Transport IoT - How the Internet of Transportation Things is expanding the addressable market

ANALYST REPORT

TRANSPORT How the Internet of Transportation Things is expanding the addressable market for fleet management

IN ASSOCIATION WITH:

ANALYST REPORT

The author is Rickard Andersson, a senior analyst at Berg Insight

The Internet of Transportation Things expands the addressable market for fleet management

Infrastructure and applications for fleet management solutions Fleet management is an ambiguous term used in reference to a wide range of solutions for different vehicle-

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related applications. Berg Insight’s definition of a fleet management solution is a vehicle-based system that incorporates data logging, satellite positioning and data communications to a back office application. At a high level, the infrastructure for fleet management can be divided into four segments including the vehicle segment, GNSS segment, back office segment and network segment. ▼

The commercial fleet management (FM) market is impacted by a number of trends, including several developments that can alter the market conditions for solution providers and associated players in the coming years.

Multiple parallel market and technology shifts that are currently transforming the fleet management industry may in the longer term create a playing field characterised by a new type of market dynamics. According to Berg Insight’s research in the space, the fleet management market is in the coming years expected to continue along a consistent growth trajectory which has prevailed in the past decade, largely driven by international telematics giants offering increasingly sophisticated solutions to customers of all shapes and sizes. The market is at the same time gradually extending as new and improved functionality is implemented on a wide scale across an ever-increasing range of asset types.

Fleet management infrastructure overview

Vehicle segment • All vehicles connected to the FM solution need to have a combined satellite positioning and wireless communications unit.

GNSS segment • The FM solution relies on public global navigation satellite systems such as GPS and GLONASS for accurate positioning of the vehicles.

Backoffice segment • Behind a data communications gateway, a wide range of standard and third-party applications may have access to data from the vehicles.

Network segment • Wireless wide area networks are employed by the FM solution for data transmission. Cellular mobile networks are currently the most widely used.

Figure 1: Berg Insight divides the fleet management infrastructure into four segments

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On the application level, fleet management solutions include numerous feature sets for various types of commercial vehicles. Typical high-level categories include vehicle management, driver management, operations management and regulatory compliance and reporting.

Each category includes different subsets of fleet management functionality, some of which are generally applicable for all types of fleet segments while others are specific for certain operations.

Vehicle management • Remote diagnostics • Maintenance planning • Security tracking

containers and other logistics units such as individual pallets or even cargo boxes. Growing at an overall expected compound annual growth rate (CAGR) of 19%, the market is forecasted to increase from 40 million active fleet and asset management systems in 2016 to reach almost 100 million systems in 2021. Fleet management for commercial vehicles is clearly the largest segment, estimated to account for more than 90% of the total installed base of active systems. Trailer tracking is furthermore currently the second largest category ahead of intermodal containers. The latter however represents a highly promising emerging segment which is anticipated to outpace both commercial vehicles and trailers in terms of growth in the coming years, thus surpassing the trailer segment when it comes to the number of active systems by 2021.

Driver management Fleet and asset management systems by segment (World 2016-2021)

Driving data registration and analysis Video-based driver monitoring Eco-driving schemes Insurance risk management

Operations management • Routing and navigation • Transport management • Mobile workforce management

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Active units (millions)

• • • •

75

50

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Regulatory compliance and reporting Drivers' working hours Digital tachograph data download Distracted driving Electronic toll collection

Figure 2: Major applications for fleet management

The global fleet and asset management market In a transport context, the broader fleet and asset management market includes various telematics and tracking systems deployed for monitoring and management of different types of commercial motor vehicles as well as trailers, intermodal containers and other transportation-related assets including air freight cargo

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0 2016

2017 Commercial vehicles

2018 Trailers

2019 Containers

2020

2021

Others

Figure 3: Fleet management for various motor vehicles in commercial use is a considerably larger market than tracking and monitoring solutions for trailers, containers and other transportation-related assets

The world’s largest fleet management solution providers The fleet management market is populated by hundreds of telematics players worldwide. The majority of the aftermarket FM providers are small local players with installed bases in the range of a few thousand units up to

