Shifts in M2M Ecosystem Reshape Strategic Outlook for New Entrants

Nick Jones, VP & distinguished analyst, Gartner

Nick Jones, VP & distinguished analyst, Gartner

By Fred Dawson

July 13, 2012 – Rapid shifts in the machine-to-machine ecosystem are creating new opportunities for service providers of every description, provided they can move away from strategic perspectives that shaped the first ten years of talk about M2M.

Most profoundly, perhaps, the center of activity is shifting from mobile carriers’ efforts to develop new markets in a maturing cell phone business to multiple industries where the key word is automation, not M2M. With the Information Age mindset now ascendant throughout the business world, looking for ways to extend automation across communications networks wherever efficiencies and new applications can contribute to competitive strength has become a no brainer.

Companies of every description “have showed increasing interest in M2M over the past five years, fueled by falling component costs, lower service costs from CSPs [communications service providers], and improved network capabilities and stability,” say Gartner researchers Lief-Olof Wallin and Nick Jones in a report directed to business clientele titled “The M2M Market Evolution: Growth Attracts Everyone.” Following slower-than-anticipated growth in the mid-2000s, the M2M market has rebounded with total revenues generated for services and products growing at an annual rate of 30 to 40 percent, they say.

M2M solutions are now on offer from AT&T, Verizon Wireless, Sprint, Vodafone, Orange, Telefonica, Telenor and other Tier 1 cellular carriers around the world. As a result, “cellular M2M plays an increasingly important role in many businesses, including utility metering, energy conservation, equipment maintenance, [shipment] tracking, security, payment and dynamic advertising,” Wallin and Jones report.

Moreover, as they and others note, other, short-range wireless options like Wi-Fi and Bluetooth and even wireline connections are now emerging as alternatives to cellular. And, where fixed networks are concerned, the prospects for surging traffic volume create significant backhaul opportunities as well.

The evolving M2M scenario has profound implications for would-be new entrants from the service provider side, such as cable companies. Presently, cable’s lead technical organizations, CableLabs and the Society of Cable Telecommunications Engineers, are beginning to explore what needs to be done to make cable resources more readily useful for M2M applications both internally and as possible new service adjuncts. (See June issue, p. 14, for a report on new SCTE activities in this vein.)

But there’s considerable uncertainty in cable tech circles about how to define the M2M opportunity and business models. “Clearly there are big opportunities there,” says Ralph Brown, CTO at CableLabs. “But articulating what those opportunities are, in terms of technology definitions and business models, is difficult.”

Indeed, Brown says, at a high level M2M really boils down to “the concept of a sensor network” where a mesh of communications modules deployed for a vast range of applications can be centrally orchestrated on behalf of enterprise customers. But “if you’re talking about sensors in the abstract, it can be anything,” he adds. “So you start to see verticals showing up in the conversation – energy management, health care, security. It goes on and on.”

Each of those verticals is tied to a whole different set of requirements on the applications and device side but with sufficient commonalities to allow a shared-resources approach to serving the market. The question is where to start in defining those commonalities, which means prioritizing the types of applications that offer the best opportunities for cable operators.

This is where it gets hard for network operators not accustomed to looking at such things beyond initial forays into home security and other smart home services. “I’m fully convinced we’re just seeing the surface scratched,” Brown says.

Certainly the research community sees it that way. Berg Insight, in a recent report on M2M market trends, forecasts the number of cellular M2M connections worldwide will grow at a CAGR (compound annual growth rate) of 27.2 percent between 2011 and 2016 to reach 359.3 million at the end of the period. In 2011, it says, the number of M2M subscribers in the Asia Pacific region increased by 64 percent to reach approximately 34.5 million, fueled by massive growth in China.

North America and Europe recorded annual growth rates of around 26 percent each. At the end of 2011, the number of M2M subscribers in the European Union and the U.S. was around 30 million and 27 million, respectively, Berg says. Latin America, with Brazil in the lead, now has an estimated 6.6 million M2M subscribers.

The logical starting point for cable operators and other newcomers from the service provider side is to understand how the market works now, which, contrary to the past M2M go-it-alone model, is all about forging partnerships and exploiting already-formed partnership ecosystems in ways that maximize the exposure of what these providers have to offer. Things have moved so far so fast in the past couple of years that much of what was the heavy lifting respecting segment definitions, developing applications, creating end-to-end solutions and finding customers has been alleviated.

