Sep 19, 2014

Pricing M2M to drive sales revenues

Over the past few years, technology suppliers and service providers have become increasingly optimistic about the market prospects for M2M. Much of this is attributable to the promise of multi-billion unit sales as yesteryear’s M2M sector is absorbed into today’s, broader IoT classification.

M2M has broken out of its historical, niche thanks to a shared industry vision to evangelize the M2M opportunity. Return-on-Investment (RoI) arguments for M2M applications have no doubt been persuasive in fostering the adoption of new applications. However, two other developments have arguably had a greater influence over adoption and RoI outcomes. One is the introduction of simpler, standard operational procedures tailored to M2M (e.g. life-cycle provisioning). The second is the year-on-year reduction in hardware and connectivity costs which have resulted in lower prices to customers.

There is a risk however that these developments and the price-led strategy, in particular, will pose a longer term threat to existing M2M business strategies.

Simpler deployment and lower prices have, in effect, commoditized M2M. Falling prices have boosted sales volumes. This is acceptable as long as overall revenues rise as fast as the growth of connections. In other words, does the price-elasticity of demand work in favor of M2M service providers? If it does not and demand is ‘inelastic’ then overall revenues will decline even though connection sales are rising.

Businesses that make one-off sales, e.g. technology and module vendors, are affected more than service providers. The latter benefit from recurring revenues thanks to an installed base of M2M applications. It should therefore come as no surprise to see technology vendors adding recurring-revenue propositions to their core business strategies.

What options do M2M service providers have to handle price-inelastic customers? One approach is to step back from pricing as the main driver of sales and to promote different attributes of M2M applications. For example, apart from higher throughput rates, 4G solutions can be marketed in terms of performance, longevity and technology leap-frogging attributes.

For additional perspective on customer demand, let’s turn to a recent source of market intelligence in the form of Vodafone’s 2014 M2M Barometer report. This included a survey of companies globally about their M2M adoption intentions. I have re-calculated Vodafone's data to adjust for the difference in the 2014 (n=603) and 2013 (n=653) samples.

The survey results show a near doubling in the number of companies – in the Pioneers segment - that have already implemented at least one M2M project.

The picture is more nuanced for those companies that are planning to implement M2M. The drop of 137 companies in the Embryonics and Fast Followers segments suggests that some have migrated into the Pioneers segment, but not enough even if one includes the 50 companies that are unaccounted for in the 2014 survey.

The picture does suggest the need for other approaches nudge Laggards and also to accelerate adoption within the Embryonics and Fast Follower segments. Setting aside price-reductions as a selling tactic, then value-creating approaches (e.g. change management, product and process redesign, investment justification, and operational and technical implementation services) represent one angle of attack.

A different angle is to make a more persuasive case for quicker adoption through risk-sharing business models (e.g. formal partnering and joint-ventures, underwriting of operational cost savings etc.). Such forms of innovation may become strategic imperatives in sectors where service providers are intent on securing anchor customers and/or a long term share of the market.

Innovations in sales approaches and M2M service applications are certain to affect business organization structures and execution competencies. This is the topic of a current project about which I plan to write more in the future.

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