M2M Communications: Turn Potential into Profit

M2M Communications
Turn Potential into Profit

Camille Mendler Catherine Lynch
Principal Analyst Senior Director
Informa SAP Next-Gen Billing

Webinar: February 21, 2012

Agenda

• Introduction
• Riding M2M rollercoaster
• Triaging M2M opportunities
• Securing profitability
• Conclusions & recommendations
• Q&A

Source: Flickr/cliff1066â„¢, Paul Kelpe

www.informatm.com 2
©All rights reserved

M2M: Multiple contexts, infinite possibilities

A simple aim: Communicate intelligence from a vast,
non-sentient world to enrich our daily lives and work.

Personal
wellness travel security
home entertainment
Urban
energy health
transport
public safety
Industrial
extraction distribution diagnostics
production Source: Flickr/RaeAllen

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© All rights reserved

The challenge: Pricing, rating, charging & billing

Sensors Network Monetization

€$£¥

Source: SAP
4

Many beliefs about the M2M market are wrong
Myths:
Problems:
External, due to supply
chain fragmentation

Value:
Delivering M2M data

Opportunity:
Targeting the right
vertical apps

Networks:
M2M networks are public

Communications:
M2M will become
broadband
Source: Informa Telecoms & Media

Implication: It’s time to shed light on market realities.
www.informatm.com 5

Surveying the field

Survey respondents Survey respondents
across the M2M supply chain from 50 countries
Integrator /
consultancy
17% South America
& Caribbean,
Device, 5% North America,
module, Telecom 12%
chipset maker operator
6% 39%
Western & Middle East &
Eastern Africa, 13%
Telecom Europe, 52%
equipment
vendor
19%
Asia Pacific,
MVNO 18%
2%
Satellite
Cloud MVNE operator
services Telecom 3%
software 2%
provider
4% vendor / ISV
9%
Totals may not add to 100% due to rounding. n=263. Source: Informa-SAP M2M Communications Survey

Implication: Respondents had to be involved in the M2M supply chain;
we also conducted 15 interviews.
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M2M market expectations are bullish!
Today: M2M contribution 2015: M2M contribution
to total revenues to total revenues

5% or more 21% 18%
27%
Less than 5%

% of respondents
% of respondents

68%
Zero 78% 76%
62% 44% 67%

29% 31%
17% 14% 18% 24%
1%
4%
CSPs Integrators Telecom CSPs Integrators Telecom
equipment equipment
vendors vendors

n=111 CSPs (telecom operators, satellite providers & MVNOs),
n=45 integrators, n=49 telecom equipment vendors Source: Informa-SAP M2M Communications Survey

Implication: If these expectations are met, this would equate to a
$65B+ M2M market for mobile network operators alone by 2015.
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Riding the M2M rollercoaster

www.informatm.com. 8

Nothing is really typical in M2M

‘Typical’ deal: ARPU ‘Typical’ deal: M2M SIMs
35% 30%
% of M2M service providers

% of M2M service providers
30% 29% 26%
30% 25%
28% 19%
20% 19%
25%
15%
20% 10% 10%
8% 8% 5%
15% 5% 3%
3%
0%
10%
5% 3%
5% 5%
0%
NA / DK < $3 $3-$5 $5-$7 $7-$9 >$9
ARPU per SIM ($) Number of SIMs

Totals may not add to 100% due to rounding. n=118 Source: Informa-SAP M2M Communications Survey

Buying a data plan is the most common M2M pricing model in use.
SLA-based, app-based or revenue share models remain uncommon.

Implication: Every M2M deal is unique, but underlying costs are the same.
www.informatm.com 9

Structural barriers are the biggest concern
Barriers to success in M2M

• Managing and monetizing Fragmented ecosystem 49%
different partner relationships Unproven business models 43%
No. 1
Low ARPU, low margin, low ROI 35%
for CSPs
• Low return on investment End-to-end service mgmt 29%

Technology immaturity 20%
• Some concern about
Unstable partner landscape 17%
technical standards
Billing / charging complexity 17%

• Surprisingly low ranking of Security / privacy concerns 15%

security and privacy Lack of M2M roaming 14%

Traffic management 8%

All respondents, n=263
Source: Informa-SAP M2M Communications Survey

Implication: Diverse concerns, primarily about ROI.
www.informatm.com 10

Revenue capture in the value chain is complex
Presentation

Comm. Middleware
Network Network Integration
Sensor Device & Apps

Machine Enterprise

Vendors Vendors Service Service Service System
Providers Providers Providers Integrators
€ €
$ €
€ £
$ Resellers & Solution Providers
Source: SAP
11

