active stylus (pencil) at a higher price point.  While one could argue a future where iOS or other lightweight OSes become the enterprise OS of choice and laptops are promoted to the same architecture and framework as the rest of the mobile eco-system, that is a generational change and not one just around the corner. That said, Apple is not standing still and is clearly serious about the enterprise opportunity. Initiatives with IBM and Cisco are breaking enemy barriers and compelling use cases for iOS devices (especially tablets) are being created, often transforming existing workflows.  However, even with all of these enhancements, the iPad Pro is not a general purpose PC and cannot be considered a direct competitor to other two in one products like the Microsoft Surface Pro. Therefore we do expect Apple to encounter a bit of a positioning dilemma with the iPad Pro relative to existing iPads, 2-in1s and its own MacBooks.

What Makes a Tablet Enterprise Friendly?

According to a recent survey fielded by VDC Research among over 650 enterprise mobility decision makers, when evaluating mobile devices for line of business applications, battery life ranked predictably high on the list as did price and overall quality and reliability. With many of these tablets used in the field, wireless options—including embedded cellular capabilities—are critical (one key pain point for many enterprise and government tablet deployments has been sub-optimal GPS quality). In addition, overall ruggedness of the device—in terms of drop and water/dust protection—are key decision criteria for many applications. Surprisingly, however, security features such as integrated biometric capabilities did not crack the top five in overall importance.

However, tablets are often best characterized as a marriage of compromises. Therefore, for many enterprise line of business applications, of equal importance is the accessory and peripheral eco-systems developed by tablet OEMs and their partners. According to our research, protective cases lead the list of accessory requirements, in addition to solutions like payment and scanning sleds, multi-bay charging docks and vehicle mounts. In addition, highly application specific functionality, such as Zebra’s wireless DEX Bluetooth FOB (which addresses the huge headache and point of failure of cabled DEX solutions in the Direct Store Delivery market) often represent the keys to a well designed mobile solution. 

Mobile Device Requirements for Devices Supporting LoB Applications

The tablet form factor has unique appeal for mobile workers supporting a variety of enterprise and government workflows and applications. While the overall tablet is going through its most recent identity crisis, opportunities for business and public sector applications remain strong and robust annual unit growth (for both rugged and non-rugged tablets) is projected by VDC through 2019. The tablet form factor addresses mobile workers’ need for a portable mobile device while providing sufficient display real estate to support meaningful applications. From forms-based inspection and data collection applications to using the tablet as a customer engagement tool in high value retail environments, the opportunities for these devices are substantial.

To view our recently released report on the tablet market please click here.

Written by Matthew Hopkins and David Krebs (EVP)

Samsung’s Search for Success in Enterprise Mobility

The company is putting all the building blocks together to potentially become a significant enterprise mobility solutions and services player. 

In 2014, Samsung watched its mobile sales drop 21 percent as increased competition further ate away at the company’s market share in the smartphone space. Apple’s consumer-friendly iOS garnered greater control of the high-end smartphone market with the company’s release of a “large-display” iPhone 6 and 6 plus. At the other end of the spectrum, low-end manufacturers such as Xiaomi captured Samsung’s market share—particularly in emerging markets—by producing similar devices with lower prices. As a result, the rapid evolution of the smartphone market has left Samsung squeezed between, and battling Apple and low-end manufacturers. Cognizant of the adverse trend moving against them and keen for alternative avenues of differentiation, Samsung has for several years been increasing its mobile presence in the enterprise space—a market still fairly open for penetration following the decline of BlackBerry and relative neglect by Apple.

A Move into Business Services

When it comes to enterprise mobility, the consumer still rules. The proliferation of “bring your own device” (BYOD) policies throughout the business world requires that a company produce devices sought after by consumers. Given the highly-competitive consumer device landscape, Samsung spent the past few years developing partnerships, software-capabilities, and enterprise mobility expertise to augment their hardware business, addressing the security, management and support requirements critical to enterprise decision makers. To augment these partners, Samsung is also investing in enterprise mobility service capabilities and in January launched the Samsung Business Services program. This program takes a three-tiered approach to addressing the demand for mobility in the enterprise space and builds upon unique capabilities such as KNOX that Samsung has long been developing. At a high level, Samsung intends to be a technology collaborator with an extensive ecosystem of partners to provide mobile solutions to customers.

