Nov 26, 2012

Connected-device business models in the US Market

(published in RCR Wireless - 26 Nov 2012)

A previous article in RCR Wireless magazine highlighted the topic of new M2M business models with reference to the size and characteristics of this fast growing market opportunity. It also highlighted the central role that communications service providers (CSPs) occupy in the eco-system. Beyond traditional data plans, however, what are the new business models that will allow the full market potential to be attained?

Many of the large market opportunities for connected devices, not just M2M, are in typically in the consumer-oriented and high device-volume markets. These include the automotive, health care and utilities sectors, for example. To be participate commercially in the innovative services that are transforming these sectors, however, requires a degree of expertise that falls outside the core know how of CSPs. CSPs therefore need to tailor their strategies and business models for these market sectors.

What choices do CSPs have? We have looked at several mobile operators around the world to analyse their business models approaches. Firstly, it is clear that dedicated business units and the allocation of resources focused specifically on M2M opportunities are the first recurring theme in their strategies. Dedicated units allow CSPs to tailor their business approach and avoid being constrained by traditional strategies and procedures that are most effective for mobile handset offerings.

The extent of dedicated investments depends on the size of a particular CSP and its M2M ambitions. Large and multi-country footprint operators are able to address a much wider funnel of opportunities than a smaller or single-country CSP. These CSPs typically build up their sales teams and invest in their own platform technologies to automate the provisioning and life-cycle management of connected devices.

This is not necessarily a disadvantage for smaller CSPs because they can adapt their business models in different ways. They can partner with specialist platform providers such as Axeda, ILS, Jasper Wireless, Numerex etc. to speed their market entry. They can also use a wholesaler strategy to leverage value-added aggregators and distributors in order to extend their market reach and serve niche segments. Multi-country alliances are another business model approach where international reach is a customer requirement. In fact two large groups have been formed amongst operators with a presence in Asia, Europe and Latin America over the past few years.

 In the US market, the larger CSPs – AT&T, Sprint, T-Mobile and Verizon Wireless have all targeted the M2M market. AT&T has been especially focused on this market ever since it established its Emerging Devices Organization (EDO) to target the market for non-traditional connected devices. The accompanying high-level timeline of key AT&T corporate events illustrates how its strategy has progressed, beginning initially with a focus on M2M and utility markets.

Following the establishment of AT&T EDO, the company put in place a set of testing and certification measures to simplify the process of embedding connectivity and also to partner with platform providers. AT&T also branched out into several non-traditional sectors – healthcare, home automation and mEducation - to expand the scope of its addressable market as illustrated along the following time-line.

Sprint is another company to have established a dedicated emerging devices team. This contrasts with T-Mobile which has adopted a wholesaler strategy in the US, working closely with distribution channel partners, notably Raco Wireless.

Verizon Wireless was arguably an early influencer of the market with its Open Development Initiative which set a benchmark of 4-weeks to have a new connected device approved for use on its network. Verizon Wireless continued to build up its M2M activities over its CDMA platform although it recently announced the launch of a multi-mode module with Cinterion Wireless to address global application opportunities. The company has also been more active in using acquisitions as part of its business strategy. In January 2012, Verizon announced that it had taken full control of nPhase, an M2M platform for service enablement services. In June, Verizon acquired Hughes telematics for $612m. This gave it a foothold in the built-in and after-market vehicle telematics segments. It also provided Verizon with a route to the embryonic mobile health and personal wellness markets through Hughes’ Lifecomm business unit.

The early steps of these CSPs have focused on enabling connectivity in as wide a variety of devices as possible. Subsequent, platform initiatives have taken CSPs a step up the value chain in relation to managed connectivity offerings.  These include device monitoring, remote configuration, data security, customer information portals etc. Platforms are important because they allow connected devices to be deployed and remotely managed both cost effectively and at scale.

In an earlier study[1] on the topic of new business models, two additional stages along the value spectrum were described. There are extensions beyond managed connectivity; one involves ‘stewardship services’ and the other applies to ‘platform innovation’.

In a stewardship services scenario, a CSP occupies the role of a customer’s steward. It uses information about a customer’s needs and purchase preferences to makes an informed supplier decision for a given service. For example, a CSP may be an energy services steward by using household consumption data to select an electricity supplier and tariff plan which it then monitors periodically for price and service competitiveness. 

The technology investments and acquisitions by CSPs point to an evolution in their business models. There is a gradual shift away from basic connectivity, which can be commoditized, and increasingly into the applications and end-user services market. Larger revenue opportunities are at stake as long as innovative business models can be put in place. This will involve a change in how CSPs operate. Our research from other markets also shows that it will involve a higher degree of partnering and corporate venturing with companies from adjacent industries.


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