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?
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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?
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|
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?
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.
- 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?
- 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
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