The M2M industry is starting to gain momentum. Implementation costs are reducing, while connectivity and technology are reaching a far greater scale.
Networks themselves are evolving too. Bandwidth hungry verticals such as car infotainment and digital signage are becoming the catalyst for an evolution in network technology, in the form of LTE. On the hardware side, modules are becoming smaller and powerful enough to function like a PC and alongside this, connectivity platforms are growing.
Meanwhile, a significant amount of consolidation in the industry is seeing specialists being bought by large companies – such as Gemalto buying module maker Cinterion in 2010.
These factors are resulting in the steady growth of an industry that has been slow to take off until recently, but there are issues still to be overcome.
The potential for M2M is almost infinite, yet the industry is still very fragmented and consolidation is only happening slowly. Partnerships are few and industry standards have yet to be adopted on a large scale.
Adding to this, many think of M2M in a similar way to the mobile market, says Shlomo Wolfman, Starhome COO, CTO and co-founder. ‘This is a mistake; connected machines are very different from mobile devices,’ he says. ‘All M2M is completely b2b and it’s a b2b issue.’
Further confusion is also caused by the perception that ARPU in consumer connections is higher than in M2M, according to Jamie Moss, senior analyst at Informa Telecoms & Media. This is a false representation, he says.
In M2M, Moss argues, it’s better to talk about ARPC (average revenue per connection) for a more accurate comparison. ‘This might be a lot lower in M2M but there’s no subsidy, nothing to be recouped and an increasing number of resources to offset decreasing revenue,’ he says.
‘All requirements are laid down upfront; how many devices, latency requirements and frequency, so price can be reached per month. We end up with a smaller revenue, but it is more stable over time and has a guaranteed profit margin,’ adds Moss.
Operators are now taking notice of the revenues M2M can generate over time. According to Informa’s figures, MNO revenue from M2M is increasing gradually. The technology made up 3.5% of revenues in 2009, rising to nearly 7% in 2012. The analyst predicts this will nearly double to 13% in 2015.
In turn, the M2M industry will see moderate growth as a whole. Informa predicts that the number of M2M connections in the cellular market will grow from 213 million in 2013, to 315 million in 2015.
But connectivity is an issue. Starhome’s Wolfman cites the example of a car manufactured in Germany, which is given a Telefonica Spain connection and then is shipped to the UK. ‘If you think about Vodafone UK it will generate zero ARPU for the operator; this situation needs to be handled,’ he says, adding that the ability to download a local SIM card would mean avoiding the issue.
‘There is need for more accountable partners – enablers and application service providers (ASPs),’ independent M2M service provider Amdocs head of M2M marketing, Kfir Dan-Ari, says. ‘With the level of penetration at the moment you can go for niche partners, but when it matures you need more.’
The M2M market is not yet mature but it is getting closer. As levelling of price starts to kick in, the cost per MB of data is coming down, as well as the cost of modules.
Now it is a matter of scaling up activity. But how do you really scale? Macario Namie, VP marketing, Jasper Wireless asks. ‘Scale doesn’t necessarily mean millions. For a small business to manage 1,000 devices can be a challenge.’
Managing an M2M deployment is complex; and for larger enterprises especially dealing with customers around the world, there is the cost of support, Namie says. ‘They have to manage a SIM inside of a modem, inside a little black box that may be thousands of miles away – how do you fix it? Sending someone on site is expensive; the operational complexity is still high. We look to try and solve this by automating it, but it’s still difficult.’
Axel Hansmann, VP for M2M at Gemalto, agrees. ‘There is a struggle to integrate devices at the back end and create a simple, easy to use layer,’ he says. He adds that Gemalto is working with Oracle to implement Java in modules in a bid to tap into a large pool of developers. ‘We see a lot of similarity and we believe that Java will allow a coherent layer – it can be used on the device and the back end – and can be used to upgrade an application over its lifetime,’ he says.
‘All of us would like the market to move quicker,’ says Virtyt Koshi, Ericsson head of communication services, region Western and Central Europe. ‘But things don’t move overnight. We will see convergence of all this activity over the last three years increase over time.’
As verticals for M2M widen, networks are evolving too. LTE has previously had little use in M2M, but the expansion of bandwidth hungry areas such as in digital signage and the automotive industry are driving the use case.
‘In automotive, high bandwidth is useful as people want to do things at high speed,’ Moss says. ‘The idea is, let’s not have multiple modems in the car, then it’s possible to add high speed consumer services on top of that.’
These services could include Wi-Fi hotspots, rich navigation services, streaming music and video as well as bespoke OEM from brands such as Audi, Mercedes and Ford in order to improve driving experience.
Automotive is probably the biggest market for LTE, Moss says, adding that all General Motors branded vehicles are expected to feature connectivity in the next fleet.
