M2M 2.0: Market, Business Models, and Telcos’ Role(s)

Summary: Our latest report on M2M 2.0 covers: M2M market growth, structure and dynamics; business models; the best role(s) for telcos; and leading thinking from Deutsche Telekom, Vodafone, Telenor, KPN and Swisscom. It describes how ‘Service Enablers’ are key to the telco opportunity in M2M in addition to connectivity. (July 2011, Executive Briefing Service)

M2M Pie Chart Service Enablers July 2011

Below is an extract from this 39 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. Non-members can buy a Single User license for this report online here for £595 (+VAT) or subscribe here. For multiple user licenses or other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

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Background

Our previous M2M 2.0 research includes: M2M 2.0: New Approaches Needed; Aligning M2M with Telco 2.0 Strategies; and M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options. M2M is also a theme of the upccoming New Digital Economics Exeutive Brainstorms in H2 2011, and there is a thought-provoking video (registration required) by Ericsson on the ‘Social web of things‘ on our Best Practice Live! site.

It’s a Long Way to the Top

The grand vision of 50 Billion connected devices looks a long way distant when contemplating the ‘cottage industry’ that is M2M today.

While there are lots of possibilities for connecting devices usefully, there are numerous challenges to doing it well and growing the market to its full potential:

There are many different networks may be used for M2M – cellular, WiFi, WiMax, fixed, Bluetooth and other radio networks;
The needs of existing and potential M2M customers are very diverse;
There are many different types of potential M2M connectivity and services providers, from vertical specialists, through fixed and mobile telcos, other network owners, and device makers;
There are many diverse M2M devices, some with have 30 year life-spans, others lives measured in months;
And massive growth in intelligent devices that can increasingly choose different networks for different applications.

There are also industry barriers to the take-up of current offerings, such as

The lack of common, global, flexible solutions;
Performance and cost issues;
A low base of user and potential awareness and understanding.

Figure 3 (Extract) – The Key Challenge for M2M Growth is to Create a Broad, Open Market

M2M 2.0 rating of the industry barriers to M2M adoption

Source: Delegate Vote, 11th Telco 2.0 EMEA Brainstorm

More Money is in Service Enablers

It is our view (and that of the attendees at our last M2M brainstorm) that the pure connectivity revenues (to be paid for delivering the data from machine to machine) will become highly commoditised and low margin.

The “growth opportunity” will be in Software Enabling Services (SES), responsible for such activities as device provisioning, update/rollback of device software and firmware, data-warehousing, and some forms of data reduction pushed down into the network. These could be delivered traditionally or as Software-as-a-Service (SaaS).

How much Money, and for Whom?

The complex driving and structural factors lead to a high degree of uncertainty in the Industry’s view of the market opportunity. For example, on average, delegates thought that by 2015, service enabler revenues would comprise a value of 78% of connectivity revenues – although this average was formed by a large group that thought it would be in the range 20-40% and a small minority that thought it would be much higher (>200%)

What role(s) should Telcos play?

Operators can add value by making it easier to use their connectivity and providing more “M2M-friendly” interfaces – often described as managed connectivity. Beyond this, they can look to create and participate in the service enablers market for developers/application providers to easily identify, authenticate, provision, and maintain their device fleet; to update and rollback software on the devices and enable them to deploy processing logic into the “Internet of things” in order to render the system more robust, distributed, and autonomous.

Some operators already have the skills and resources to offer the application development, implementation and service hosting on top of this. Summarised in the report are examples of leading thinking and practice including Vodafone’s Global M2M Platform, Telenor Objects, Deutsche Telekom’s ‘Intelligent Network’, KPN’s and Swisscom’s platforms, plus we have previously reported on Verizon’s Open Development Initiative (ODI) in the US.

