M2M: Ready For an Explosion, So Where’s the Bang?

Machine-to-machine (M2M) communications is a technology that allows machines to communicate and to perform specific tasks without human intervention. It is intended to improve monitoring, control, supervision, and optimization tasks while reducing operational costs and increasing the efficiency of business processes. Convergence of the Internet and mobile communications has created the perfect environment for M2M services to flourish. This environment has been further enriched with advances in sensor, microcontroller, and battery technologies coupled with significant reduction in costs. It all sounds like the conditions are right for an M2M explosion, but why don’t we hear the bang?

Although not new, M2M is a great idea. However, the impact of M2M applications isn't felt on a day-to-day basis. It hasn't had the same effect as Facebook, Twitter, or the tablet PC. One of the key reasons why: Mobile operators’ existing business model has provided a huge growth opportunity for a long time. The model is based on increasing the number of subscribers as much as possible. This is a straightforward model with straightforward pricing. The complexity of the M2M business model is more than what operators have been willing to take on.

Because mobile operators did not push M2M services as aggressively as increasing subscribers, the M2M applications we have seen to date have been fragmented. Successful M2M services require service providers to get closely involved in the business processes of customers -- a lengthy and complex task. In a typical M2M service, the customer gets a solution as a result of successful collaboration between an application developer, system integrator, technology provider and a mobile operator (the main contractor). Although provision of an M2M service is complex, the relationship between the operator and the customer is close, mutually profitable, and lasts for a long time.

A lack of standardization in M2M services also keeps the relationship close. Once an M2M service engagement is up, running and performing as expected, customers won't switch service providers. Changing an M2M service provider is never as straightforward as simply changing a SIM card because the M2M solution is customer-specific. Currently, changing an operator means a redesign of the M2M solution from scratch. This situation will remain unchanged until M2M services are standardized (if ever).

Mobile operators will wait until human subscriber growth plateaus before launching M2M services. This approach reminds me of the famous phrase "If it ain't broke, don't fix it." Considering the operator's investment in an M2M venture, this strategy is justified. But it doesn't change the fact that mobile operators will have to offer M2M services if they want to maintain growth and profitability.

Let me try to explain why that is with a simple example:

Imagine a family of three whose members have one mobile phone each, which means three mobile phone subscriptions in total. Let us assume that each member of this family also has a laptop that connects to the Internet via a 3G modem. This brings the total number of subscriptions to six in this household.

Under normal circumstances, there is very little reason why this household should get another mobile phone subscription. That's where the growth bottleneck for mobile phone operators is. If a mobile operator is able to offer a home monitoring M2M solution to this family, a new "machine" subscriber -- and therefore, a new source of revenue -- can be generated.

Maybe the same household will also need an M2M security and safety application, which will increase the number of subscriptions further. As the number of M2M applications increases and new "needs" are created for consumers, the number of machine subscriptions will surpass that of human subscriptions. Therefore, it is not surprising to hear that some mobile operators expect four times as many M2M connections as humans on their networks in the near future.

According to Berg Insight AB, chip manufacturers will also benefit from M2M growth. By 2017, M2M is expected to comprise 16 percent of all chip sales in the world.

Most operators prefer to have a dedicated department (with top level managers as well as a dedicated development team) to develop and handle their M2M services and technologies. Although on the technology side most M2M applications will share a common base, the business and the marketing side of the picture is very different. This is because the diversity of the business problems that can be solved via M2M is huge. These problems include, but are not limited to, street lighting, courier services, bus services, vending applications, tele-health, meter reading etc.

In order to get a basic perception of the size of the M2M market, let’s just visualize the number of companies that provide a unique product or service. Each unique business will have at least one problem which M2M technology can solve. This is where I think the true potential of M2M technology is.

One very important challenge that mobile operators face is developing price plans suited for M2M applications. The last thing any M2M user wants to worry about is how much M2M communication costs per minute and how many megabytes are left on the M2M data plan. With so many M2M devices running simultaneously, it's easy to see why customers might avoid M2M services. Although I cannot provide any solid cost figures as a suggestion, the ideal M2M subscription (although probably unrealistic) in my mind would be:

• Free SIM card and free activation for each M2M device.
• Fixed M2M data cost per month without any cap on data usage (or with a sufficiently large upper limit).
• Reduced cost and attractive incentives for adding new M2M devices (i.e., creating new M2M subscriptions) that use the same mobile operator.

Due to different data traffic requirements of M2M applications, I think most operators will prefer to classify the M2M applications and charge accordingly. Although treating all M2M applications the same will provide a better ecosystem for M2M growth, this may not be practical.

Let us know how you feel about this as a consumer, or as a business. What's the right way to structure an M2M service plan?