Where is the money in geospatial industry?
The world is changing. The next wave of Industrial Revolution, also known as the Second Machine Age, is fundamentally changing each and every aspect of our life. It is the power of the World Wide Web and the onset of smartphones that has unleashed a movement which is rapidly destroying the old models. Smart machines can now deliver a pizza on our dinner plates, turn on the AC at our residence as we start off from the office in a driverless car, plough our fields, work out the insurance for us, prepare our business reports and even fly our planes.
All over the world, governments, public institutions and businesses are finding it extremely difficult to keep up with these disruptive innovations. Old school businesses of many years, run by established leaders of many years of experience, are disappearing in a flash, even as new age innovators take the world by storm. And like all industries across the world, the world of geospatial is shaken and stirred.
The ground has never been more fertile
Interestingly, if growth drivers are to be considered, the geospatial industry couldn’t have had it better. The continuing global economic uncertainty has brought an increased focus on productivity. While companies and governments are battening down the hatches, dramatically reducing staff and spending, there are others looking at how they can use the time of uncertainty to advance their business. “For those people, productivity is more important than ever,” emphasizes Chris Gibson, Vice President, Trimble.
What is the economic impact of geospatial services? Credits: Oxera
Geospatial technologies provide not only the ability to manage and integrate data, but also the analytical tools that sharpen decision making and, ultimately, save time and money, underlines Russ Johnson, Director of Industry Solutions at Esri. Using data in new ways counteracts the forces of a sluggish economy. It helps make organizations efficient and resilient during economic downturns.
No wonder then most developed countries and forward-looking governments are turning into geo evangelists by encouraging the uptake of spatial technologies in work processes. Additionally, the United Nations sustainable development agenda in 2015 also recognized the importance of space-technology-based data, in situ monitoring and reliable geospatial information for sustainable development policymaking, programming and project operations.
On the other hand, the proliferation of the Internet as the primary medium for data publishing and information exchange has seen an explosion in the amount of online content available on the Web. And this holds true for geospatial content too. More so in a world where location is becoming the centre point of almost all decision-making. “Location provides the underlying footprint and fabric upon which we can make smart decisions,” says Mladen Stojic, President, Hexagon Geospatial. “If you don’t know where you are, you cannot make decisions about a given situation. Location is really the lowest common denominator.”
In 2013, a report prepared by Oxera and commissioned by Google found that the global geo services generate $150-$270 billion in revenues. By way of comparison this was broadly equivalent to the $140 billion revenues generated from the global security services industry or about one-third of the global airline industry’s revenue of $494 billion then. According to another report by The Boston Consulting Group, within the US economy alone, the geospatial services industry was estimated to employ more than 500,000 people, generate $75 billion in annual revenues, and have an overall economic impact estimated at $1.6 trillion annually in revenues. That was in 2013, and while no exhaustive study has been done since then, informal estimates at a CAGR of 15-20% would safely put the geo industry at more than $500 billion today. And that is a lot of money.
But then, why is the profitability of the sector hit? Why are the traditional geospatial companies smarting from reduced profits and lowered bottom lines? In short, where is the money?
The map has become a toothbrush
Fast-changing technology trends are cutting down gestation periods, resulting in profit vulnerability. In this background, questions that are pertinent to ask now are: Is the geospatial and geo services industry expanding? If so, who is benefitting and where is the money? Or is it that the industry is growing so fast that we don’t know how to measure it?
The answer is in the last question. Google’s venture into geospatial business made maps omnipresent in our everyday life over the past decade. The globe is in our pocket now. As Ed Parsons, Geospatial Technologist at Google puts it: “We have an internal benchmark called ‘The Toothbrush Test’ that every product must pass. You use your toothbrush every day; you don’t think about it as it is part of your day-to-day life. We are almost there with maps now.” The analogy is interesting because it illustrates what location is becoming — not only for businesses but even for the common man — a toothbrush.