For example, an expanding web of partnerships is developing to make it easier for entities to take advantage of M2M technology, note Gartner researchers Wallin and Jones. “Organizations with different M2M strengths are combining to offer a more comprehensive service and technology offering (e.g., AT&T plus Jasper Wireless; KPN plus Jasper Wireless; Telefonica plus Jasper Wireless plus Wyless [Group], and Verizon plus Qualcomm),” they say.

“Partnerships between manufacturers of products and CSPs are also starting to be announced, like Bosch and Vodafone,” they add. “Even CSPs are starting to form partnerships among themselves, as evidenced by the recent announcement of Orange and Deutsche Telekom cooperating around M2M.All three models will be viable.”

Other developments are contributing to maturation of the market as well. For example, there has been significant consolidation with attendant price reductions among suppliers of the cellular M2M modules that connect appliances to wireless networks.

“A sweeping change has transformed the wireless modules industry in the past years,” says Berg Insight, in its report on the M2M market. “The familiar brand names Siemens, Wavecom, Motorola and Enfora have disappeared and new players such as Sierra Wireless and Gemalto are now in charge of developments.” Gemalto, with acquisition of Cinterion, is now the number one M2M module supplier, followed by Telit Communications and Sierra Wireless, according to ABI Research.

Falling device prices are helping drive M2M adoption. GSM-based units, which are cheaper than 3G and CDMA versions, are now available at $20 per unit or less with high volume purchases, according to the Gartner researchers. Module sales in 2011 totaled $888.2 million and are expected to reach $2.3 billion by 2017, according to New Delhi-based 6Wresearch. IMS Research foresees an even faster growth rate, with revenues projected to top $3 billion in 2016.

There’s also major new activity on the software front, including development of off-the-shelf connected device platforms (CDPs) that help facilitate CSPs’ deployment and management of connected devices for M2M applications. As the M2M market becomes a more mainstream segment of the overall mobile industry, CDPs are increasingly becoming a required component of the CSPs’ service offerings, says Sam Lucero, research practice director at ABI.

While several large mobile network operators have built their own CDPs, there is a clear trend in the market towards third-party-provided solutions, Lucero says. “Several vendors are active in the market, including Ericsson, NSN and NEC, among others, but the clear leader, in terms of sheer number of operator partners and market traction, is ‘pure-play’ provider Jasper Wireless,” he notes. ABI predicts the CDP market will grow from $285 million in 2011 to $2.17 billion in 2017.

Another important software trend is the emergence of what ABI Research refers to as application enablement platforms (AEPs), which are software systems designed to streamline M2M applications development across multiple verticals. These systems exploit commonality of requirements in terms of core features and functionality such as how to model an object in the application, how to create rules and alerts and how to provide security mechanisms, Lucero says. “ABI Research believes the market for AEP software will grow from about $169 million in 2011 to roughly $1.7 billion by 2017,” he reports.

Carving out still another new niche in this space are providers of M2M support services such as Denver-based Arrow Electronics, an electronics components distributor with 2011 sales of $21.4 billion. Operating from 340 locations in 52 countries Arrow saw an opportunity to make it easier for enterprises to exploit M2M applications, says David West, vice president of supplier marketing and asset management at Arrow. The company’s services and solutions include wireless connectivity solutions, HW/SW security, compliance testing, service carriers, cloud services, and billing solutions, he explains.

“As a broad-line distributor focused on the M2M space, Arrow provides customers a complete end-to-end solution, allowing customers to get to market in the quickest way possible,” West says. “Whether your next project will address energy, medical, asset tracking, lighting, retail, telematics, or industrial application challenges, Arrow’s comprehensive M2M ecosystem offering enables companies to get everything needed from one convenient, trusted source.”

Arrow’s approach to aggregating service carriers with data plans highlights the growing web of alliances that have reshaped the M2M landscape. Rather than dealing with individual carriers, the firm works through partners like Wyless Group and KORE Telematics, which have created networks of cellular carriers worldwide to create a turnkey approach to setting up M2M applications locally or on a global scale. “Bringing together partners within the RF ecosystem is the ideal model for solving the complex needs of M2M and embedded wireless applications,” West says.