However, while providing comprehensive support to enterprise customers is helpful and desired by some companies, it will not alone significantly increase the demand for devices. Moreover, the idea that companies desire a seamless and integrated system for managing all things mobile is not revolutionary, with many enterprise IT powerhouses – for example Microsoft or IBM – increasingly well positioned to deliver these capabilities. The key challenge for a company like Samsung – that continues to derive the majority of its mobile revenues through hardware sales – is whether they can affect enterprise decisions in today’s heterogeneous/multi-platform environment. Our contention is that as enterprise’s mobility initiatives continue to become more strategic – and mobile deployment models shift from BYOD to COPE (or more enterprise influenced mobile decisions) – that these enterprise investments and initiatives will provide greater returns.   

A Vertical Focus for a Meaningful Impact

Another layer of Samsung’s enterprise approach is establishing vertical or industry specific know-how. Acknowledging that to become “business critical” requires, by in large, focusing on the nuances of certain industries, and creating specific solutions to industry problems; Samsung has tailored its products to the education, healthcare, government, hospitality, and retail industries. These large verticals possess certain characteristics and unique business processes that are in need of technological and mobile solutions. By addressing the concerns of these industries—security, regulation, rapid technological change, etc. — Samsung has the opportunity to become ingrained in business processes, and thus become “business critical”. Today’s these capabilities are still largely a work in process as Samsung invests in building out this institutional knowledge. Given the complexities and nuances associated with many vertical opportunities, this will require staying power from Samsung.

Another critical cog in Samsung’s enterprise push is their extended partnership with BlackBerry. Samsung has integrated BlackBerry’s mobile-billing and encryption technologies into its KNOX platform, enhancing its position in the high end of the security bracket in highly regulated industries. Following the collaboration on the BlackBerry SecuTablet – which features Samsung’s S 10.5 hardware and Knox for device encryption, secure apps and software from BlackBerry and app wrapping technology from IBM – new rumors are surfacing around a Samsung-BlackBerry co-developed Android smartphone. Depending on the success of these initiatives, even closer ties between both organizations is not out of the question.

Finally, the partnership between Red Hat and Samsung, to a certain degree similar to the one between Apple and IBM, looks to provide industry-specific applications that address business concerns and needs. Ultimately this is all about mobile applications and mobilizing enterprise workflows, an area that has been lacking. Leveraging Red Hat’s mobile application platform and optimizing enterprise specific applications on Samsung devices will be central to this relationship. However, the ability of these applications to address business problems will largely go under-utilized unless Samsung can reach the decision makers at these companies. Further in-roads must be made to gain the ear of decision-makers, whom often lie outside the IT department.

Staying the Course 

That Samsung is looking to capitalize on mobility demands from the enterprise space is not surprising. The company is putting all the building blocks together to potentially become a significant enterprise mobility solutions and services player. They are clearly not alone with these pursuits, with a more enterprise savvy Apple and a resurging Microsoft – among others – representing key challengers. Microsoft will be particularly interesting to follow with palpable anticipation surrounding Windows 10, their OneDrive for Business solution and leading enterprise identity and access management assets. With the enterprise mobility ‘debate’ shifting towards content and identity management, Microsoft’s position is especially strong.    

With much of the enterprise mobility opportunity still ahead of us, Samsung is increasingly well positioned. However, as a company that interprets success on quantity of devices sold, it will be critical for Samsung to set realistic expectations for their enterprise strategy. Staying power and focus will be critical.

Be sure to check out our upcoming VDC View as we dig deeper into this topic!

With David Krebs

Xplore Technologies and Motion Computing: Austin Neighbors Get Cozy

The news that Motion Computing was acquired did not come as much of a surprise, nor the fact that it was acquired by the ever-opportunistic Xplore Technologies. What was striking, however, were the terms of the deal - $9 million cash and assumption of $7 million of Motion Computing’s liabilities. Motion’s struggles with profitability have been widely rumored within the industry, with uneven performance resulting in substantial market share erosion. Motion's share of the growing rugged tablet market shrank by nearly one half over the past 4 years to the low teens in 2014. However, the extent to which it was leveraged and its narrowing margin for error – resulting in such an abrupt deal – came as a shock. Thus, the impact of the Hydis plant closure (Hydis was Motion’s single source supplier for daylight viewable displays) was a critical blow that stopped the company in its tracks as it was unable to fulfill orders for a large share of demand, especially its released - and increasingly popular - R12. With no inventory on hand or opportunity to place a “final order” (as plant workers immediately went on strike following the announcement that the plant was being shuttered), this was ultimately crushing to Motion.