“GPS is a very complicated technology but my iPhone knows where I am and that knowledge of where I am actually feeds into a number of applications that use that information seamlessly to present choices to me that are relevant to my location. So, I think, companies like Apple have done a very nice job of taking a geospatially complex GPS and turning it into something very accessible,” says Dr Walter Scott, Founder and Chief Technology Officer, DigitalGlobe.
The ease-of-use of mobile apps like Google Maps and Strava has inspired a lot of companies to start thinking differently about location. “This rapid consumerization has allowed anyone with a smartphone to use aspects of GIS technology with a few taps of their fingers, revealing valuable location intelligence data that they use to find new stores, directions and more… and consumers are expecting companies to follow suit,” emphasizes Manish Choudhary, Senior Vice President, Innovation and MD, India, Pitney Bowes Inc.
If the customer doesn’t have to know that it is geospatial magic underneath the covers, then he is more likely to use it than if he has to know about photogrammetry and projections and datums and the rest. “It really comes down to making things easy so that we actually don’t have to be that expert,” Scott adds.
What are the factors that are driving the geospatial industry?
The lines are getting blurred
As location becomes mainstream, the lines between geo and non-geo are fast getting blurred. Today, geospatial industry is not only handful 20-30 core geo companies that deal with location, but is about every industry that deals in location and builds on top of it.
“The geospatial industry has been rapidly consolidating over the past few years. But at the same time, we are also witnessing the trend of small companies starting up,” says Parsons. There is a growing ecosystem of new ventures which have the blessings of the investor community. These companies are using geospatial technology as part of consumer-centric applications. In these cases geospatial technology may not be particularly obvious — it might be behind the scene — but it plays an important part.
Then there are a host of major mainstream IT companies like SAP, Microsoft, IBM or Oracle and automobile, infrastructure, utility and even consulting companies like PwC which have shown interest and entered the location business. “We are seeing geospatial capabilities being integrated into all kinds of systems and they are no longer separate industries,” says Johnson. For instance, take Esri Maps for Office — a toolset that lets Office users connect to ArcGIS Online, make maps, perform analysis, and create rich story maps, focused websites, and all kinds of information products. On the larger scale, consider SAP HANA. The geographic component of HANA is critical to analyzing and maximizing the value of the Internet of Things (IoT) streams and Big Data stores. “There is a lot of geospatial value that companies like SAP, Microsoft, and others, have tapped into that is growing the geospatial industry, but it is difficult to quantify as the technologies merge and complement one another,” he adds. Choudhary explains Pitney Bowes has tied up with GE around the industrial Internet that is transforming its capabilities in this space. PB also partnered with Cisco and companies like Electric Imp to bring the next generation of IoT capabilities to those 1.5 million SMB customers.
DigitalGlobe, on its part, has worked in the Amazon Web services department to instantiate access to both a library of any worthy data that goes back to 1999 as well as a growing number of other data sources — whether it is access to geotag social media or a third party imagery data. “Placing our data in the Amazon Cloud is giving access to anybody who wants to perform analysis on that data,” says Scott. This further expands the scope of the industry.
Further, most companies working in area of smart city/smart grid/telecom etc. have in-house geospatial teams and the revenue generated by these groups is never counted as they are more captive rather than in-market, points out Amit Somani, Managing Director, ADCC Infocad. “These kind of players usually work in small teams and do not even exist for the geospatial industry when you do a market analysis,” he adds.
The geospatial industry is hard to measure because it is ubiquitous in nature with so many different organizations contributing to its value and traditions. Aidan Mercer, Industry Marketing Director, Utilities and Government, Bentley Systems, points to the ever-increasing use of drones as an example of how hardware and software vendors will be partnering up to create sustainable solutions. For example, in the defense sector, the ability to fly a drone through locations of conflict eliminates the risk of sending personnel, and offers an opportunity to survey, map, and model the area. This opens the door to new, potential offers and opportunities for traditional and non-traditional players to contribute to this industry. So, the value is not always measurable, but the impact is.
