Vodafone partners with Microsoft to invest in IoT platform

British telecommunications group Vodafone has signed a 10-year strategic agreement with Microsoft through which, among other initiatives, it will help businesses associated with the operator’s global Internet of Things (IoT) connectivity platform.

Microsoft intends to invest in this IoT platform managed by Vodafone, which should give rise to a separate, autonomous business unit by April 2024. The new company is expected to attract new partners and customers, driving the growth of Vodafone’s platform and applications to connect more devices, vehicles and machines. Vodafone also plans to become part of the Azure ecosystem, making its IoT platform available to a vast community of developers using open APIs. The platform currently connects 175 million devices worldwide, according to company figures.

Judson Althoff, Microsoft’s chief commercial officer, said in an interview with CNBC that Vodafone’s strength in the field of the Internet of Things and financial services is strategically important. “IoT assets are essential to help us meet the sustainability needs of many of our customers in more difficult sectors,” he said.

This partnership covers areas other than the Internet of Things. The two companies will work together to transform Vodafone’s customer experience using Microsoft’s Generative Artificial Intelligence (AI) capabilities. Vodafone will invest US$1.5 billion over the next 10 years in cloud and AI services focused on its customers, developed jointly with Microsoft. In turn, Microsoft will use Vodafone’s fixed and mobile connectivity services.

The agreement also provides for the development of new digital and financial services for companies, especially small and medium-sized ones in Europe and Africa, and to revamp Vodafone’s cloud strategy for data centers using Microsoft Azure in order to improve customer service capacity and reduce operating costs.

Spin-off of the IoT unit

Rumors surrounding Vodafone’s intention to make its Internet of Things (IoT) unit independent are not new. In 2022, Vodafone was already considered an example of success in this universe, making smart decisions, acquisitions and partnerships over the years, including in Brazil, according to analysts.

Despite these initiatives, Vodafone was unable to exceed 2% of its service revenues from IoT business in 2021. Rumors began to emerge that a spin-off was a possible solution. Even then, the market analysis firm Omdia did not believe that Vodafone would completely give up its IoT business or create a new organization in which it would have a limited role. More likely, it would found a new company in which it would remain a significant stakeholder.

In May 2023, new rumors mentioned a possible sale of Vodafone’s stake of up to 49% in its Internet of Things arm. Consulting firm Akira Partners was reportedly hired by Vodafone to present sale offers in order to attract the interest of private capital.

We don’t know if this initiative is what attracted Microsoft’s attention. The truth is that, one way or another, it looks like the spin-off will take place in the first half of 2024.

Retrospective

At the beginning of 2024, IoT Analytics, a market and strategic intelligence analyst related to the Internet of Things business, compiled the main events of the past year in this segment.

Overall, it can be said that the IoT market in 2023 remained stable, with the number of connected IoT devices reaching around 16.7 billion. The public relevance of the term “IoT”, which peaked in the first quarter of 2022, has continued to attract strong interest, also remaining around 10% to 20% below the aforementioned level. It was noted, however, that the term “IoT” in the disclosure of companies’ financial results fell by 16% when comparing the fourth quarters of 2023 and 2022. According to IoT Analytics, “IoT” is no longer just a buzzword, but is quietly growing.

Specifically in the field of IoT platforms, Google’s announcement in August 2022 that it would close its Google IoT Core service within a year became a reality in 2023. On its website, Google lists a number of suppliers who can provide similar services. On the other hand, competitors Microsoft and AWS have expanded their IoT services in the cloud in 2023. Other companies will also be part of the market.