M2M looks beyond efficiency to revenue generation

M2M is expanding into new sectors and is increasingly being used for external applications to generate new revenues, as well as internally to improve business efficiency, finds Kate O’Flaherty

M2M looks beyond efficiency to revenue generation

As an increasing number of businesses now realise M2M’s value – growth is starting to accelerate. According to Analysys Mason’s latest forecast, there were around 0.3 billion M2M devices at the end of 2013, and this will increase to 3.2 billion by 2024 – a compound annual growth rate (CAGR) of 28%.

By the end of this year, there will be close to 250 million M2M global subscriptions with a cellular-only component, analyst firm Ovum says, with that figure more than doubling to 530 million by the end of 2019.

Mobile operator Vodafone’s 2014 M2M Barometer report reflects this. In the 12 months since its last study, the percentage of companies using M2M grew by over 80%.

The report found that M2M’s use has evolved beyond improving internal functions and is now transforming external processes such as customer service.

This is being fuelled by declining costs in the sector: ‘It’s about how much it costs to provide your service and how much you can sell it for,’ says Jamie Moss, senior analyst at Ovum. ‘A megabyte of data is cheaper now than it has ever been before. In the past, it cost millions to deploy services, but now it’s ten times cheaper.’

At the same time, levels of confidence in M2M are increasing, says Phil Skipper, head of M2M business development, Vodafone Group: ‘People are asking: what is the ROI [return on investment]? How do you realise the benefits? The adopters of M2M have embedded it in their business and are making more money using the connections they’ve got. Others are piggybacking on that.’

As the market continues to expand, the dividing line between M2M and what is dubbed the ‘Internet of things’ (IoT) is becoming increasingly blurred. ‘In the past, M2M specifically meant automated interaction with machines with no human input at all,’ Moss says. ‘But as M2M expands, there will be increasing human interaction.’

Revenue models
M2M is traditionally known to increase efficiency and cut costs. This is still driving adoption, says Joe Braga, global head of marketing and brand at Telit Wireless Solutions, one of the industry’s major IoT/M2M module providers.

But at the same time, M2M is starting to be viewed as a revenue driving solution. As the cost of connectivity decreases, many organisations are seeing the value of offering a product as a service.

Macario Namie, VP of marketing at IoT/M2M cloud-based platform provider Jasper Technologies, cites the example of General Electric (GE), whose CEO has announced a ‘big data’ initiative called the ‘industrial internet’.

‘As a whole, it’s about connected services: these are service-based business models, rather than product-based. They have built a solution that collects data on engine performance so it can communicate with the maintenance centre. It takes this product – the jet engine – and builds around it,’ says Namie.

Yet, despite widespread interest in M2M, there are still many barriers to overcome. Interoperability continues to be a challenge, says Manfred Kube, head of M2M segment marketing, Gemalto, whose Cinterion brand is another of the key IoT/M2M module providers.

‘Security also remains a concern for M2M, especially in the fast-growing automotive sector,’ he says.

‘The car industry, for example, is increasingly aware of threats from a new breed of digital car jackers. Hackers will always view new technology as a challenge to be broken and the security industry will always need to remain one step ahead.’

The need for education is also forming a barrier to adoption. ‘There is an awful lot of utility that could be delivered to business,’ Moss says. ‘It’s about those companies knowing what’s possible for them and their products and services – and understanding the value of having telecommunications technology in their business. It’s very difficult: how do you get the message out there?’

Philip Cole, European sales director at M2M managed services provider Wireless Logic, agrees: ‘On the front of it, it looks like a bog standard SIM, but we are approaching clients with a consultative approach,’ he says. ‘They have to consider elements including the security, the network, what module, how to manage it – and service level agreements. It’s not simple and it’s about customers mitigating various commercial risks.’

The networks used to connect M2M devices are also evolving. Already used in industrial SCADA systems, 4G is very suitable for assets that are deployed and need to move afterwards.

‘There will always be some remote stationary assets which cannot be linked by a LAN that will need cellular connectivity,’ says Moss. ‘The driver for the deployment of 4G isn’t the high bandwidth; it will be cheaper for mobile operators to maintain. The cost for the sake of M2M is more down to the components: the modules and chips to make it work on an LTE network.’

This is because LTE modems need to be multi-modal to give them backwards capability with the networks. As a result, they will always be more expensive, says Moss, adding: ‘LTE will be useful for M2M – but 2G is more efficient at the moment.’

M2M technology won’t be limited to cellular: for example, on top of Wi-Fi, Cole says, the industry will see new technologies such as Zigbee, Redwave and White Space spectrum. As demand increases, it’s inevitable that M2M will become more familiar to a growing number of businesses. But the technology still suits some more than others.

‘The more extensive the supply chain and greater the leg work and manual effort, the more a business can benefit from automation,’ says Moss. ‘The more widespread the assets are, the better. The greater the complexity, the better the opportunity to inform and improve processes.’

M2M industries
M2M is now being used across multiple industries and applications. The main sectors driving growth are connected car and automotive – including fleet management – and transport, says Michele Mackenzie, principal analyst at telecoms adviser Analysys Mason. ‘The other is utilities: policy and legislation around smart metering is fuelling growth.’

Consumer electronics is fuelling M2M growth, particularly wearables. Wireless Logic is seeing additional markets within telematics increasing, alongside demand for automatic number plate recognition, digital signage, healthcare, and usage-based insurance driver behaviour.

Health ‘should be big but it runs in a very strongly-regulated market where they are keen to trial and test to deploy’, Skipper says. ‘But once you get the big data in place, you can start doing prediction around prevention.’

Retail is another future growth area, predicts Skipper. ‘You can buy a shop in a box without getting an electrician in to wire it up. In retail, M2M will give the ability for firms to behave as if they are a much bigger operation.’

Connected cars: new business models
Thought to be the biggest single growth area in M2M, connected car services no longer centre only on accidents and crash notifications.
Each one of the automotive OEMs has a connectivity provider in place, says Moss. ‘A lot of contracts are on a per model basis, so they can use different providers for each range.’

The revenue model has changed too. ‘Now we have finally reached a world where the auto OEMs accept that building in connectivity is better for the consumer,’ says Moss. ‘They have to come up with a business model to recoup that back – and that is currently what they are doing.’

‘The business models we will see surrounding connected vehicles are extraordinary,’ adds Namie. ‘OEMs are now looking to provide an instant update to the software inside the vehicle like the PC market does.’

Moss cites the example of BMW, which has produced capable systems that can be upgraded. BMW pays for connectivity and consumers pay a subscription. ‘We have a lot more understanding of connected business models for auto OEMs. They come from a domain that only shifts boxes. But they have now added business value.’

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