Key technology drivers in geospatial industry
A transformation is happening
There are some very interesting shifts happening in the geospatial industry that is affecting almost all industry verticals. A demand for Cloud-based and open-interoperable solutions has led to a major shift in the business models of the industry. Add to that mainstream IT trends, such as, Data as a Service, Platform as a Service or Software as a Service. The advent of information technology and connectivity is not only making the world smaller, it is also creating stiff competition among industry players.
Core geospatial companies responded by taking a more open-ended approach in terms of collaboration with other players industry and aggressively serving the users what they need.
So, we have been witnessing constant acquisitions and consolidations as a way for businesses to gain competitive advantage. While top players like Hexagon and Trimble or Bentley continue with their acquisition of smaller players — some within the industry, some from the vertical industries — there have also been curious cases of partnerships between equals. For instance, Hexagon’s tie-up with Esri, Autodesk joining forces with Bentley, Trimble’s relationship with FARO and Topcon, or DigitalGlobe’s tieup with Esri.
Stojic also points to the partnerships with respect to small to medium size businesses with others. There are also a lot of new start-up businesses formulating, which are not only challenging the status quo players in the industry, but also looking to formulate partnerships.
“Today a collaborative approach can play a win-a-win situation for the established players as well as entrants because the former can utilize the latter’s innovative techniques,” feels Somani. The advantage for well-established player is to have a readymade solution which is directly saleable, whereas new entrants can get access to different markets and clientele which, in normal cases, would have taken more time. This would also solve lots of issues related to skillset and adoption of newer technologies.
Scott points to the number of interesting sensors that are coming into play as part of the immediate things and those are highly complementary to what a company like DigitalGlobe does — “whether it is providing ground truthing, or geotagging on social media to combine with satellite imagery, and providing a more comprehensive view of the world.”
The disruptive metamorphosis dictating new business models is making products and services more open and available to infrastructure professionals, feels Mercer. This is not lessening global adoption and appreciation for importance of geo-coordination, which has been pervasive and has driven infrastructure projects for many years, but in fact, is heightening its role. Yet, this disruptive influence should not necessarily be seen as a disruption. “It is, in fact, moving at such a rate that we already recognize pervasive use of new hardware, such as, drones and sensors, and new consumption-based business models which allow you to pay for what you use,” he adds.
The primary mechanism behind disruptive business models is that of access. Business models are focused on shifting capex to opex; opex often avoids organizational decision bureaucracy associated with large capital expenditure. Further, companies focused on this disruption are often willing to bear more risk (through taking on the capital expenditure, carrying inventory, etc.), underlines Gibson.
Key challenges of geospatial industry
Consumerization of data and technology
In the past, technology or products from the professional world were migrated to the consumer world. Today, that trend has shifted and it is the consumer world driving and seeding development of the professional world. The rise of social media and Internet led to this interest in location from the consumer’s side. “Google and Microsoft went full throttle when they entered the location market,” points out Stojic. They went from a consumer location market to more of a professional market. Now they are scaling back from the professional market to their core focus — the consumer market.
“Location intelligence is finally hitting the mainstream as a wide range of industries and marketers start clueing into the importance of contextual data on their customer experiences, products and services,” feels Choudhary.
So you have different tiers of what is required to support the geospatial initiatives: there is the consumer tier, the professional tier, and then something in the middle — what Stojic calls the ‘prosumer’ market — which is sort of dabbling in some high and professional requirements, but also requiring some basic fundamental mapping capabilities that is available with Google, Microsoft, and others.
Scott feels the democratization of access to data has been enabled by the Cloud. “Because it means you don’t need to have an IT department the size of Google to deal with large datasets. So, public Clouds have made a huge difference in terms of making data accessible.”
System integration and solutions
As the world is beginning to reject systems that create silos or force inefficient workflows, system integration is the key to making disparate solutions fit the customer workflow rather than the other way around. Since there are too many permutations to simply make everything “plug and play”, systems integrators will have a key role in the latter ecosystem, feels Gibson.