VDC analysts explore the ramifications of this deal and the impact of the consolidating rugged mobile vendor landscape in a recently published VDC View. VDC clients can access the document here. 

 

Rugged Mobile Market Entering 2015 With a Head of Steam...Sort of

It has been undeniable that the rugged mobile computer market has lost its way over the past several years. Be it the competition from lower-cost consumer devices eroding opportunities or the overall economic malaise, the headwinds facing this sector have been palpable. In 2011, VDC Research published a report suggesting that one-fourth of the rugged market (especially the handheld segment) was at risk from the onslaught of consumer smartphones and tablets. Although the market outcome followed the narrative, the analysis did not fully take into account the market dynamics and the degree to which the market has transformed over the past three years. From sweeping consolidation to massive changes to device design and mobile OS bets, the market has fundamentally changed. 

VDC just published its Q4 2014 and fully year 2014 shipment figures for rugged mobile computing solutions. The highlights from the research include:

• The overall rugged handheld market was flat in 2014 in comparison to 2013. However, revenue shipments were up 4% in the second half of 2014 and Q4 2014 were up an even more impressive 8.9% over Q4 2013. Although the rebound has been fueled almost entirely by the US market with several large-scale rollouts in the retail and transportation/logistics sectors, we are beginning to see positive momentum in other regional markets. Rugged Android has been a key storyline with major enterprise customers overcoming their tension by placing big bets on these solutions. We anticipate more OS see-sawing in the rugged handheld space, However, with the absence of a viable Microsoft alternative (until Windows 10?), we do expect Android-powered handheld devices to account for more share moving forward.
• Rugged smartphone shipments grew by 9.8% in 2014 with growing demand in various field mobile segments including construction, utilities, manufacturing and others. Opportunities in public safety are expected to become especially interesting with increasing demand for broadband applications. Specialized solutions with Band 14 support and PTT functionality are starting to show real traction.  
• The rugged tablet market grew by 17.5% in 2014, recording especially strong growth in Q4 2014. The opportunities were very diverse with strong investments in embedded manufacturing applications and also as a notebook alternative for first responder solutions. A challenge for some of the vendors in the first half of 2015 will come from the closure of a Hydis display factory, which had been providing daylight viewable displays. Navigating this supply chain issue will likely cause some disruption in the first half of the year. 
• Q4 brought 2014 to a solid close for notebooks with the third consecutive quarter of growth after heavy contractions in 2013. However, with much of the 2014 momentum powered by XP migration initiatives, it will be interesting to see how the market tracks in 2015. So far, we are seeing generally positive indicators for this segment.

Our outlook for rugged mobile solutions through 2015 is generally positive and certainly an improvement over previous years. The market has clearly changed and what will be especially critical for vendors and solution providers that amid the growing noise surrounding enterprise mobility is maintaining focus on the markets and applications where the value proposition of rugged technology can be clearly articulated and supported. 

 

Realizing the New Normal at Zebra Technologies

Zebra Technologies announced its Q4 2014 earnings today for the first time since its acquisition of Motorola Solutions’ enterprise business officially closed. The results included two months of the enterprise business in addition to Zebra's existing operations. Zebra’s core printing and consumables business has been on a tear of late hitting record numbers on a consistent cadence. Q4 2014 was no different with the company reporting YoY sales growth of a strong 10.6%. The Enterprise business, conversely, was flat on a nominal currency basis (up a couple of percentage points on a constant currency basis). However, on a sequential comparison, the Enterprise business was up approximately 14%. While this is a positive number and may signal a strengthening of the core Enterprise business, it is somewhat misleading as the 4^th quarter represents one of the strongest quarters in the year and the 3^rd quarter one of the weakest. In addition, as Zebra absorbed the Enterprise business, gross margins predictably took a hit, declining by 700 basis points to 42.6% for the quarter.

