July/Aug 2009

A couple of years ago, M2M magazine became very involved in an industry debate related to what label should be broadly adopted and used for the industry. Of course, “M2M” was and is widely understood by the readers of this magazine and those of us who started in the industry about a decade ago. That decade of M2M launch and growth was very bottom-up; iterated over time by a small community of businesses that had common or related visions for what M2M could end up being.

Towards the end of that decade, some prominent industry insiders felt the term M2M was not speaking to those most likely to adopt the technology, believing it was not very relevant to the vertical segments in which the potential adopters were doing business. The term M2M is very broad and binds subcategories such as telematics, telemedicine, telemetry, and smart services. Machine-to-macine defines what is common across these subcategories: The enabling technology related to communications and sensors, while allowing the subcategory-specific label to identify the unique application or area in which the technology is deployed.

To those of us who participated in the industry development, the term M2M also communicates an entire history of ups and downs, triumphs and failures, and a vast amount of learned experience. To us, the term encapsulates derived knowledge related to integration, business models, value chains, value propositions, technology cycles, and obsolescence, as well as a whole host of other aspects of M2M-enabling technology when applied to individual market segments. Obtaining this knowledge was not cheap, and it was not easy. We have those who have gone before us in the M2M space to thank for these lessons. Because of them we don’t have to experience the same pain, expense, and in many cases, failure that they did.

During the last year or so the adjective “smart” preceding nouns such as “technology,” “infrastructure,” “grid,” and even “planet” has begun to seep in to the consciousness of the general public. This is no accident as the term and its underlying concept is being championed by some very powerful patrons: IBM, GE, and even President Barack Obama just to name a few.

A side benefit of this development is that it is now much easier for those of us in the M2M industry to explain what we do for a living to people whom we have just met. The mass media propagation of the concept of “smart” is also providing a basis for hope that the major global challenges that we face can be conquered. “Smart” will make industry more efficient.  As a major component of the stimulus package, “smart” will modernize and future-proof infrastructure projects—it will make our planet more energy efficient while also being a key component in reducing harmful emissions. As a term, “smart” elicits a very positive emotional response in an audience even if they are not quite sure what “smart” really is. Unlike the bottom-up M2M, smart is very top-down as a concept.

Although “smart” is a positive label and is derived from a grand top-down vision, it doesn’t mean that all of the issues that had to be resolved by M2M—which is essentially the same offering with a bottom-up approach—no longer apply. With this thought in mind, there are a few lessons that the proponents of “smart” should keep in mind so as to avoid reliving some painful history.

These lessons may be well learned by many of the readers of this magazine, but I am becoming increasingly nervous that those new entrants drawn to the industry by the concept of “smart” are captivated by the vision while making some convenient assumptions regarding real-world deployments.

Lesson 1:
The cellular mobile network is not a utility.

Throughout the years I have met many new entrants to the space that had assumed the connectivity would be the easy part of their application or offering. They were under the impression that cellular mobile networks are analogous to the fixed line network where you simply run an interface cable from your machine to a modem and, voila—instant, lifetime communications. The truth is, however, it doesn’t really work that way in the cellular mobile network world.

The first thing you need to understand is the shareholders and management of these networks in no way consider that they provide a utility service. From their perspective, they own a mobile network over which they provide customers with high-value, branded services. This being the case, they will not allow any device or application on the network that might interfere or distract from that core business mission. In support of this idea, the operators reserve, at their own discretion, the right to establish rules and regulations for what can be activated on their network.

The second key thing to remember is the spectrum licensed by the mobile operators from the government is a finite, scarce resource; while at the same time mobile network technology is constantly evolving, improving, and needing to be more efficient. Because of this, spectrum will be reallocated to new purposes, services, and technology if the mobile network operator determines that it better serves their core business mission. Such reallocation of spectrum can wreak havoc with smart service adopters whose ROI models dictate that a connected machine in the field have a life span of up to 10 years. This lesson is no way theoretical as it was experienced by major players such as GM, www.gm.com, Detroit, Mich., with its OnStar, when the analog AMPS spectrum was reallocated to digital service, effectively permanently “disconnecting” vehicles with factory installed analog cellular modems. A different reallocation of spectrum resulting in the shutdown of the CDPD (cellular digital packet data) networks, circa 2006, caused major problems for several fleet management service providers that were being paid by customers to monitor large volumes of assets to which they could no longer remotely connect. Some of them never recovered.

