IoT is not the end game

Over the past few months, I have been working with the Telco2.0 initiative who originated the concept of a 2-sided telco business model. Our collaboration focused on the evolution of the M2M market. Where is it going? And, what strategies can companies apply as M2M evolves into the Internet of Things (IoT). Here is a link [1] to their recent research report which includes extracts from some of my previous essays.

The central theme of the report is that M2M service providers need to adapt to an IoT world as characterized by:

• billions of devices, connected via a variety of (short- and long-range) technologies which interact with applications that draw data from a variety of sources including other applications.

• a convergence between ‘Digital’ and IoT which arises because many M2M/IoT devices will rely on smartphone/tablet interfaces and associated identity-mapping relationships.

How will mobile network operators (MNOs), who are at the nexus of these changes, react in relation to the new addressable market opportunities and the organisational models necessary for commercial success?

MNOs have three choices.

2014 Corporate Initiatives; market rules are changing

Following several years of rapid growth, the 141 corporate initiatives in 2014 almost matched the 147 events that occurred in 2013.

In 2014, companies in the M2M eco-system were less active in several areas. As illustrated below, there were fewer recorded events of companies either: expanding into new market segments; promoting new technology; and, entering into partnering agreements. Product innovation saw a rise in activity as companies launched new products and services. In general, these addressed the needs for specific customer applications.

Business innovation at IoT speed

Having worked on the topic of M2M value chain structures in 2012, a couple of relevant market developments caught my attention over the past few weeks. These involve: Aeris, an M2M service provider, Cisco, and Deutsche Telekom.

Each of these company initiatives aims to simplify the process of implementing M2M and IoT applications. They provide guidance to (non-technical) companies that are seeking to implement M2M solutions while also providing an organising structure for complex application situations. These examples hold lessons that companies can apply to improve their sales performance in M2M and IoT markets.

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.

Do consumers trust mobile operators, Internet and media companies?

The Royal Statistical Society (RSS) in the UK recently launched its findings from a survey of the UK population. The study examined the attitudes of individuals towards the use of (their) data and the appeal of data sharing. The study is based on a survey carried out by Ipsos MORI for the RSS and covered adults in the ages 16 to 75 age range in Great Britain.

The RSS study found that media, Internet, telecommunications and insurance companies, all come at the bottom of a ‘trust in data’ league table. Is any of this relevant to companies in the M2M and IoT markets?

Telenor and Vodafone show ways ‘beyond connectivity’

A couple of recent developments are symptomatic of how the M2M market has matured beyond device connectivity. These developments involve Telenor Connexion and Vodafone. The two companies have entered into partnering and acquisition deals which signal a shift in their historical activities and the basic, subscription business model.

Their actions are a leading indicator of the strategic challenges faced by mobile network operators (MNOs) [1] and other players in the value chain. Put simply, how will companies capitalise on the commercial opportunities that arise from more widespread connectivity (IoT, IoE etc.) and the eventual merging of wide- and short-rage wireless technologies to connect all manner of connected devices?

Commercializing the Internet of Things

This article was commissioned by Telit Communications PLC and appeared in telit2market magazine, February 2014

The IoT phenomenon has superseded the traditional market for M2M applications, primarily by embracing a wide variety of Internet- and consumer-connected devices. This is what accounts for long-range market forecasts of billions of connected devices.

Early experiences with IoT applications have focused on novelty – such as connected household appliances – rather than long-term commercial prospects. Many of these implementations simply involve the application of silo-like, M2M concepts to new types of devices and sensors. For companies that aim to develop an IoT strategy, however, failure to distinguish between M2M and IoT is a risk to long-term business strategy.

Google NEST – a case of déjà vu?

Almost 10 years ago, Amazon formed a team to work on a groundbreaking, highly integrated consumer product. Amazon began with a goal of improving the user experience surrounding physical books. The initiative was led by Gregg Zehr who brought considerable pedigree having previously been the VP of Hardware Engineering at Palm Computing.

The new team was set up outside of Amazon and its strategic objective was complementary to Amazon's mainstream activities. This was the genesis of Amazon’s Lab126, a start-up that focused on product innovation around a new generation of connected devices. Amazon's connected device road map has progressed from the connected eReader to tablets. Most recently, Amazon’s Kindle has been talked about as a point-of-sale device.