Moss also thinks that the industry could sidestep 3G modules and go directly to LTE. ‘2G networks are used for highly efficient but small data transmissions,’ he says. ‘It could go straight to 4G for a high speed connection; you only need high speed occasionally – but it’s always something you can use.’
Yet 2G will continue to drive lower bandwidth M2M applications. As such, experts agree that globally, 2G will stay for a relatively long time, rather than new technology forcing an expensive upgrade of modules.
Applications for M2M continue to increase. In 2013, automotive, smart metering and health have seen significant growth.
‘The strongest growth for us is around cars and telemetry, and smart metering,’ says Dan-Ari. ‘They are extremes of the same axis; cars have bigger ARPU and bigger potential, smart meters are the opposite but there are huge quantities.’
As part of this, Amdocs is seeing communications service providers ‘expanding beyond connectivity towards the service model’. Dan-Ari cites the example of Telecom Austria, which has partnered with several companies around metering and is now offering smart metering as a service.
‘A year or two ago it was just M2M, but now it’s about how can you use M2M with other services,’ he says.
And things are moving in the right direction, with strong potential for new revenue in M2M in the services arena, says Dominikus Hierl, CMO at Telit, adding that his firm is seeing a big demand for this already.
‘Market research says the services business is going to be bigger than the module hardware business,’ he says. ‘We are identifying this potential and there is a major shift.’
Meanwhile, Gemalto is seeing growth in transport such as electric cars, payment solutions and monitoring and control. The firm is using near field communications to link payment terminals to cars, thereby enabling mobile phones to interact with them.
Jasper Wireless cites home and office security systems as a big growth area. Although these areas have historically been fixed line, Namie says, an increasing number of consumers are moving to cellular at home.
Some more surprising areas of growth are led by legislation. One of the biggest new areas for platform provider Wireless Logic is elevators – which follows an EU directive in December last year.
‘People are talking about the challenges but we only see opportunities,’ says Philip Cole, Wireless Logic co founder, sales and marketing director, adding that the market for M2M across Europe is ‘substantial’.
Other applications include agriculture and farming, SIM cards in defibulators, and usage based insurance – which is set to be a very big vertical, says Cole.
But use cases are still primarily b2b; M2M has yet to filter significantly into the consumer market. ‘One thing that hasn’t emerged is success of consumer M2M; you’d think it’d have a place in the home,’ says Cole, adding that ‘out of all our channel partners, 99% are focused on b2b services’.
‘It’s the complexity of taking a totally integrated service and connectivity that it is quite difficult to get your head around,’ he says. ‘It’s still not fully understood that people connect from 10 to 15 devices. It’s still a case of the consumer doesn’t know the market exists.’
Modules and platforms
M2M expansion is not limited to applications; hardware is changing too, with modules becoming smaller and more powerful. Meanwhile, average selling price of modules has been coming down, says Moss.
But the biggest module makers Telit, Sierra Wireless and Gemalto (Cinterion) are already threatened by new entrants such as Huawei, which is selling network infrastructure on smartphones as well as embedded modules. ‘They are primarily targeting modules,’ says Moss.
‘The likelihood is, companies like Huawei want to take deals only in excess of one million connections. We have seen smaller companies being bought but now they are threatened by people
But M2M is an industry of partners rather than an industry of customers, Moss says. ‘It’s looking for the contract that lasts for X-many years.’ He adds: ‘It’s the same way with the module suppliers – they want to grow the customer’s business. Partnerships is an issue in the industry.’
Platforms are growing: From 2009, the industry has started to move away from the carrier side, towards the platform. ‘It became about the platform to produce plans depending on requirements and also self service management,’ Moss says.
In a bid to be more competitive, some operators are partnering with specialist providers and entering revenue share, or acquiring them outright. This is already happening in the US, where Verizon bought Hughes Telematics last year.
‘M2M tends to be about efficiency at all parts of the value chain and one way carriers can do this is to make it automated and possible for customers to manage their own network,’ Moss says. ‘This has stepped up another layer from device management and carrier management later and it’s now necessary to monitor not only data from the device, but the device itself.’
Indeed, platforms have matured from being wholesale to value added services, Moss says. ‘Carriers are looking at providing M2M services and it’s about having a dedicated platform – it used to be the case that these services were few and far between and they weren’t leveraging knowledge. But centres of excellence, business units and platforms have been a trend.’
Like any industry, M2M has challenges, but consolidation and advances in technology are driving its evolution. The M2M market is long term: it will not mature anytime soon, but with the right partnerships it could become a big earner for both operators and specialists in five or 10 years. ‘Costs will come down and margin will come down as well, so it will get better,’ says Moss. ‘It’s a long term market.’