So what is the new normal for Zebra? Clearly its core printer business cannot be expected to sustain its recent torrid run rate(VDC is projecting this market to grow by 5-7% annually). . However, the printer business does appear to be the early beneficiary from the sales synergies from this merger. The acquisition has provided a significant boost to Zebra’s cross-selling efforts, enabling it to proactively position its offerings as a complete data capture solution set as opposed to an ad-hoc aggregation of a broad range of devices.  Moreover, from a market/competitive perspective we do not anticipate any major technology disruption or new vendors dethroning its leadership position. On the enterprise side the dynamics are vastly different with the disruptive impact of consumer (mobile) technologies, lower barriers to market entry and a much more fragmented competitive landscape. Pricing pressures have mounted leading to a lack of pricing discipline and opening the door to margin erosion. That said, we do see the market dynamics for ‘enterprise-focused’ mobile solutions improving in 2015 with Zebra well positioned to take advantage. So while the new normal for Zebra is certainly one of lower top line growth rates and margin compression, it is also operating at a significantly greater scale with a substantially higher upside.

Some of the comments made by Zebra’s leadership team during the earnings call that we found most compelling include:

1. Emphasis on rugged Android. As VDC has mentioned in previous discussions, rugged Android hit critical mass in 2014, accounting for approximately 15% of overall rugged handheld market. Previously a Europe and emerging markets trend, major deals with Home Depot and a tier one North America logistics carrier provided a much needed boost. While growing pains persist, there is today a viable alternative to Microsoft for rugged handheld devices and Zebra arguably has the strongest portfolio to address this opportunity.
2. Major issues impacting the Enterprise business in 2014 were directly addressed with strong comments by Zebra. Specifically these included commitments to improve service levels and SLA performance by the service center in Mexico and addressing/reducing the inventory issues in Asia. Moreover, in Asia, Zebra’s sales leadership is expected to drive renewed engagement, especially in China.
3. Zebra had a phenomenal year from the barcode printer perspective with record sales for desktop printers and resurgence in the tabletop printer segment. Desktop printer sales were particularly strong in the Transportation & Logistics segment, and mobile printers fulfilled large orders in retail. The company released several new printers over the year, which highlights its efforts to introduce updated models to better meet the demands of today’s business environment. By their own admission, what also significantly helped Zebra in the printer market following a lackluster performance in 2013 was its acquisition of Motorola Solutions’ Enterprise business unit, which served to make the two organizations exclusive with each other.
4. Addressing the recent pricing pressures – particularly in Europe – Zebra commented that they are “actively looking at adjusting list prices”. While it is clearly too early to tell what this means, the sentiment among channel partners following the recent wave of consolidation creating two mega AIDC vendors in Zebra and Honeywell was that many anticipated much greater pricing discipline moving forward and focus on key business performance metrics. VDC has been very vocal about this issue and the perception that vendors/solution providers have left money on the table with its aggressive pricing practices and deal rationalization. Yes, the market has changed with (lower cost) consumer devices eroding some of the traditional market potential. However, not all opportunities are worth chasing and it will be important for a successful Zebra to realize that delineation.

Investors have not taken too kindly to Zebra’s earnings miss with the stock down by almost 4.5% since market opening. With much of Q1 2015 already behind us, Zebra’s guidance for the quarter was YoY growth of 6-8% on a constant currency basis (or 1-3% on a nominal basis), representing a strong start to the year. Ultimately this deal is about creating synergies throughout all aspects of the business and providing customers and partners with a stronger technology and solution value proposition. 

With Richa Gupta

MWC 2015 Recap

Although the Mobile World Congress event we just attended in Barcelona is still largely a carrier show – as measured by the audience it attracts and the general lack of attendance by enterprise IT decision-makers – the roster of vendors on display is remarkable. VDC spent three agenda-packed days at the show meeting with a variety of enterprise mobility and IoT-focused solution providers. Some of our team’s observations are summarized below:

Samsung Galaxy S6: Back to Basics? Our week kicked off on Sunday evening with the Samsung Unpacked Event and the anticipated unveiling of the Galaxy S6. First things first – the device is absolutely stunning. Beautiful build quality with a gorgeous display, including the unique Edge option. However, the unveiling of the device felt flat. Clearly we are spoiled today with the expanding capabilities of smartphones; thus, the bar is set extremely high for each device with all of the upgrades needed for it to be considered a success. Moreover, today it is much more than device features that make a launch compelling; rather, what’s important is how those features enable use cases. However, with Samsung’s focus on features and specs, the company missed a real opportunity to translate these capabilities into meaningful value for everyday – or new – applications.