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• • • •

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ANALYST REPORT

The leading North American telecommunications provider Verizon has as a direct result of an ambitious acquisition strategy in 2016 captured the pole position after investing some US$3.5bn dollars to attain leadership in the fleet telematics space. The amalgamation of Verizon’s Networkfleet, Telogis and Fleetmatics operations under the same ownership has clearly cemented the US-based carrier as the overall leader from a global perspective – ahead of the closest competitor by a factor of around two – with an estimated fleet management subscriber base in the range of more than 1.7 million vehicles in total. While the North American market accounts for the lion’s share of the subscribers, the international presence is far from negligible given the acquired businesses’ expansion efforts especially in recent years.

Active units (millions)

2.0

Top 10 fleet management providers globally (2016)

1.5

1.0

0.5

Masternaut

Teletrac Navman

Zonar Systems

Arvento Mobile Systems

Geotab

TomTom Telematics

Trimble

Omnitracs

Gurtam

Verizon

0.0

Figure 4: The global top-10 providers together have more than seven million active units worldwide

The runners-up include the Belarusian software player Gurtam, hitting one million assets connected to its Wialon system in late 2016 with the vast majority represented by commercial vehicles, followed by the US-based pioneer Omnitracs (formerly Qualcomm Enterprise Services), the major location-based solution provider Trimble and the

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European market leader TomTom Telematics. The latter is a business unit of TomTom dedicated to fleet management, vehicle telematics and connected car services having around 700,000 vehicle subscriptions in total. Geotab, Arvento Mobile Systems, Zonar Systems and Teletrac Navman are additional vendors which have surpassed half a million vehicles under management. In addition to various types of self-propelled commercial vehicles, the adjacent market of trailer-focused tracking and telematics solutions is served by some of the abovementioned FM players as well as more specialised providers. More than 200,000 of Omnitracs’ active units are represented by trailers and to some extent intermodal containers used in transportation. SkyBitz and ORBCOMM are together with Omnitracs the leading North American players in this space, followed by Spireon and I.D. Systems. In Europe, key trailer telematics players include Idem Telematics, Blue Tree Systems, Schmitz Cargobull and Novacom, while Mecomo and Agheera are strong vendors in the closely related swap body segment.

Regional market characteristics and trends The fleet management sector is gradually becoming more international and many of the largest fleet management players in terms of subscriber base today operate on the global arena. There is nevertheless still a fair level of discrepancy between different regional markets including continents and countries – and sometimes even within larger countries – both in terms of the propensity to adopt fleet management technology altogether and in terms of the specific types of applications that are favoured by the fleets operating on the markets. This may to some extent still favour local niche players over global giants, at least in the near-term. Many of these local variations between geographies are still expected to prevail in the foreseeable future, albeit to a decreasing extent as the market matures and offerings become more standardised.

If aiming to provide a simplified contemporary snapshot of the industry at large, North America is established as a front-running region still having considerable momentum, while Latin America remains a fragmented market with strong security focus. Western Europe is one of the most mature fleet telematics markets in terms of adoption alongside North America, and large multinationals and local providers coexist with strong OEM players in this market. Eastern Europe is largely trailing the neighbouring markets in the west, while Russia and the CIS represent a financially troubled market which has proved difficult especially for foreign fleet telematics players. Similarly to Eastern Europe, the expectations for the future fleet ▼

50,000 units. Most companies are only active on their respective domestic markets and neighbouring countries.

A number of major fleet telematics players have however emerged which are active regionally or internationally with significant customer bases. The top ten FM providers globally together have a total active installed base of more than seven million units.

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The once groundbreaking fleet telematics vertical is still a high-pace IoT market favoured by several positive developments Commercial vehicle telematics and fleet management is in many respects one of the pioneering IoT verticals, representing an early application area of M2M/IoT technology dating back to the 1980s. The fleet management market for commercial vehicles has developed significantly over the past decades, impacted by general trends such as the transition from client/server software licenses to SaaS-based business models and the increasing integration of mobile devices and applications as part of the infrastructure which goes hand in hand with a general commoditisation of hardware across industries.

The short-term outlook for the fleet management industry is positive due to multiple favourable developments on the market.