Operationally, what’s critical for M2M success?
Top 5 Telecom Telecom Device, Cloud
M2M operational CSP equipment Integrator software module, service
focus areas vendor vendor / ISV chipset maker provider

End-to-end service mgmt ▲ ▲ ▲ ▲ ▲ ▲
Partner mgmt ▲ ▲ ▲ ▲ ▲
Flexible billing ▲ ▲ ▲ ▲ ▲ ▲
Security & fraud ▲ ▲ ▲ ▲
Network traffic
& signalling loads ▲ ▲ ▲ ▲
Ordering & provisioning ▲
Cross-border roaming ▲
Business analytics ▲ ▲ ▲
n=111 n=49 n=45 n=23 n=16 n=12

Implication: E2E service management & flexible billing are table stakes
for all. A minority prioritizes the analysis of M2M data.

A bit-pipe future for telcos is widely expected

Telecom operators are destined to be bit-pipe providers
in the M2M market. Agree or disagree?
Strongly agree Somewhat agree Somewhat disagree Strongly disagree

Telecom operators (mobile,
18.6% 41.2% 24.5% 15.7%
fixed, integrated)

All survey respondents 17.5% 46.0% 27.0% 9.5%

0% 20% 40% 60% 80% 100%
% of respondents

Implication: This is a self-fulfilling prophecy without a change
in mindset – and the right tools.

The M2M revenue opportunity is shifting

2012 2015
Decision support, reports
and alerts, analytics
Security, demand response,
performance management
Consulting, integration,
software development
M2M
revenue Communications services,
distribution associated communications
hardware


Implication: The M2M market is at an intermediate stage.

M2M services must align to end-user needs

Utilities Oil & Gas Rail

Top 5 1. Connecting remote locations 1. Connecting remote locations 1. Connecting remote locations
communications 2. Cost of connectivity 2. Rising bandwidth needs 2. Managing multiple networks
headaches 3. Data security 3. Data security 3. Staff technical skills
4. Staff technical skills 4. Cost of connectivity 4. Supplier reliability
5. Managing multiple networks 5. Managing multiple networks 5. Cost of connectivity

Technologies Public cellular (2G/3G), fiber, wifi, Public cellular, (2G/3G) fiber, wifi, Public cellular (2G/2G), fiber, wifi,
used private radio/microwave, satellite, private radio/microwave, satellite, private radio/microwave, satellite,
wireless mesh, WiMAX, powerline wireless mesh, WiMAX, LTE wireless mesh

Source: Informa 2011 vertical industry end-user surveys, n=241 respondents

Implication: M2M intelligence must extend to enterprises’ remote assets
beyond the reach of public networks.

M2M intelligence matters

Example: Motorway tolls for subscribers

– Autoroutes Paris-Rhin-Rhône

• Management of "Liber-T" On Board Units
• For individuals and enterprise fleets
• Flexible discounts:
• Volume based, time based, location based
• Recurring fee, one shot fees, for fleets

16

Triaging high-value M2M opportunities


We’re getting smarter about M2M segmentation
Various inter-related trends: CSPs’ target industries for M2M
Transport and logistics 51.8%

• Developing cross-industry M2M Utilities 46.4%
Automotive 27.3%
solutions Financial services 20.0%
– Eg: Pay-as-you-drive insurance Health 20.0%
touches transport, automotive, financial Operators / MVNOs 15.5%
services Consumer electronics 14.5%
• Creating new annuity revenues Public safety 11.8%
– Eg: Remote product diagnostics as a Integrators 11.8%
service (eg: photocopiers, printers) Manufacturing / industrial 10.9%
• Marketing B2B2C opportunities Oil and gas / mining 4.5%
– Eg: Smart metering for utilities’ Agriculture / food 2.7%
consumers Military / defence 0.9%
Other 3.6%
• Targeting SMEs
Don't know / undecided 12.7%
– Eg: Low-cost fleet management % of CSPs

Implication: Focus is shifting to specific apps versus specific industries.

In M2M, Grannies and Gangsters are alike

Source: Flickr/A30_Tsitika

Elder care Felon tracking

Many worry about the ‘long-tail’ nature of M2M applications.
But functionally, many similarities exist between apps.
These can be cross-marketed to build profitable scale.