This was especially evident with the introduction of Samsung Pay, which leverages NFC for tap-to-pay in addition to the integration of technology Samsung recently acquired from LoopPay (Magnetic Secure Transmission) which enables the devices to be used with magnetic stripe readers. This is truly differentiated in that it enables the Galaxy S6 to be used as a mobile wallet at approximately 90% of merchants or 30 million payment terminals worldwide. Although this technology conceivably fills a temporary gap while retailers in the US rush to meet the end-of-year mandate to support chip and pin requirements, magnetic strip readers are not disappearing from the retail landscape anytime soon. Thus, with payment infrastructure access meaning everything when it comes to mobile payment acceptance, Samsung has a strong competitive advantage with this technology, especially over arch-rival Apple. Too bad they spent all of 30 seconds covering it during the unveiling.  

Coming off an extremely challenging 2014 with slowing shipments and massive profit erosion, much is riding on this release. It is widely known that Samsung’s leading smartphone position is being challenged by Chinese upstarts on the low end, and with the iPhone 6 Apple now has an answer to Samsung’s larger display differentiation. In this context, it was perhaps important for Samsung to “revert to the basics,” focusing on device functionality and features and the “language of engineering” they have mastered. However, the decision to enclose the battery and remove the microSD card will be seen as a significant departure for many and will eliminate some much-needed differentiation, especially against Apple. 

Wearables and the Smartwatch Use Case Conundrum. On the wearable front, both LG and Huawei made headlines with the introduction of their respective smartwatches. This represents Huawei’s first foray into the wearable market, and rather than take the low-cost approach for its smartphones, the Chinese manufacturer has opted for a more fashion-forward device that runs on Android Wear and boasts the most impressive smartwatch display. However, LG’s upcoming Urbane seeks to push the boundaries a bit further by being the first offer a 4G LTE-enabled watch that also features NFC capabilities. Another unique attribute is its interface, which – based on recently acquired WebOS – is markedly more intuitive than Android Wear alternatives. Moreover, Google’s Wear platform does not currently support cellular connectivity. While these smartwatches are essentially consumer devices, enterprise opportunities are beginning to emerge, especially around notification and alerts for line workers. However, enterprises will need to be prepared to “manage” these types of devices as their employees bring them to work and look to connect them to corporate networks. In discussions with EMM vendors, who are increasingly extending support to wearable end points, an interesting use case emerged that leveraged the smartwatch to support two-factor authentication. Ultimately this category – especially from an enterprise perspective – remains very much a work in process. Even with Apple’s pending smartwatch (available this April) today’s products still lack in overall functionality – particularly battery life – and meaningful use cases to justify their expense.

Samsung KNOX: Dead or Alive? The exclusion of Samsung’s KNOX platform from Google’s Android for Work was, for many, the death knell for KNOX. The message we got from Samsung and its partners at MWC contradicted this scenario and pointed to the progress Samsung has made over the past year. Although the volume surrounding KNOX turned down significantly in comparison to the fanfare at MWC a year earlier, it is becoming more clear where KNOX fits. Ultimately we do not see KNOX and KNOX Workspace as a volume play across most of the enterprise or government organizations. That would be too limiting in today’s multi-platform/multi-vendor reality with Android for Work representing the more viable option in that scenario. However, in highly secure/regulated environments (government, financial services, etc.) we do see a real play for KNOX. Whether that is too limited given Samsung’s investment in KNOX remains to be seen. Other KNOX developments include the collaboration with Microsoft and the integration of OneDrive, OneNote, and Office 365 with KNOX Workspace. Although smartphone end users dislike the amount of pre-loaded software they receive on their devices, this one makes sense and is in direct response to the availability of Google’s productivity apps on its Android for Work platform.

