M2M - The Industry

In a report for the Economist, SAP has made some incredible predictions about how the M2M market may grow in the next decade, and also how it may change the overall telecommunications landscape as we know it. Is there any “steak” here, or are they just selling “the sizzle”?

Prediction #1 - Show me the money

In this prediction, SAP predicts that the average annual growth rate for M2M revenue (what it includes is not properly defined, so I guess it includes all items like hardware, software and services) will grow 23% annually until 2020.  This is quite reasonable, and may actually be low if we start to see adoption in the consumer space as well as in the business world.  I also think that one obstacle to hitting this goal is the lack of standards in the M2M space....but, if the total market approaches $1T, we might find a way to agree on some standards!         

Prediction 2 -- M2M becomes huge for the carriers

A while back, I spoke about how important M2M was to the future growth of the carriers.  In this bold prediction, SAP goes beyond what I would have forecasted.  Based on this prediction, 1 out of every 5 dollars in carrier revenue (I would suspect this refers to all landline, wireless and other services) will come from M2M in only 4 short years.  Based on how many billions of dollars the carriers have in revenue, this may be a stretch, to say the least.  However, I don’t want to downplay the carrier’s need to grow M2M, as it is one of the only sure-bet areas of growth in the telecom space today.

Prediction #3 - Remembering Ericsson’s wild predictions of the past

Ericsson definitely got attention (and took ridicule from people like myself, I might add) from many people with their bold prediction of 50B M2M devices by 2020.  The figures included a whopping 3B connected utility meters, as well as 1.5B connected cars.

While those predictions were a bit on the aggressive side, I like the more reasonable growth rate that is used in this report to predict that we will see a move from 1B to 12B devices (28% annual growth rate).  This matches up well with my expected revenue growth rate.  The only obstacle that I see to hitting this goal would be a much faster decline in hardware prices than expected.

Prediction #4 - where the growth will come from (vertically and geographically)

Vertical

The prediction is that most of the growth will come from 3 key sectors (“smartening” of buildings, connected cars and mobile health care).  I can’t doubt these predictions, unless they are NOT including utilities in the smart buildings number.  Without adding in the utility meters, I don’t see this prediction being realistic.  Other areas include industrial automation, highway/road monitoring, utility grids / energy delivery and environmental (weather, water monitoring, etc).

Geography

While the predictions here aren’t totally outrageous, I think they may be looking at only part of the story.  If the idea is that M2M is focused only on cellular-based connections, I think they are spot on with their predictions.  Most of the developing countries (and, to a certain extent, I would include parts of Europe here) have a severe lack of landline-based infrastructure and will definitely use cellular networks at a greater rate than their developed-nation counterparts.  However, if one factors in connections that are wire-line based, I think that the percentage coming from developed nations may be much higher.  Quite simply, there are many more things to monitor (more bridges, buildings, roads, etc) and there is equally as much upside as in other parts of the world.

Prediction #5 - Explosive growth in the volume of M2M data

Here, I think that they are again being quite conservative.  While they show an incredible growth of about 40x the amount of data being generated in a 5 year period, this actually still may be conservative.  The reason why I say this is two-fold: more devices and a lot more data per device. 

First, the number of devices over this period will grow by at least 5-8x, so that is a big part of the growth.  However, the larger part of the growth in data has to do with how much data is being retrieved from each device and how this is changing.  When many devices were deployed in years back, they all tended to be on the GPRS network and most of them generated as little as 10KB per month of traffic, as they were used for very basic functionality.  Now, devices are reporting real-time information from a huge amount of sensors (requiring 3G networks speeds or faster), and as such, we are seeing devices routinely generate GBs worth of data monthly.....or, as much as 100,000x (or more) per device what low-data devices can generate. 

Don’t get me wrong.....there are a lot of devices still generating single-digits worth of KB of data monthly.  However, the real explosion in the amount of data (thanks to better 3G/4G coverage and pricing) has been in complex deployments such as automotive, heavy machinery and video surveillance.

Prediction #6 - One reasonable and one wild prediction on M2M’s ROI capability

First, the reasonable one: Logica predicts that there will be a 25-30% annual growth rate for M2M solutions in the next year or so.  Based on my thoughts above, I think this is quite reasonable.  In fact, it may be low.....many customers are looking for not only the benefits of an M2M solution but are very interested in having it be done in a turn-key manner....so, this may be a light prediction when it is all said and done.

Now, for the wild prediction:  Ideal life has made a pretty bold claim, namely that each dollar invested in M2M will return over $7.50.  Since it does not give a timeline, we will have to assume that it is based on 5-8 years or so (which is about the traditional length of time that most solutions are installed for).  While I think the top-line part (i.e. the return part) may not be farfetched, I would guess that they are underestimating the TCO (total cost of ownership) to arrive at this number.  For some solutions, the upfront costs are only a small part of the overall cost over the life of the solution because one needs to factor in training costs, support costs, deployment and maintenance costs and much more.  Again......if these numbers are accurate, that is great, as it very much bodes well for our space, I just suspect that they are a bit too optimistic.

Prediction #7 - Four Big challenges to hitting these goals

This is the most bang-on part of the document.  I totally agree with their 4 choices:

1. Consolidation of offers

At this point, I admit that I would not want to be a decision maker deciding on an M2M solution, and that is sad for me to say.  I think there are such a wide variety of offers (many of which are proprietary, which locks you in long-term) and it would be very confusing.  I think we need to see both an overall consolidation of companies (which is inevitable) and a consolidation of offers (to remove some of the stand-alone nature of many of the solutions and to increase interoperability).  Everyone always wants choice, but sometimes, there really can be too much choice!

2. Standardization of technologies

Ok, I will keep the soap-box in the closet on this one.  I have spent a lot of time hitting my keyboard describing how the M2M space needs to develop some standard protocols (such as communicating with devices and interoperability between M2M platforms).

3. Platform for Innovation

This was the one that I wasn’t totally sure what they were referring to.  What I think they mean is that we need to continue to provide easy tools for those who have the innovating ideas to be able to quickly get solutions to market.  I think that it also may indirectly refer to the Venture Capital world, in that VC companies will need to be responsive and open to funding M2M growth initiatives (which I think they definitely are).

4. Selling it to consumers

In the world of the Internet, are you ever really alone (or is any of your data ever really private)?  This is a legitimate fear for many people, and the idea of sharing much, much more of your life online (your electricity usage, the weight of garbage in your garbage can, etc) is a scary concept.  This is an area that the M2M space must work on before we will see mass consumer adoption.  As well, I think that consumers need to be shown the benefits of M2M much better than they are today.  One can easily understand how a company can benefit from using M2M solutions (better information from the field = lower costs, differentiation vs. their competitors and more productivity).....but what is in it for the consumer?  They need to be educated on how it will reduce downtime, how it will improve customer service and how it will better improve their life (better traffic data for shorter drives, etc).

The bottom line

There were a couple of “aggressive” predictions quoted in this document, but in general, I think it is one of the better forecast documents we have seen.  Regardless of how accurate it may be, there is no doubt that all of us in the M2M space are in for a bumpy ride as we see our space growing like never before.

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