Network revenue from machine-to-machine (M2M) communications is projected to grow at three times the rate of the mobile handset business, according to Harbor Research. With typical per-dollar revenue profit margins for cellular M2M services also considerably higher than the handset market, operators investing now can benefit from this growth opportunity.
Despite M2M only representing a small percentage of operators' overall revenue today, it is extremely stable revenue. M2M has a significantly lower annual churn rate of less than 5% compared with typical handset churn rates of 20-30% and has the advantage of extended contract periods of 3-5 years with little or no subsidy, according to Harbor Research.
"With falling voice revenues, operators have long been investing in additional services to boost revenues and we have typically seen those investments within the handset business. The cellular M2M business brings the stability of a low churn, long contract opportunity with high growth and profit potential. It's clear to see why many leading operators are looking outside their core business and taking advantage of the M2M opportunity," commented Robin Duke-Woolley, principal, Harbor Research. "However, M2M is a very different business to manage than the handset business; it has no retail outlets which makes the provisioning environment quite different. Plus M2M crosses many vertical industries that have unique technical and business requirements."
M2M communication is already prevalent in numerous industries because of its efficiency in data collection, remote monitoring, status tracking, diagnostics and maintenance. Applications vary from navigation devices that provide real-time traffic updates to pay-as-you-drive motor insurance, pay-at-the-table credit card solutions and remote utility meter reading."The growth of M2M also means that connectivity is increasingly being embedded into products during their manufacture. Traditionally, products and devices have been set apart through features and functionality alone, but this is increasingly being overtaken by the service opportunities created by directly connecting products to the Internet," continued Robin Duke-Woolley. "For example, you now see more and more industrial equipment being remotely monitored and controlled, creating a new differentiator for the manufacturer. This type of value-added service is making M2M a strategic necessity for product manufacturers. For the network operator, winning the M2M business can prove to be incredibly valuable, as they are much more likely to also win the voice business from that corporate client."
"Since we launched the Jasper Wireless service last year we are already working with operators in over 45 countries to provide a global M2M service," commented Cindy Patterson, executive vice president, international, at Jasper Wireless. "We are enabling mobile operators and multinational corporations to tap into a huge number of opportunities in different vertical markets, including transportation, connected personal navigation devices and point-of-sale. The benefits of offering a global service means that we can also work with OEMs to overcome issues surrounding embedded connectivity and global distribution. Understanding these pain points and addressing them with a tailored service means there are no limits to the speed at which M2M applications can grow."
Over the next five years, Harbor Research believes the market for cellular M2M applications is set to grow at more than 30% per annum, with the market driven increasingly by new service opportunities and, in some specific cases, by new regulations.