Figure 7 (Extract) – Why The Classical Approach to M2M May Fail

M2M 2.0 Why the classical approach may fail July 2011

Source: Telenor Presentation

The industry as a whole has made rapid progress but could do much more to stimulate the embedded mobility market and drive growth through standards, interoperability and portability. The industry’s historical reluctance to do more to open itself up has left it vulnerable to being marginalized. The GSMA’s recent acceptance of over-the-air (OTA) SIM update, opens up the promise of more practical ways for an M2M customer to switch operator. It now rests on the industry (or failing that, the regulatory authorities) to deliver this promise.

Telco 2.0 Take-Out & Next Steps

M2M is growing up as an industry, and becoming more coherent and adopting increasingly similar concepts and vocabulary. However, as the wide variation in voting testifies, there is still considerable divergence in understanding and vision.

The M2M Opportunity is potentially significant but does not necessarily belonging to cellular networks, particularly if the industry does not work out how to create more common models that allow customers to use M2M in the way they actually need to use it – flexibly, seamlessly and cheaply.

While there is much energy in the debate on Machine-to-Machine in the operator community, there is widespread recognition that it is still something of a ‘cottage industry’ for operators at present, and a welcome sense of realism in that operators seem to understand that they don’t have all the answers. The core strategic challenge is to find a model that will scale beyond bespoke vertical industry applications.

While there is not yet a straightforward consensus on the relative value of service enablers compared to connectivity, our view remains that telcos need to develop the service enabler model as the connectivity market will be highly commoditised. We will continue to work to support this community, develop the service enabler model, and promote collective industry progress on M2M.

To read the full 39 page report, including analysis of the presentations, voting and delegate analysis from the M2M 2.0 Executive Brainstorms in April 2011, and London in November 2010, and the following charts…

Figure 1- T-Mobile’s Forecast of European M2M Markets
Figure 2 – Vodafone’s Global M2M Platform
Figure 3 – The Key Challenge for M2M Growth is to Create a Broad, Open Market
Figure 4 – What is the best service enabler opportunity for telcos?
Figure 5 – Will connectivity and generic horizontal service enabler platforms emerge and define the market?
Figure 6 – What are the priorities for the industry in developing M2M opportunities?
Figure 7 – Why ‘classical’ approaches to M2M may fail
Figure 8 – Horizontally layered approach needed
Figure 9 – KPN Development Platform
Figure 10 – Forecast share of service enabler revenue by type of player
Figure 11 – 2015 Global Service Enabler vs. Connectivity Revenues
Figure 12 – Issues for the ‘Internet of Things’
Figure 13 – Operator opportunities in the ‘Internet of Things’
Figure 14 – How would you characterise Ericsson’s vision of the Social Web of Things?
Figure 15 – What percentage of connections will be made by cellular mobile networks in 2020?

……Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 39 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for £595, or for multi-user licenses and any other enquiries please email contact@telco2.net or call +44 (0) 207 247 5003.

Organisations, products and industry terms referenced: API, ARPU, Beecham Research, Bluetooth, Bosch, BT / Arqiva, Cincius, connected car, Deutsche Telekom, Embedded Mobile, energy, Enfora, Ericsson, Facebook, GSM, GSMA, healthcare, HLR, HTTP, IMSI, Indesit, intelligent networks, Internet of things, iPhones, Kindle, KPN, Logica, M2M, messaging, m-health, MNC, MVNE, MVNO, Novatel, Objects, Open Development Initiative, Orange, OTA, OTT, platforms, roaming, SaaS, Service Enabler, SIM, smart grid, SMS, Social Web of Things, Software-as-a-Service, spectrum policy, standardization, strategy, Swisscom, Telenor, Telenor Objects, T-Mobile, transport, USIM, Verizon, Vertical, Vertical M2M, Vodafone, WiMAX, Zigbee.

M2M 2.0: New Approaches Needed

Summary: the M2M market structure is evolving rapidly and new roles and requirements are emerging that are unaligned with much current telco practice. What must telcos do to avoid missing out and potentially inhibiting the market overall?

Logged-in members can download this 15 Page Analyst Note here in PDF format. Non-members please see here for details of the service and how to join, or call +44 (0) 207 247 5003 / email contact@telco2.net.