If we fast-forward to the present day, it is difficult to escape a sense of déjà vu when looking at Google’s acquisition of NEST. Here we have a separate entity with core competencies in creating highly aesthetic consumer products, led by executives with a strong Apple-design pedigree. And, according to Google’s CEO Larry Page, Google and NEST are “excited to bring great experiences to more homes in more countries”.

However, relative to Amazon's start-up costs ten years ago, it seems that the entry cost for a new category of innovation in the connected devices arena has gone up to the order of a few billions dollars!

So what did Amazon accomplish with Lab126? What might we expect from Google/NEST? And, what does this mean for companies that can’t afford billion dollar initiatives?

Review of M2M Corporate Events in 2013

2013 as a whole was another year of strong corporate activity in the M2M market. A total of 147 events easily surpassed the 115 events that were recorded in 2012. These events include: announcement of an industry changing technology breakthrough; market entry/expansion initiatives; strategic partnering; investment-related acquisitions or divestitures; distribution agreements along the value chain; product innovation and outsourcing of key service delivery capabilities.

While 2013 saw many more companies taking to the press wires to publicize their sales wins, these are not recorded here as corporate initiatives. If anything, sales wins are the consequence of one or more corporate strategy commitments made in prior years.

An important development that occurred over the course of 2013 was a shift in sentiment to promote IoT in preference to M2M. This began with a raft of announcements at the Consumer Electronics Show (CES) in January 2013. Momentum continued to build around the IoT theme due to significant publicity drives and business commitments by large organizations such as ARM, Bosch, Cisco, GE and Intel.

Rethinking the mHealth Value Proposition

Over the past few weeks there have been a couple of thought provoking developments in the mHealth market. The first event was the withdrawal of two recently launched mHealth services by O2 UK on the grounds that there was inadequate consumer demand. The second event relates to Verizon Wireless which obtained FDA approval for its mobile health remote monitoring and personal health data platform.

These developments prompted me to revisit some earlier work I did on the value proposition in mHealth. In particular, I was investigating whether remote monitoring is actually a relatively minor, but necessary, element in the business model. My earlier work focused on diabetes care although I suspect that the arguments carry over to other chronic health conditions.

M2M Corporate Initatives - Strong H1-2013

Over the first half of 2013, there has been strong evidence that companies in the M2M market are continuing to implement a range of business strategies to capture new M2M service and revenue opportunities. Specifically:

• the number of corporate initiatives is more than double that for the corresponding period in 2012

• the market is no longer entirely driven by supply-side companies; several enterprises have strategically embraced M2M connectivity and have either partnered with mobile network operators or they are taking the lead role in developing new services

Developing IoT Privacy as a Value Proposition

Companies offering services based on connected devices will increasingly have access to significant amounts of highly granular data about consumers and their connected devices. This trend is heightening privacy-related concerns about the way that such data might be used and the potential for consumers to be harmed.

The U.S. Federal Trade Commission’s recently launched an inquiry into privacy and security implications of the Internet of Things. In the commentary below, I outline my views of the key issues from a business perspective. One key consideration is to demonstrate the economic value that companies are currently capturing by combining consumer data from multiple sources.

I also highlight the fact that there will be beneficial as well as harmful uses of private data. While consumers should be protected against harmful scenarios, policy makers and business organizations that have an interest in the long-term viability of the IoT market also need to ensure that consumers are not ruthlessly exploited under apparently beneficial situations. Through this perspective, concepts of trust and stewardship related to the use of private data can be developed into new and appealing value propositions.

Verizon M2M - revised priorities?

My attention was recently drawn to Verizon’s recruitment activities in the M2M sector. I was intrigued by the profiles and the roughly 130 positions Verizon has been trying to fill notably when these are viewed against the acquisitions it made as part of its M2M strategy. More on this will follow after a recap of Verizon’s initiatives.

M2M service provider metrics

This note is part of my occasional series dealing with business metrics for the M2M sector. On this occasion I examine a few operational benchmarks for an M2M service provider. In this case, I have drawn on data for Numerex in the US which is one of a few publicly quoted entities in the M2M market.

Numerex was established in 1992 and has focused on wireless connectivity since 1999 after divesting its wire line business to BT. The company recently passed the 2m connections milestone during Q1-2013. While this connections base is small in relation to the M2M business units of the large mobile operators (many of which fall in roughly the 5–10m range) it serves as a useful reference point for business planning, performance benchmarking and investor due diligence insights. These are highly topical in the present climate where companies are expanding their M2M operations; this earlier post on building a billion dollar M2M business, for example, has been the most read item on this site in recent months.