There is however still a long way to go before the technology is implemented among all potential beneficiaries. Particularly micro businesses have historically proven difficult to reach, even with low-cost propositions. Among large businesses there is now a high awareness of the benefits with telematics, but decisionmaking and implementation can still take considerable time. SaaS offerings with low or no upfront capital costs

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and significantly easier deployment processes – including self-install plug-and-play solutions coupled with webbased back office access charged only by recurring fees – have however become increasingly common also in this space, thus lowering the barriers to adoption for fleet customers of all sizes.

Vehicle OEMs and aftermarket providers partner for factory-installed telematics Berg Insight’s long-term vision for the fleet management market is a clearer division of tasks between the different roles in the value chain, which enables free flow of data between vehicles and applications. The hardware will inevitably become fully integrated with the vehicles. A factory-installed on-board telematics device should be capable of uploading data to an online repository from where the information is available to any application permitted by the vehicle owner. Many different kinds of players will aspire to the role of gatekeepers, controlling access to the vehicle data. This role is today firmly associated with the system vendor which generally operates as an end-to-end solution provider.

In the future, open data interfaces are likely to give fleet owners more control over where data is sent. Any supplier of on-board telematics solutions – whether they are OEMs or aftermarket vendors – will however try to gain control of the data and build a business around providing others with access to it. Due to the complexity and rigidity of the automotive industry, some of these attempts may succeed and enable individual players to take control over information flows to and from vehicles. Some existing fleet management solution providers may gradually assume this role, working in partnership with OEMs whose weak spot always will be the ability to collect data from mixed fleets.

There are now numerous OEM telematics offerings from vehicle manufacturers in different regions, provided either independently or in collaboration with third parties including leading aftermarket fleet telematics providers.

These OEM solutions are expected to continue to achieve increased adoption and to an even greater extent be delivered as standard features. Examples of in-house developed OEM fleet telematics systems include Scania Fleet Management, Daimler’s FleetBoard and Volvo’s Dynafleet which are all results of mainly internal R&D efforts and were similarly all first introduced on the European market – where the systems are today available as a standard fitment – followed by subsequent ▼

management market in Russia and the CIS however also include a continued gradual convergence with the developments in Western Europe. In Africa, South Africa stands out as a highly mature telematics market and the country is clearly the front-running market on the continent, being the home of multiple renowned international fleet management solution vendors. The major Chinese market is further best described as challenging and highly price-sensitive with major untapped potential, so far largely favouring local telematics providers. Berg Insight nevertheless expects that there are lucrative future business opportunities for Western FM providers in China if adapting to the local market conditions. Despite its remote location in the Southern hemisphere, Australia and New Zealand is a market where the English language has likely had a strong influence in establishing the region as a rational point of entry for FM providers seeking to expand on the international arena. Australia and New Zealand are also similar to other Commonwealth countries from a cultural perspective, and a number of players, such as those from the UK, South Africa and Canada, have introduced their solutions to this market.

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ANALYST REPORT

Berg Insight anticipates that the partner strategy will continue to grow in popularity among the commercial vehicle manufacturers across all markets at the expense of in-house telematics development efforts. Some vehicle OEMs have in recent years even started to invest in providers of FM software and hardware. GM Ventures made an equity investment in Telogis in 2014 and Daimler Trucks North America became a minority investor in Zonar in 2015. Deals of this kind bring the aftermarket providers closer to the OEMs and similar developments are also expected to occur in other constellations in the future.

Industry consolidation leads to the emergence of global telematics giants Fleet management solution providers come in all shapes and sizes, and the market is served by diverse players ranging from micro businesses laser-focused on specific FM features to multinational conglomerates for which fleet management is only one of many business areas. The abundance of vendors offering seemingly similar solutions in terms of functionality has resulted in intense competition, sometimes pushing pricing to a point where there is limited room for profitability. In line with increasing market maturity, the fragmented industry has entered a phase of consolidation and M&A activities have been common throughout the last decade.