Wireless Charging: Ready for Prime Time? Another bet placed by Samsung with its Galaxy S6 is around wireless charging. While this feature has been available as an aftermarket capability for previous devices, it will come fully integrated with the S6. What is perhaps most unique about Samsung’s approach is that it integrates two of today’s more common wireless charging standards: WPC’s Qi and PMA. While Samsung is making a bold bet by integrating this functionality, the technology from a performance perspective is impractical and not ready for prime time. Challenges with charging speed and charging range (relative to mat placement) remain real concerns. An interesting development from our perspective is the shift from today’s magnetic induction technology to solutions leveraging magnetic resonance. The Alliance for Wireless Power (A4WP), which recently announced its intent to merge with PMA, is introducing Rezence, which addresses many of these issues, supporting a superior charging range and multi-device charging. Although still in the specification stage, support from Qualcomm, Intel, Samsung, and others will make this a very interesting technology to follow. Is 2015 the year of wireless charging? In our opinion, no. However, significant strides are being made.

IBM & Apple: 3% closer to home! IBM and Apple announced the “next three” IBM MobileFirst for iOS Apps at MWC, bringing its total to 14 against the stated goal of 100 by the end of 2015. At the end of the day the numbers are somewhat meaningless, especially considering the number of mobile apps already developed by many of IBM’s closest competitors. However, as this is their stated goal, it is something they will inevitably be reminded of. What struck us as especially compelling was not so much the apps themselves – many of these are IBM versions of mobile apps that have already been created. Rather, it was how Kathryn White, IBM VP of Marketing and Head of Sales for the Apple partnership, conveyed the process through which they identified mobile use cases. Starting with an acute industry pain point – for example, the $20 million airlines lose each year by improperly calculating excess fuel requirements – IBM’s approach is to focus on analytics, identify a feature that “changes the moment” and ultimately develop and app that empowers the employee to make meaningful decisions. This a low-risk win for Apple with no real skin in the game on application development and access to IBM’s enterprise channel, which – especially for the lagging iPad – could provide a nice boost. Among the potential issues we are tracking is the ability of the IBM sales force to effectively “sell” enterprise mobility solutions (we are seeing similar sales cycle issues with Oracle and SAP). In addition, the critical aspect of professional support services for enterprise customers surrounding the mobile device (provisioning, depot services, advanced exchange, maintenance, white glove, etc.) represents a potential gap or vulnerability to the existing model.

The Windows 10 Wedge. That Microsoft or its Windows platform is on the outside looking in when it comes to enterprise mobility should come as no big surprise. That said, Windows remains extremely critical for enterprises, especially in the more traditional PC, server, and embedded endpoint domains. One of the more interesting questions will be the extent to which Windows 10 changes Microsoft’s fortunes, especially considering mobile devices. Today’s Windows smartphone marketshare is negligible at less than 5% globally. However, and especially in markets that lack strong BYOD momentum (i.e. outside the US), the recent trends have been encouraging. Surprisingly where Microsoft has done especially well in the enterprise is in the lower-end tier of the smartphone market with its lower-cost Lumina devices. With the launch of Windows 10, Microsoft is undergoing a rebranding effort, emphasizing a singular platform/store/Microsoft experience. While Microsoft does not have an answer today for more BYOD-centric environments, we do see an opportunity for Microsoft to take advantage of the continued enterprise uncertainty surrounding Android and wedge itself more firmly back into the enterprise mobility discussion. 

with Kathryn Nassberg

MWC 2015: Pre-Show Expectations

Barcelona is again set to become the epicenter of all things mobile with MWC 2015 upon us. A team of four VDC analysts will be roaming the exhibit floors at Fira Gran Via - not to mention the odd Tapas bar in Barcelona's Barrio Gotico. With our calendars maxed, we are eagerly anticipating this year's story-lines. Using our 2015 research calendar as the backdrop, some of the themes we will be following closely include:

1. (Non-iOS) Mobile Device Announcements. Clearly what creates the most greatest buzz at these shows - and MWC 2015 won't be any different - are the mobile device announcements. Minus Apple, MWC represents the launching pad for other OEMs, especially those running Android. With the massive success of Apple's iPhone 6 and widely circulating reports of Apple's share of smartphone profits reaching almost 90% (astounding considering its market share of ~15%), this will be a VERY important show for Android OEMs (and more specifically Samsung). All eyes will be on Samsung on March 1st when it is expected to release its flagship S6 smartphone. While there is not much expected in terms of real innovation (rather incremental improvements), we should expect substantial improvements in build quality, a much more seamless OS stack (less bloatware) and some gimmicky functionality like wireless charging. Although it is premature to suggest this as a "make or break" device for Samsung, the pressure is certainly mounting as the company is increasingly vulnerable with marginalized competitive differentiation. 