IoT Business Models

A few weeks ago, I had the pleasure to be a stimulus speaker at a New Digital Economics event in San Francisco. I spoke about IoT Business Models during a full day session - entitled Digital Things – which was devoted to new opportunities from the ‘Internet of Things’.

Digital Things ran in parallel to sessions on Digital Commerce and Digital Entertainment so there was definite competition for conference delegates. As a measure of how seriously Silicon Valley is taking the IoT market, the Digital Things session drew by far the largest audience.

Since the IoT market is still comparatively underdeveloped in commercial terms, my presentation focused on lessons learned from the M2M market. In particular, I highlighted several insights from the business strategies that service suppliers and providers are implementing.

M2M valuation

Connected device applications are not all equal. Consumer-oriented devices may have a revenue generating life of 2-3 years while cars and industrial machinery a life of 5-8 years. In extreme cases, utility-like devices related to smart grid or smart city transport may be operational for even longer periods of time.

As a result of these variations, business developers and CFOs need suitable tools to manage both the risks and the rewards associated with different application opportunities. This is where valuation techniques become useful. They not only help to quantify new opportunities but they can also drive business model innovation.

Two Aspects to Business Model Innovation

New business models and business model innovation have become very topical in the M2M industry over the past year. Now, companies are talking less about eye-catching use-cases and more about the business of commercializing the most promising ones. The IoT market, currently preoccupied with cool and quirky devices, has yet to make this transition.

For any company in the M2M market, there are two aspects to business model innovation. The first deals with business-unit organization at a corporate level. The second applies to any special approach that is needed to capitalize on a specific market opportunity.

M2M Platform Permutations

Ericsson’s 5 February announcement to supply its M2M Device Connection Platform (DCP) in support of XL Axiata in Indonesia has prompted this update to an earlier article on the competitive dynamics of international alliances and M2M platforms.

The DCP deal is something of a coup, providing Ericsson with a meaningful customer reference in the highest population country in South East Asia. The news announcement actually formalizes a business relationship that dates back to early 2012. In October 2012, both companies highlighted an achievement of 89,000 M2M connections. The pace of growth seems to have accelerated with XL Axiata’s M2M base reaching a total of 125,000 in the intervening months. The latest announcement provides some timely marketing collateral for Ericsson to use with mobile operators that cannot justify an investment in their own M2M platforms and the delegations of mobile-operator executives who will shortly be congregating at Mobile World Congress.

The move by XL Axiata is not unique in the market. Other mobile operators have partnered for M2M platform capabilities to handle large scale application opportunities using processes that are geared specifically to M2M operational needs and economics. AT&T was an early partner of Jasper Wireless, for example, while Everything Everywhere in the UK has been working with another platform provider, Transatel.

These developments and the changing competitive dynamics for M2M platforms will have far-reaching implications for all device vendors, service providers and users in the M2M eco-system.

Building a "billion dollar" M2M business

Over the past 1-2 years, the concept of a “billion dollar” business has often arisen in my project related discussions concerning multi-national operators. Indeed, Matthew Key (Head of Telefónica Digital) recently set a target of Eur.0.5-08bn (almost US$1 billion) for its M2M revenues by 2015. A billion matters in the frame of reference for most large operators because anything smaller often does not warrant management attention. This is understandably the case when resources are being requested of Group-level decision makers who have to weigh competing market opportunities.

So, what does a billion dollar business look like? How might an MNO reach this level of revenues within a 3-5 year interval of time? And, what are some of the business model implications for operators pursuing a “billion dollar” goal? 

Finance as a Telco M2M offering

The role of telecommunications service providers in the M2M market is typically associated with the provision of wide-area data connectivity. This narrow perspective ignores the other capabilities - technical and non-technical - that service providers can bring to bear in new application scenarios.

In November 2012, Telefónica announced a cooperation agreement with Generali Seguros in Spain to pilot a new, automobile insurance service. The service will allow users to pay for their car insurance policy based on how they drive. The service will also provide information about how users can drive responsibly and tips to improve their driving habits. The overall service concept is not new; it has parallels with an offering such as 'In Drive' which is available in the USA from State Farm Insurance and Verizon's recently acquired subsidiary, Hughes Telematics.

However, what is interesting in the Spanish case is the three-party business model that Telefónica has put in place to capture a share of the wider commercial potential of this new service.