Introduction

This note summarises some of our recent work on M2M, and we will cover the developments on this topic at our 2011 Executive Brainstorms, and online at Best Practice Live! on 2-3 Feb 2011.

Context

This note draws on the study Aligning M2M with Telco2.0 Strategies exploring which elements of the M2M ecosystem are appropriate to given operator strategies and drawing on the experience of Linux. Enterprise 2.0: Machine-to-machine – opening for business is a Telco 2.0 summary and analysis of recent developments, including an advanced case study from Telenor Objects and new research from Intel, Ericsson and SAP. M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options gives an overview of the market, focusing on the cost-crisis needs of the Healthcare Sector, and reviewing strategic options for Telcos and other communications industry players. We’ve also created a new M2M and Embedded category on this research portal.

Machine to Machine: Telcos’ next Goldmine?

Defining Machine-to-Machine

Machine to Machine (M2M) is the term used by the cellular network industry to describe the business of connecting devices other than phones, laptops and similar consumer devices, over cellular networks. Although definitions vary, mobile communication is deemed to be M2M largely by virtue of the type of device connected. In broad terms, communications is deemed to be M2M when it is between an application and a device for which the connectivity is required to deliver the application, but is not considered an application itself (e.g. Amazon Kindle, Point-of-Sale card reader).

M2M communications	Traditional Cellular communications
Connected sensors and actuators Logistics modules (asset tracking) Smartmeters Medical devices Dedicated application consumer devices (E-readers, navigation devices) Remote camcorders / CCTV cameras	Mobile phones Data cards and USB “dongles” for PCs Multi-functional personal “compunicators” (Tablets, MIDs)

The history

Historically, M2M has applied to major projects that integrate software, hardware and connectivity for integrate SCADA (supervisory control and data acquisition) industrial, facilities or specialised logistic applications. M2M communications payload has also tended to involve limited volumes of control and status data flows, characterised by primarily upstream narrowband traffic rather than downstream broadband.

For most operators, M2M has been a relatively minor sideline, accommodated alongside the core subscriber business. There has subsequently been limited investment by operators in dedicated M2M capabilities, functionality, support or distribution. Some operators, with well-developed systems integrator (SI) capabilities have included M2M connectivity as part of wider solutions, but they have done so no differently from any SI would.

The opportunity – Beyond point solutions

For years, M2M has been plagued by the promise of vast potential that seems forever “just around the corner”. A recent spate of bullish forecasts has renewed interest. Furthermore, a number of significant projects (e.g. Smartgrids) heralds significant potential increases in demand. Operators have responded with recent activity geared to better addressing the needs of M2M application providers.

Given the relative size and wide variety of applications the “vertical” industry-application, a point-solution approach has been inevitable. It has served its purpose well. However, this approach requires considerable expertise to be built-up by application developers and application providers that find it expensive to develop and implement point applications across many device types, especially if these are connected by different communication links. The additional cost (or inflexibility, for those not wishing to incur this cost) of supporting variety of devices and connections continues through development and implementation into support and maintenance.

Yet, this is precisely the kind of situation that we would anticipate emerging with the “Internet of Things” that are implicit in the heady forecasts: applications connecting millions of instances of thousands of different device types, over more than one communication technology. All this, delivered by developers whose interest and expertise lies elsewhere than in mastering device or bearer-specific APIs. Just as for computing, the “Internet of things” will need support ongoing change in devices and communications in a generic (ideally open) fashion.

The challenge for Telcos – making it happen and securing a share of the value

Network operators’ challenge is to facilitate the growth of the M2M market and still secure a sizeable share of the value generated. The concern is that their role could be marginalised to that of suppliers in a commoditised and very competitive connectivity market.