2. Windows 10. Although under Nadella Microsoft is becoming more adept at competing without the benefit of OS dominance, it sure would enjoy the fruits of a successful Windows 10. While it is unlikely for Windows 10 to substantially move the needle for Microsoft in terms of smartphone OS share, many of VDC's enterprise mobility clients are rooting for a strong showing. Several OEMs are using the crowded Android landscape as an opportunity to differentiate through Windows 10. We will be very interested to see how the vision of Windows 10 translates across all form factors. 

3. Enterprise mobile apps and the IBM-Apple alliance. Apple's absence from IBM InterConnect this week certainly did not go unnoticed, prompting many to question the strength of the relationship. Although Apple is not exhibiting at MWC, a IBM press conference that will cover the "next chapter of their relationship" will be compelling. While not a top-line needle mover in 2015, this relationship is perhaps even more important for IBM as it looks to offset the challenging outlook for its overall business and as it looks to transition its revenue base to cloud services, analytics technology, security and businesses related to mobile devices and social networks. Beyond IBM, messages from other enterprise IT stalwarts SAP and Oracle and their mobility initiatives will be important. With more organizations eager to provide mobile access to key enterprise applications and to transform existing workflows, these vendors need to be doing more - and have the opportunity to do more. 

4. No more secrets: mobile security is no joke. The recent cyber attacks at Sony and hacks/compromises at Gemalto (cracking encryption keys in SIM cards) as well as Home Depot and Target compromises only scratch the surface about the extent to which information can be compromised. This cannot be the new normal. Secure communications is becoming much more critical and not only in the highly regulated, highly sensitive market segments. Start-ups such as Blackphone and USMobile are expected to play an increasingly prominent role. In addition, Blackberry, long the torchbearer for best in class mobile security, is teaming with Google to do what others have failed at, legitimizing security for Android devices in the enterprise. Secure mobile browsing and secure messaging are two of the areas driving significant requirements.

5. Creation of meaningful value.  It is high time to shift the conversation from technical capabilities to the creation of tangible business value. Avoiding the inevitable spec sheet comparison, it is time to pressure vendors on how the solutions are being applied to derive real benefits. From an enterprise mobility perspective, this can be measure in terms of workforce performance, customer satisfaction, employee satisfaction and retention, asset cost of ownership, among others. With a large share of enterprise mobility investments still being influenced by "employee convenience," the time is ripe to place greater emphasis on how these solutions can benefit real business outcomes.

These are among the many topics we are looking forward to hear more about at MWC next week. Looking forward to seeing you there!

A Salute to Erstwhile Colleague Chris Lanfear

The VDC Research family is broken-hearted after hearing of the passing of former colleague Chris Lanfear on February 4th of a brain aneurysm. Chris joined VDC Research in 1999 and spent almost eight years with the firm. His contributions to VDC during his tenure were immeasurable, many of which are still felt today. He helped cement VDC as the go-to research and advisory resource for the embedded software community. Deeply respected by his clients, he brought a very creative yet actionable approach to his interactions, fostering relationships that endured. Always accessible to his colleagues, he challenged us not to conform and to find the implications that really mattered to our clients. Passionate about marketing, he was quick to realize the potential of new mediums and launched VDC's inaugural blog, On Target: Embedded Systems. 

A testament of his value to his clients, Chris left VDC in 2007 to join one of his clients, ENEA, spending five years with them in various senior marketing roles. He ultimately decided to return to the analyst ranks, joining the TBR team last summer, covering digital marketing technologies. 

Our deepest sympathies go out to his wife, Laura and two daughters Julia and Tessa. The family has requested that in lieu of flowers, donations be made in Chris' name to The Brain Aneurysm Foundation, 269 Hanover Street, Building 3, Hanover, MA, 02339. www.bafound.org/donate. 

Chris, you will be missed.