Implication: Seek horizontal application of M2M functionality.

Triaging for M2M success: App categories

Category Description
Static Monitor assets in fixed locations, such as soft-drinks
machines or photocopiers.
Nomadic Rely heavily on mobile networks to track people and
assets on the move, such as trucks and shipping
containers.
Transformational Create a brand-new annuity revenue stream for the end
customer, such as pay-as-you-drive insurance.
Horizontal Applications that are functionally similar across various
industries (see previous example).

Implication: Applications which match multiple categories
have a greater potential for scaled success.
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There’s a missing link: Long-tail wireless

• Long-tail wireless vendors
support vertical applications • Example: CalAmp, modem/router vendor
• Eg: industrial automation, SCADA
• Key verticals: automotive, oil & gas, fleet,
logistics, public safety, rail, utilities, direct
• Serve challenging locations broadcast satellite
public cellular can’t easily reach • Technologies: GPS/GPRS, LTE, private radio,
• With unlicensed & licensed spectrum satellite, WiFi, WiMAX, Zigbee

• Annuity: 235,000 customers for vehicle
• Support ‘bottom-up’ M2M tracking, vehicle finance, fleet management,
remote car start services
• Appetite to diversify through annuity
revenue streams • Alliances: Strategic alliance with nPhase
(Verizon); works with AT&T, Numerex,
Rogers, Sprint, Vodafone

Implication: These vendors can bridge between public and private
M2M – they are both partners and competitors for CSPs.

M2M connectivity will grow explosively
More things to connect…
…the connectivity pot grows
Public (cellular) will not be
the sole beneficiary

2020+

2015

‘Private’ M2M will dominate
2012
Using familiar (eg: WiFi)
and unfamiliar protocols
(eg: WirelessHART)

Implication: Some CSPs believe that revenues from public cellular M2M
will be big enough to fight for.

Back to the future: Alliances

Airlines Telcos M2M

Orange

Sprint
Deutsche Telia
Telekom Sonera

Verizon
Vodafone Wireless
MACH

Syniverse

Global alliances and hubs for cross-border M2M should cut costs and
speed service activation. Often focused on large multinationals, they
must also serve SMEs with M2M roaming needs.

Implication: Battle lines are being drawn to control public cellular M2M.

Securing profitability


Let’s review M2M business models & challenges

• Flexible platform with low ongoing cost of ownership
Low-cost model • Scalable platform to scale for high volume
• Low ARPU unit value

• Reduce operational costs
Massive scale • Support mix of recurring & usage based micro payments
• High volume billing & high availability architecture

• Handle settlement & commission for complex value chains
Multi-party • Support retail & wholesale pricing models
• Global support
value chain • Analytics promote greater efficiency

25

It’s time to look further within
Profitability What is it? Internal External Can it be
variable CSP issue market outsourced?
issue
Reporting structure of internal M2M _ _
Structure division.
Internal metrics used to determine _ _
Accounting M2M profit and loss.
Cost to deliver cross-region M2M _
Roaming services.
Service management costs _
Platforms and capabilities.
Dependency of M2M service pricing _ _
Modules on module costs.

Partners Partner pay-out models supported.

Charging M2M pricing models supported.


Implication: Many profitability variables lie within a CSP’s control.

Conclusions
Myths: We say:
Problems:
Internal issues are
External, due to supply
underplayed
chain fragmentation

Value: Value lies in
Delivering M2M data the data
Opportunity:
Opportunity lies in
Targeting the right horizontal apps
vertical apps

Networks: M2M networks are
M2M networks are public also private
Communications:
M2M will remain
M2M will become
largely narrowband
broadband

Implication: M2M is a huge opportunity – choose a sustainable role.

Q&A


Thank you!
Camille Mendler
camille.mendler@informa.com

For more M2M market intelligence, contact:
EMEA Asia
Jamie Moss Charles Moon
jamie.moss@informa.com charles.moon@informa.com
Sheridan Nye
sheridan.nye@informa.com

Latin America North America
Marceli Passoni Andy Castonguay
marceli.passoni@informa.com andy.castonguay@informa.com

SAP Next-Gen Billing: Run better M2M services

• Supports flexible pricing for retail and wholesale
models

• Support for end to end service management

• Low cost platform for high volume, low value
transactions

• Handles complexity in partner settlement

• Leverage analytics to interpret data & sell « greater
efficiency »

For more information, contact: catherine.lynch01@sap.com

M2M Communications: Turn Potential into Profit

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