M2M is rapidly approaching a tipping point, a perfect storm of converging trends that creates the potential for fast and enormous growth. The democratization of device and service development is picking up momentum. You don’t have to be an experienced engineer working for a top-notch technology company anymore to start building M2M solutions. The modularity that hardware and software developer tools introduce is lowering the barriers for developers and even end users to innovate. the emergence of open, ubiquitous general purpose technologies will make it possible to develop, launch and maintain new applications with dramatically lower needs for capital and lead times. This would potentially be an open-source technical stack, analogous to the LAMP (Linux/Apache/MySQL and one of Perl, PHP, or Python) stack ubiquitous on the Web.
Analysts believe that Machine-to-machine (M2M) is often portrayed as a nascent industry sector. However, operators are already generating strong revenue in this sector, amounting to USD10 billion worldwide in 2013, and increasing to USD88 billion by 2023. Future growth opportunities will be realised in emerging regions as applications are tailored to local markets and the cost of solutions declines. All the market signs show that the industry is ripe for an M2M ecosystem to emerge in the coming years. Whoever takes the lead, whether it is telcos or other players, will have a strong advantage in building network effects and locking in users and developers. According to VisionMobile’s M2M Recipe these are the key ingredients to the M2M banquet :
M2M is rapidly approaching a tipping point : Modular hardware and software components are lowering the barriers for developers and even end users to innovate, paving the way for new entrants in the market. As communications specialists, telcos are in pole position to take advantage of the unprecedented growth that innovation promises, but only if they play their cards right.
Ecosystem economics have proven to be a source of decisive competitive advantage in recent digital revolutions such as the PC, internet and smartphones. Most recently, Apple and Google used ecosystem principles to open up a whole new mobile computing market and created tremendous value in vibrant, large app ecosystems. Incumbents who missed the opportunity to leverage ecosystem economics have lost their market positions to the ecosystem driven newcomers.
It is only a matter of time before someone applies the same ecosystem principles to disrupt the M2M market. M2M is today where the app market was in 2008. Many of the roadblocks in pre-2008 app development can be found in M2M today: high market fragmentation, the lack of direct access to customers, complex, tightly controlled and expensive (for the service developer) distribution channels.
The source of possible explosive growth are new users, for whom current M2M solutions are too complex, expensive, or both. Making better, more advanced solutions for existing customers and system integrators will not attract those non-consumers. It is complexity and rigidity, not lack of performance that keeps new users from getting on board.
Non-consumption can best be addressed by leveraging a large and diverse set of developers. We don’t know which M2M applications will emerge; indeed, it is fundamentally unpredictable. The app economy clearly showed that when you empower third party developers to experiment, they will find ways to create value, often in unexpected places.
The advantages of empowering external developers are clear. The likelihood of uncovering “killer apps” is greatly increased, the risk of failure is off-loaded to a large amount of companies and individuals and telcos can unlock a level of investments far greater than any single company could afford.
The owners of successful platforms connect users and developers. It is the network effects resulting from their interaction that will ultimately create unprecedented growth.A successful platform leverages three key control points: service creation, distribution and consumption. Each of these control points needs to be designed to reduce friction and amplify network effects.A platform strategy is only defensible if the platform owner can capture some the ecosystem’s value. The trade-off between stimulating growth and capturing value can be managed by subsidizing or commoditizing ecosystem participants and by designing the platform to drive the telco core business.
Telcos have a strong incentive to own the M2M platform, rather than leave it to external companies. Only the platform owner can effectively use the tools of subsidies, competition stimulating openness and value-capturing closedness. Telcos can add value by making it easier to use their connectivity and providing more “M2M-friendly” interfaces – often described as managed connectivity. Beyond this, they can look to create and participate in the service enablers market for developers and application providers to easily identify, authenticate, provision, and maintain their device fleet;to update and rollback software on the devices and enable them to deploy processing logic into the “Internet of things” in order to render the system more robust, distributed, and autonomous.
AT&T’s Digital Life initiative has packaged a set of home automation solutions around security, access, energy and water. This makes it easy for consumers to find and select solutions that suit their needs. On the one hand, because AT&T only sells products from carefully selected vendors, consumers can be assured of a certain quality standard. On the other hand, as AT&T manually selects solutions and presents them as its own, the company doesn’t give the user much choice (tens of products at most) and makes it difficult for product developers to join the program. The M2M Marketplace of Deutsche Telekom is an early example of what an app store equivalent for M2M might look like. Vodafone is able to provide a global SIM to support your M2M capabilities and applications across the globe. By providing a global SIM that is pre-provisioned and ready to use, they can significantly reduce the complexity of installation, distribution and deployment of M2M solutions.
Telcos that have assembled the appropriate teams and resources will be poised for greater success as the M2M market begins to grow. As operators in developed markets have learned, it takes 18 months or more to organise the various aspects of an M2M business.Telcos now have the opportunity to reap the first mover advantages they didn’t seize as the smartphone disruption unfolded, to take up a position of control and to avoid the need to respond to a commoditization scenario. The time to act is now.