Today, clients emphasize more on solutions rather than tools, and this has resulted in more projects coming out where total solution is desired instead of asking it in bits and pieces as done earlier, says Somani. Hence, unless a company manages to cater to total solutions and system integration, it becomes difficult for it to sustain in the current scenario.
From providing horizontal services, geospatial industry has moved to providing solutions to vertical markets. What this offers is a fairer exchange in an agile, open, and connected environment to better unify project participants and organizations and opens up a whole new level of collaboration across enterprises, underlines Mercer. Common interfaces break down barriers and deliver new levels of interoperation with intuitive design and ease of use.
Subscriptions and pay-as-you-go models
At one time, the software business model was to sell perpetual licences of software. Now companies are increasingly moving to the subscription-based model and what is beginning to be known as pay per use model. Again, the transition from a desktop perspective to mobile platforms and Cloud is driving this change. The fact that many non-geo players could provide a part of the software or solution that an end client may be looking for instead of a wholesole package is also pushing companies to go for this model. Software companies like Esri, Bentley, etc., have aggressively bought into this subscription model now.
On the other hand, take Hexagon’s Smart M.App. Its business model is very simple wherein the company provides a platform for building apps; the partner or the customer who builds it gets 70% of the revenue and Hexagon retains 30% of the end-user revenue. This also ultimately helps vendors because they can enable their users to expand their level of collaboration and engagement on projects, leading to a better quality of sustainable infrastructure.
New models of content generation
The content business is a rapidly evolving space. As geospatial data becomes more widely adopted, there is a greater need for rapidly updated and analyzed content.
The small and microsatellite business is a good example of how companies are reacting to this demand for greater refresh rates through new technology. Lars Dyrud, President and Chief Executive, OmniEarth, feels the earth observation industry is growing into the IoT as another data source. “IoT is not just about individual sensors on the ground. Remote sensing provides synthetic centres in a conducive global environment in very large areas and measures things that sensors on the ground cannot. So we see the EO industry and the Big Data analytics associated with it really merging into much larger and faster growing industries.”
The proliferation of UAVs is further driving this trend of rapid updates. Gibson hits the nail on its head: “The content business has a growing focus on getting to a deliverable faster and that is where the opportunity lies.”
What has also changed now is that the users of mapping products could also be the creators. As Parsons points out, you can be a consumer and a producer. For example, if you are using Google Maps to navigate between two cities, you are getting driving directions. But, at the same time, you are contributing to the traffic information, and making sure that the other people who are navigating are getting a sense of the speed. The things that required a lot of capital investment previously in terms of putting sensors in other users of the application are now providing that information.
The public has also been allowed and encouraged to make its content available online to everyone. The increasing popularity of open online communities and social-networking sites, image and video sharing portals, discussion boards, and community Wikis has led to a dramatic drop in the barrier-to-entry for casual computer users to generate and upload their content on the Web.
The money is in beyond the obvious
With technology innovations and new disruptive models queering the pitch, the only way for businesses to stay on top of the game is to keep asking one question: Where is the money?
While there is big money in big sectors like construction — which is seen as one of the major growth areas in the coming years, particularly as it relates to the design, build, operate continuum and the continued evolution of the constructable model — it is beyond these traditional sectors where the industry is expanding.
Earth observation giant DigitalGlobe sees money in the core constituency — the governments and the energy sector. But what is changing now is there is scope for new value creation for those applications that were previously not possible. “So whether it is Spaceknow which is providing an index of construction that is available on a Bloomberg Terminal, or Inteloscope that is doing forest inventorying on a large scale, those are applications that would not have been possible previously. We are seeing quite a strong growth in that area,” says Scott.
