by Steve Hilton, Principal Analyst | Analysys Mason
Machine-to-machine (M2M) seeks to be the next high-growth sector in fixed-line and mobile connectivity, and this presents a significant revenue opportunity for communication service providers (CSPs). Driving the M2M market is the high-growth rate of device connections, which will have compound annual growth rates of 40–50% between now and 2021.
Today, the penetration of M2M connections as a percentage of CSPs’ total mobile connections in developed markets is 5%, but within the next few years, there will be billions of things connected to billions of devices. In fact, M2M connections are predicted to grow to 2.1 billion devices worldwide by 2021 (see Figure 1). Total worldwide connectivity as measured by average revenue per user (ARPU) will be US$6.5 billion in 2012, increasing to US$51 billion by 2021, at a compound annual growth rate (CAGR) of 26% over the forecast period.
The tremendous growth in devices and connected people opens up new doors for CSPs, especially when other areas of connectivity – including mobility in the developed world – show signs of slower growth.
5 key steps for success
As the market accelerates, CSPs will be one of the most influential groups in the M2M value chain, and they can easily position themselves for success in this area. To gain a profitable foothold in the M2M market, there are five operational and go-to-market factors that are recommended best practices for building an M2M business.
With the anticipated rapid growth of the M2M market, CSPs have myriad opportunities, so prioritization based on the potential for profitability is critical. Automotive and transport, energy and utility, security, government, retail, and industrial are leading the way in M2M solutions, so CSPs can start with the industry or industries that most align with their current customer bases. With a wide array of wireless, satellite, and fixed-line opportunities, profitability metrics will vary according to the application, country of operation, and CSP cost characteristics, so finding the right market to focus on is key.
Placement of teams
To achieve a high degree of success, CSPs would be wise to treat their M2M initiative as a start-up business unit, with a dedicated leadership team and functional heads. CSPs should also establish dedicated resources in the areas of sales and marketing, technical support, product marketing, R&D, operations support systems (OSS), business support systems (BSS), platform, and customer support. Each resource area should have key performance indicators (KPIs) tied to the health of the M2M business. If CSPs plan to support various industry sectors, it would be most efficient to have a centralized marketing staff, as well as a consolidated human resources group. Field-based sales teams, however, should be dedicated to the industry sectors in which the CSP expects the highest growth.
There are three distinct routes to market for CSPs offering M2M solutions: co-selling partners’ solutions; selling or reselling their own solutions; and acquiring solutions. One of the most viable options for CSPs will be for them to form partnerships that provide M2M infrastructure hardware such as modems, modules, and equipment. Hardware manufacturing is not a core business for CSPs, and hence it would be more advantageous for them to partner to provide this piece of the value chain to enterprises. A CSP’s core competency lies in knowledge of networks, connectivity, and managed services, so offering connectivity and a platform layer exploits its strengths.
For those CSPs that have their own systems integration businesses, they can incorporate a series of as well. The application layer presents the biggest conundrum in a CSP’s route-to-market strategy. Some providers are capable of offering their own viable, well supported applications for many M2M solutions, while others are not. In almost all cases, CSPs will need to partner with credible application partners that specialize in the development, testing, and management of applications. Those application vendors that have expertise in both on-premise and cloud-based solutions will be most desirable.
No CSP has a toolset sufficient to offer a complete end-to-end M2M solution for the countless number of opportunities in the market, and this speaks to the need for value-added partnerships. When looking for partners, CSPs will want ones with strong, complementary technologies – such as device management, data management, or connectivity in other regions – as well as indirect channels for the marketing of M2M solutions.
In creating a profitable M2M business, it is of paramount importance to pick the best partners rather than the greatest number of partners. CSPs must review the partnership landscape systematically, by geography and application, in order to find those best suited to their needs. It is important to keep in mind that the best partners for providing M2M services to the utility and energy sector may be different from the best partners in offering services to the healthcare sector. To complicate matters further, the best partners can often vary by region of the world or country.
A CSP should establish an identity or image of itself in the M2M market. A CSP can use its existing brand – sometimes a consumer brand, but often an enterprise brand – to build its M2M marketing image. It is important that CSPs understand existing market perceptions of their strengths and weaknesses when attempting to offer M2M solutions, because M2M is one of those technology solutions in which connectivity meets IT. Enterprise IT departments play a very strong role in decision making for, and implementation of, M2M solutions. Sometimes IT departments are less willing to engage a CSP in heavy technology implementations than they are a systems integrator (SI), other IT channel partner, or IT vendor. Remember that many of these M2M solutions hinge on an application – of which many are customized and in their first generation versions.
The risks for IT managers are high and, consequently, decisions often favor incumbents, which in this case are SIs and various IT suppliers. In some instances, it would be best for CSPs to have a “behind the scenes” presence and to allow the partner to front the bid, as is the case with many complex enterprise IT projects.
A foundation for success
Much of the value in operating an M2M business unit will be realized after three to five years, when the number of device connections is three to five times that of today. Up-front investment in these M2M business units is significant and competition for investment capital within CSPs is high, so initially there will be some risk. But with 2.1 billion device connections and US$51 billion of connectivity-related ARPU by 2021,
M2M provides savvy CSPs with the opportunity to create new, profitable, growth-centric businesses. To be successful, however, CSPs must properly scope and scale these new M2M business units, decide where to participate in the supply chain, pick the best partners, and create meaningful branding for these businesses.
Building an M2M business has some unique requirements; however, CSPs have the core assets to help connect people, things, and machines across the world.
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