M2M customers (primarily application providers and developers) have had to work with different operators in each territory and been presented with various levels of support infrastructure and interfaces. This has made it extremely complex and expensive to roll-out M2M applications across a region such as Europe. This regional requirement not only applies to logistics functions (connect devices that move across regions), but also applications for “static” devices which are being rolled-out and supported across a region: a typical situation for many businesses. For example, when Amazon sought to introduce its Kindle across Europe, it was frustrated by the absence of a single commercial or commercial platform. Amazon eventually contracted AT&T (an operator with no network presence of its own in Europe, only roaming agreements) to provide the service that European operators could not.

Making it easier to use M2M connectivity

Operators have been working hard to make their connectivity more “M2M-friendly”:

Developing “one-SIM” regional (or even global) coverage. This has primarily been achieved through roaming and/or MVNOs. Larger operators have been able to leverage their assets across multiple territories, smaller ones have worked with aggregators and roaming agreements.
Providing dedicated M2M managed connectivity resources (people, services and platforms) to customers. Some of these have been developed internally, others have been secured through partnerships with aggregators and service platforms such as Wyless or Jasper Wireless.

These developments represent a real step forwards for the industry and signs of the market “growing-up”. These initiatives have been focused on making (generally only one type of) connectivity easier to use. Customers looking to support multiple devices over multiple bearer networks are still faced with an array of fragmented technical and commercial challenges and limited flexibility in combining these.

Making it easier to develop, launch and maintain applications…. flexibly

The emergence of open, ubiquitous general purpose technologies will make it possible to develop, launch and maintain new applications with dramatically lower needs for capital and lead times. This would potentially be an open-source technical stack, analogous to the LAMP (Linux/Apache/MySQL and one of Perl, PHP, or Python) stack ubiquitous on the Web.

This should lead to an explosion of new M2M application providers. New players, ranging from start-ups to established “un-connected” product brands are better able to integrate connectivity into the offers applications and services to final customers and also to each other. Typically, they would collectively source connectivity, hardware, software & services and sell tailored applications to end users – the main variation between them being how far along the chain from raw material to finished product they work.

This new market, like the World Wide Web before it, would be critically dependent on interoperability and interconnection, achieved through open standards. To quote a key Telco 2.0 principle – “The development of new common technical and commercial platforms across Telcos, which create economies of scale required to deliver a ubiquitous solution to upstream customers.”

This note therefore describes the emerging M2M market structure, characterises the business models and value networks within it, speculates about its potential future evolution and draws conclusions as to what operators can do in order to benefit from it.

Structure: M2M as a Value Network

In this analysis we use a model that defines businesses in terms of their place in a value network, and that begins with raw materials (like mineral ores) and ends with the finished product and the customer. The illustrative example is gold – we begin with the goldmine and the miners, digging the ore out of the earth, we see it refined into semi-manufactured bullion, which is worked into wholesale components products, which the jeweller finally customises according to the customer’s needs.

Figure 1 – Where to play in the Value Network?

AN%20-%20Telecoms%202015%20charts%20Gold.png

Source: Telco 2.0

Each step in the process is linked with a very different type of business; notably, the left hand side of figure 1 tends to involve very large and capital-intensive firms, whose assets are usually very fixed – nothing, after all, is more fixed than a deposit of gold-bearing rocks. As the process proceeds, the minimum efficient scale tends to fall, and the optimal mix of assets changes; at the very far left, they are dominated by land, then by physical plant, then by intellectual property, and finally by human capital and intangible goods like knowledge of the customer.

To read the rest of this analysis, covering…

Applying the gold analogy to M2M
Managed Connectivity and Service Enablement Layers
Roles: Specialisation vs. Scale
Where should telcos seek to serve?
Future Evolution
How must the telco industry meet the challenges?

…and including…

Figure 1 – Where to play in the Value Network?
Figure 2: Distinguishing between the layers
Figure 3 – Mapping the emerging M2M Players
Figure 4: Balancing the equation: Telcos as service enablers

…Members of the Telco 2.0^TM Executive Briefing Subscription Service can download the full 15 page report in PDF format here (when logged-in). Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

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