There are a lot of opportunities in the IoT and Big Data analytics. The data on the Cloud and where the data that comes from can be analyzed and value-added applications can be built and provided back to customers. A Deutsche Bank study estimates that the use of Big Data has improved the performance of businesses by an average of 26% and that impact is estimated to grow to 41% over the next three years. Big Data has the potential to create considerable opportunities for analysts, computer scientists, mathematicians and other data-savvy job seekers. KPMG pegs geospatial data as contributing 12%, sensors 12% and RFID and POS data 16% of total data needs.
“We have only seen a greater demand for geospatial enablement of our technology, but with the continued rise of global megatrends, the integration with devices and streams of data means tighter convergence of software and hardware is anticipated,” says Mercer. New solutions, applications, and platforms that accommodate Big Data, analytics, Cloud computing, the IIoT, mobility, and 3D modeling are converging to combine the physical with the digital.
The smart city concepts floated around the world have opened up never-before opportunities. Reality capture software can help meet various goals and objectives of smart city projects by offering affordable and simplistic ways of capturing and continuously surveying existing infrastructure. The adoption of drones to capture images as part of this reality modelling potential will undoubtedly be a sought-after capability, as will be the software that turns the captured images into usable models.
Another anticipated area of revenue is in the secure management of data. The amount of data that infrastructure providers capture has increased, but we are seeing a decrease in the costs associated with storage and computing power. This is causing a trade-off as the dimensions of imbalance of cost are somewhat being offset against the need for increased security. The challenge is to provide users with the correct balance of confidence and performance, and of course, the right pricing model.
With increasing consumer mobility, widespread e-commerce adoption, rich consumer information and higher demographic data coverage, exciting opportunities are presenting themselves by convergence of offline and online channels of commerce. There are use cases in both — generating topline and optimizing bottomline for e-commerce businesses, including driving real-time, location-intelligent platforms, that promote sellers closer to buyers — thereby providing a better and faster route planning for delivery, warehouse/fulfilment hubs location planning, inventory planning for specific warehouse, etc., explains Choudhary. The same is with location insights giving highly accurate understanding of customer preferences, or the promise of a truly global commerce platform which lets consumers make real-time decisions based on merchandise value, cross border duties and taxes along with cost of shipping.
Transform or perish
Dyrud of OmniEarth, on his part, sees the EO industry transforming in a few years as it is falls into the Internet of Things world. “We are getting end users and customers who have never heard of a satellite or aerial imaging using the information that we provide,” claims Dyrud, as he compares the rapidly growing EO industry to the television industry of the 1970s and 80s. “Not all of them will succeed, but 10 years from now, we may have something like 200 of these companies. But like TV channels offering something different for different niche segment of viewers, there will be niche created in the EO industry also about different types of customers, different revisits, different resolutions, different spectrum bands and different measurement modalities. And we will all enable different kind of niche applications. This is beginning to happen right now and will continue to accelerate growth.”
This is true of the core geospatial i ndustry too. Foreseeing the trend like Dyrud does is actually what it takes to buck the trend. So, companies that made a swift and smooth change from services to solutions have gained during this transformation period. For instance, as Somani explains, in various utility sectors like water and energy where ADCC had started from very basic service like mapping are where it is at present in the process of developing our specialization in automation and system integration.
How location takes position
Gibson is upfront when he says one cannot be dismissive of the new innovations and take any of them lightly: “We always have to be aware of new competitors and cannot discount any of them based on size. Innovation can come from anywhere.”
As Parsons rounds up: “This is the most exciting time to be involved in our industry as geo gets embedded in more and more applications and services.” There’s a bright future in terms of autonomous vehicles being developed, establishment of delivery drones, and these are all grounded in geospatial. They are all based upon identifying where something is, and where it needs to be.
The cost of acquiring, using, and storing data is likely to decrease as technology continues to become better and faster. And although there will be policies and regulations that govern the use and sharing of data, particularly given the concern over security, the geospatial industry will indeed be at the forefront of these changes and will no doubt benefit from open standards and ever-increasing levels of collaboration.
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Reprinted from Geospatial World Website, May 2016. Copyright 2016. All rights reserved.