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The most notable deals in the past 12 months undoubtedly include Verizon’s acquisitions of both Telogis and Fleetmatics in 2016 which together clearly position the leading US mobile operator as the largest fleet management provider in the world. The fleet management market has overall become increasingly international over time as an effect of geographic expansion efforts in general and particularly cross-border M&As among the solution providers. Fleetmatics is one great example of a fleet management provider expanding its international footprint considerably while at the same time diversifying the product portfolio by acquiring numerous local players in the past years. The list of acquired businesses includes Australia-based Connect2Field in 2013, Italy-based KKT in 2014, the French vendor Ornicar as well as Visirun in Italy in 2015, and most recently Portugal-based Inosat and Gemany-based TrackEasy in 2016. While Fleetmatics has dominated the North American fleet management market in terms of subscriber base for a number of years, TomTom Telematics has a similar position in Europe. The Dutch navigation leader’s Telematics business unit has over time expanded across all of Europe and beyond through organic growth in combination with selective acquisitions including Coordina in Spain, DAMS Tracking in France, Fleetlogic in the Netherlands and Finder based in Poland. These deals have together contributed considerably to extending both the subscriber base and the geographic footprint of TomTom Telematics, and the company remains on the lookout for similar additional acquisitions.

Fleet Complete (Complete Innovations) has also been very active in M&As, acquiring fellow Canadian company FieldWorker Mobile Technology Solutions and Netherlands-based ITmobile in 2015 and subsequently continuing its global expansion through the acquisition of Australia-based Securatrak in 2016. Most recently in 2017, Fleet Complete acquired BigRoad which is also based in Canada and offers affordable solutions for hours-ofservice (HOS) and electronic logging device (ELD) compliance in line with existing and emerging regulations in the North American trucking space. This deal was announced as recently as in late March 2017 and the company aims to maintain the BigRoad brand. The integrated solution will moreover be offered for FleetComplete’s customer base enabling ELD compliance for clients of all sizes in time for the December 2017 deadline. Additional eye-catching transactions in the past year include Continental’s acquisition of a majority stake in Zonar Systems in 2016. Upon completion of the acquisition, Continental has communicated that it will further expand its existing product, solution and service ▼

international roll-out in various regions. North American OEMs have favoured working with partners to a greater extent than their European counterparts. Paccar’s USbased Kenworth and Peterbilt brands for example both offer factory-fitted solutions powered by PeopleNet (Trimble), while Daimler Trucks North America similarly installs systems from Zonar Systems in Freightliner and Western Star trucks as well as buses from Thomas Built Buses on this market. A wide range of other manufacturers are working with Telogis (Verizon) which is following a strategy of partnering with commercial vehicle and equipment OEMs. The company currently powers various offerings for vehicle manufacturers such as Hino, Volvo Trucks, Mack, GM, Isuzu and most notably Ford since 2011. Gradually aiming for global availability, Ford Telematics powered by Telogis was first introduced in the US and Canada followed by the European market starting in the UK and later Germany. The most recent additions to Telogis’ list of OEM partners include Nissan Europe and Mitsubishi Fuso Truck of America following announcements in Q4-2016 and Q1-2017 respectively.

Telogis plans to grow the businesses associated with its various OEM relationships which have been claimed to represent almost 20% of the company’s business.

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The ongoing consolidation trend in the fleet management space is expected to continue in the coming years, with additional blockbuster transactions as well as smaller strategic deals foreseen in the near-term. Numerous providers today have more than half a million active FM subscribers globally and the milestone of one million subscriptions has now been surpassed in the past year, driven by growth strategies combining aggressive M&A activity with high-pace organic growth. In line with a longterm prediction set out already a few years back, Berg Insight has confidently anticipated a future scenario where the global fleet management market is dominated by a handful of providers with installed bases measured in the millions.

Hardwired, mobile and hybrid telematics systems to co-exist One of the strongest technology trends in the fleet management industry is currently the shift in the telematics hardware footprint towards mobile solutions.

The integration of both ruggedised and consumer-grade smartphones and tablets as in-cab options and complementary access interfaces is a development seen both for low- and high-end fleet management systems.

