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Verizon's Fleetmatics acquisition adds risks to IoT strategy

Verizon's $2.4 billion acquisition of Fleetmatics takes the carrier into a highly fragmented SMB market that's likely to complicate Verizon's IoT strategy.

Verizon Communications has agreed to acquire fleet management company Fleetmatics Group PLC for $2.4 billion, becoming a competitor in a price-sensitive and highly fragmented small and medium-sized business market that's open to disruption.

Verizon announced the deal Monday, three days after completing the acquisition of Telogis Inc., a provider of cloud-based internet of things (IoT) services for managing truck fleets. The transactions show that Verizon's IoT strategy includes a major push into the business side of IoT after the carrier closes the Fleetmatics transaction in the fourth quarter.

Fleetmatics brings SMB customers to Verizon while Telogis, based in Aliso Viejo, Calif., adds enterprise business. The latter company has signed technology deals with Ford, General Motors, Freightliner Trucks and the Volvo Group's North American truck unit.

But the latest acquisition has risks. It thrusts Verizon into a fiercely competitive market vulnerable to disruption by low-cost providers of competing services, said Phil Marshall, chief research officer at Tolaga Research, based in Newton, Mass. Companies that could become market disruptors include Garmin and Google.

"It is crucial for Verizon to leverage its market scale to aggressively drive upsell opportunities into a broader range of service offers and to expand its activities with other ecosystem players, such as vehicle OEMs (original equipment manufacturers)," Marshall said.

Fleetmatics, based in Dublin, Ireland, has more than 37,000 customers across Australia and eight countries in Western Europe and North America, where the company has its largest customer base, according to Verizon. Fleetmatics provides online software that fleet operators use to track vehicle location, fuel usage, speed and mileage.

In the first quarter, Fleetmatics had $78.9 million in revenue, an increase of 21% from the same period a year ago. Markets outside the United States account for 13% of the company's revenue, according to Marshall.

Acquisitions boost Verizon telematics unit

Verizon's IoT strategy includes folding Fleetmatics and Telogis into its telematics unit. The carrier did not disclose the terms of the Telogis acquisition.

"With the Telogis and Fleetmatics acquisitions, Verizon has effectively taken out two of its primary competitors for telematic services," Marshall said.

Verizon's telematics unit is part of a larger IoT strategy and business. Verizon does not break out revenue from the division. Overall IoT revenue, which includes internet-enabling consumer and business devices, grew 25% to $205 million in the quarter ended in June.

Global spending on IoT technology is expected to grow from $698.6 billion in 2014 to $1.3 trillion by 2019, according to IDC.

In November, Verizon's IoT strategy shifted to infrastructure with the introduction of a 4G LTE network core and an online application development platform, called ThingSpace, to deploy IoT devices. The LTE network is a less expensive lightweight alternative to the cellular network Verizon uses to service smartphones and tablets, which transmit and receive far more data than IoT devices.

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How does your organization leverage IoT technology for asset management?
Interesting article Antone. It is interesting that VZ bought two companies in the telematics domain when they already acquired a reasonably large player about 3-4 years ago. You will certainly remember the Hughes Telematics acquisition. How has that acquisition fared thus far? How do these companies fit into the strategy vis-a-vis telematics and Hughes?
Fleetmatics grows Verizon’s overall internet of things business as it applies to vehicles. Hughes, acquired in 2012, provided voice and data connections to cars monitored through call centers. Fleetmatics sells online software that fleet operators use to track location, fuel usage, speed and mileage of trucks. I haven't heard anything negative about the Hughes acquisition. However, some pundits believe Verizon could have gotten more value out of acquisitions other than Fleetmatics.