While it’s true most of the mobile operators are currently releasing market messages that are positive about their support for “smart” or M2M offerings, there will remain a risk that in the future, circumstances may compel them to act in the interest of their core business mission, and hence shareholders, even if it means service interruption or additional costs to those who are running M2M applications over their networks. This risk dictates that all potential methods of wireless communications be evaluated not just based on service and module cost, but also on total cost of ownership over the predicted full lifecycle of the machine in the field. Such an evaluation could lead to technologies such as a legacy Mobitext network or a new entrant like WiMAX being viable options.

Lesson 2:
Understand the business drivers of the segment that you are selling into.

The media, and more than a few government officials, are touting smart technology as a panacea for the predicaments of multiple industries including healthcare, utilities, and transportation. When people have a cursory knowledge of a compelling vision, it’s easy to oversimplify and apply it as a solution to all sorts of complex problems, while forgetting about the need for a compelling business case or value proposition for every link in the value chain, including the ultimate purchaser.

Smart metering is an example of an area that could be setting up for unattainable expectations. There are many advocates of smart meters including environmentalists, federal and state governments, and of course the technology companies behind the solutions. We now have news the U.S. Dept. of Energy, www.doe.gov, Washington, D.C., is sponsoring stimulus investments and standards development for the deployment of the technology. Unfortunately, as pointed out in the April 29 Wall Street Journal article titled: “Smart Meter, Dumb Idea?” the viability of the business case is debatable as well as the solution lacking a value proposition for the consumer who may end up paying for the meter. There is also broad concern within the industry that the way utilities are currently regulated actually works against the business case for the technology.

As with the now tenuous government decree in Brazil that every new vehicle be outfitted with a tracking device, there is no guarantee of business success if natural market forces are not at work in support of mass deployment of the solution. These issues are rarely raised while the great vision of smart meters continues to be preached by the media.

Lesson 3:
It takes a Value Chain and a Value Chain only forms if every link makes money.

An exciting vision or concept is not a deployable, value-producing implementation. Making a vision a reality requires a whole lot of research, modeling, and reassessment—and I mean this not just from a technical perspective, but also from a business perspective. In order to make the vision a reality with machine-to-machine applications, an entire cooperative value chain must be assembled, and that means that every link sees a path to profitability for their company.

In the case of new or immature applications, this can take years of modeling, coordination, and investments by each link in the chain. The need for this becomes apparent very quickly in the bottom-up model of M2M, because you’re forced to work this out and be able to explain it before bringing a solution to prospective customers. “Uncooperative” value chain players can throw a serious monkey wrench in your time to market or profitability models. An interesting aspect of this in my experience is that after all of the cooperation, immediately after business launch, all links in the value chain work to commoditize all other links in an effort to make the total solution more efficient and lower priced. The GPS and wireless module businesses are currently experiencing the impact of this phenomenon.

I fear the top-down concept of “smart” launched and generated expectations before it was determined if all required value chain links would be profitable enough to induce cooperation in specific vertical segments. The smart meter example in lesson two illustrates this point for a new application while the stories about OnStar and the fleet companies in lesson one speak to the continuing risk years after a solution is launched and successful.

Please believe me; I am in no way trying to be a wet blanket on this new momentum benefiting our industry. I have worked in this industry for about 10 years and having just started a new business named M2MV, I intend on staying in it for many more. If anything, my reputation is probably one of being a bit of a hype-miester as I have always been bullish and optimistic about the longer term prospects for M2M. My caution is based on the experience of getting caught in the unfortunate consequences of a couple of different poorly implemented “next big things”—such as WAP (wireless application protocol), and the bursting of the technology bubble in 2001.

During its bottom-up days, M2M had to be able to explain and prove its business value and return on investment every step of the way. This was difficult, but it forced us to work hard on the business fundamentals and that resulted in making the industry more credible. I believe that it is incumbent upon those of us wearing the happily-obtained scars of M2M to help others avoid making the very same mistakes that earned us those scars. In this way, we can also all avoid failing to achieve the high expectations that are being created and the resulting loss in credibility that will come along with it.

Roger Dewey is CEO and managing member of M2MV LLC, www.m2mv.com, Raleigh, N.C., a consulting firm, specializing in strategic and business dimensions of machine-to-machine deployment.

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