This is related to technological advancements enabling sophisticated software to be deployed on an increasing variety of standard devices, leading to a general commoditisation of telematics hardware. Basic offerings mainly aimed at ensuring compliance with regulations, particularly in North America, constitute one area where mobile solutions are expected to become increasingly commonplace and cannibalise on conventional blackboxbased systems. Such basic functionality has proven possible to deliver using standard smartphones and tablets, e.g. by connecting low-cost dongle-like devices that interface with the vehicle but leverage the handset’s communication capabilities. Turnpike which was acquired

by Xata (XRS) which is in turn itself part of Omnitracs today represents an early example of an established provider choosing this hybrid-type strategy combining handset applications and affordable hardware with tethered connectivity. Similar setups as well as fully appbased solutions are predicted to support an everincreasing range of FM applications previously delivered using traditional on-board systems.

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Leading providers are in the short- to medium-term future envisioning a hybrid model where mission critical applications are deployed on dedicated ruggedised commercial-grade hardware, whereas less demanding functionality can be delivered on existing smartphones and other portable devices. A distinction can for example be made between vehicle-associated and driverassociated applications, where the latter tend to lend themselves better to mobile platforms than the former which still demand dedicated hardware at least for highend functionality. App-based mobile-only solutions – available from players such as Hellotracks and Fleetio from US$10 or less per unit and month with no hardware costs beyond the drivers’ phones – can however naturally be a relevant choice for fleets with basic needs and as a first inroad into investing in FM technology. Entry-level functionality is sometimes even offered for free from providers aiming to upsell more advanced features at a recurring fee.

ELD mandate spurs inflow of new players and solutions on the FM market In the US, recent years have seen the emergence of numerous new players offering various types of electronic logging solutions in line with the regulatory developments around HOS monitoring aimed at replacing paper-based logs. Several players have started out with fully app-based logging solutions and later introduced associated optional hardware to ensure compliance with the current AOBRD rules and the coming ELD regulations when enforced, such low-cost devices that connect to the ECM of the vehicle.

Examples include BigRoad and Keep Truckin, enabling fleets to start out with free logbook apps for drivers with the option to upgrade to benefit from more advanced functionality including hardware-based ELD compliance and additional features charged by recurring fees.

Now part of Fleet Complete, BigRoad already serves over 30,000 fleets in North America and has reached more than 480,000 downloads of its mobile logging app.

BigRoad offers a free app-based logging solution for drivers, with a web-based back office application available at US$15 per month and user. The optional DashLink device offered as an upgrade priced at US$10 per month enables FMCSA-compliant and ELD-ready logs by connecting to the engine and integrating with the driver app using Bluetooth connectivity.

Continental has introduced the dedicated VDO RoadLog ELD device which is marketed as an affordable and simple way to ensure FMCSA compliance. The basic non▼

portfolio in the area of mobility services for fleet management of commercial vehicles. Daimler Trucks North America is notably retaining its minority stake in Zonar which will continue to be an integral part of its connectivity solutions.

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ANALYST REPORT

Video-based solutions permeate the fleet market A key trend over the past years has been increasing integration of cameras in commercial vehicle environments. Cameras can be installed in trucks and other types of vehicles for a range of different purposes.

Basic dash cams represent an entry-level type of application similar to conventional CCTV applied in a vehicle context, primarily used for follow-up of incidents and to allocate blame for insurance purposes. There are also more sophisticated solutions that employ multiple cameras to enable a 360 degree view of the exterior of the vehicle, thus for example eliminating blind spots.

Video-based solutions for driver behaviour monitoring can further use in-cab cameras of different types.

Video-based solutions for driver behaviour monitoring can further use in-cab cameras of different types. Road-facing cameras can detect events related to for example lane departure and following distance which can be indicative of undesirable driver behaviour. Video-based driver risk management solutions can also leverage driver-facing cameras. Various types of triggers are commonly used to start saving video recordings. In many cases, video clips covering a predetermined interval before and after an incident are subsequently saved as opposed to continuous recordings. This enables follow-up of root causes of driver

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behaviour while at the same time limiting the intrusiveness in terms of privacy for drivers.

The video recordings can be used for post-drive coaching of personnel to improve driving performance. There are also solutions that include elements of direct in-cab driver feedback in various ways such as visual and audible alerts and vibrations, thus enabling drivers to correct their behaviour in real-time and thereby avoid potential incidents. Some advanced video-based solutions leverage continuous eye and facial tracking to detect and prevent driver fatigue and distraction in real-time using sophisticated algorithms.

Video-enabled solutions for driver monitoring are offered by a variety of different players and there are a range of providers focusing specifically on different types of camera-based solutions. Aftermarket providers for example include Lytx and SmartDrive Systems which are based in the US and have expanded to various international markets. Both these companies have for example entered the European market, starting in the UK where local offices have been established. Also Australiabased, Seeing Machines has entered the UK in addition to the Americas and is now eyeing the European market.

Additional players active in the market for video-based driver monitoring solutions for example include Guardvant and Safety Vision.

The new possibilities enabled by video in the fleet space have also caught the attention of the traditional fleet telematics providers. Numerous fleet management players have introduced or are planning to launch integrated video-based solutions as part of the solution portfolios.

Some FM players choose to develop their own video capabilities in-house whereas others work in partnership with established providers from the video sector. Also Tier 1s have activities in this market as part of their vehicle safety solutions. Vehicle OEMs are in the future expected to increasingly integrate various video-based technology solutions as part of the overall offerings. â–ź

connected version is offered without monthly fees and contracts, featuring a built-in printer that can be leveraged in case of roadside inspections. The drivers log in to the system using USB drives enabling them to carry the data with them. A more advanced version of the solution adds cellular connectivity, enabling automatic upload of the compliance data to the backoffice software. Additional features beyond ELD compliance are moreover offered.

Mandated ELD functionality can in many cases be a first entry point into fleet telematics. Fleet owners are increasingly expected to make a gradual move beyond the legally required functionality to also adopt other types of efficiency and safety enhancing services offered by their ELD providers.

IoT Now - April / May 2017

ANALYST REPORT

FM players increasingly serve new asset types in the transportation sector Another trend that has surfaced in recent years includes a diversification among providers of fleet management solutions for commercial vehicles to also support other types of assets. In line with a development sometimes dubbed as the Internet of Transportation Things, several solution providers now offer integrated solutions that can be deployed across off-highway vehicles, non-powered assets and other non-vehicle fleets in addition to the conventional commercial vehicle types traditionally targeted by FM providers. This enables fleet owners to monitor and manage all of their business-critical assets through the same backoffice interface, using familiar applications and reporting tools.

The development at the same time enables fleet telematics providers to maintain subscriber growth as mature markets eventually approach peak penetration.

The telematics penetration is for example already comparably high in the heavy truck and trailer segment especially in mature markets such as North America, but the same cannot be said about most other types of assets.

Asset tracking thus represents a heavily underpenetrated market with considerable potential for telematics providers that are ready to broaden the product offering.

Many other players active in the general fields of big data and the Internet of Things may also start eyeing this market. www.berginsight.com

About the author Rickard Andersson is a senior analyst at Berg Insight, which he joined in 2010. His current focus at Berg Insight is the telematics market and he has authored a wide range of reports on various telematics topics including fleet management solutions and intelligent transportation systems, covering geographies such as Western Europe, Eastern Europe, Russia and the CIS, North America, Latin America, Australia & New Zealand and China. He is also currently researching the market for insurance telematics in Europe and North America. Andersson holds an MSc degree in Industrial Engineering and Management from Chalmers University of Technology.

About Berg Insight Berg Insight is dedicated M2M/IoT market research firm based in Sweden. We have been specialising in all major M2M/IoT verticals such as fleet management, car telematics, smart metering, smart homes, mHealth and industrial M2M since 2004. Our vision is to be the most valuable source of intelligence for our customers. Berg Insight can offer numerous market reports, detailed market forecast databases and advisory services. We provide custom research tailored to your requirements including focused research papers, business case analysis, go-to-market strategies and bespoke market forecasting.

Our clients include many of the world’s largest mobile operators, vehicle OEMs, fleet management solution providers, wireless device vendors, content providers, investment firms and venture capitalists, IT companies, technology start-ups and specialist consultants. We have provided analytical services to 850 clients in 70 countries to date. www.berginsight.com

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