 | Issue: | Asia-Pacific III 2011 |
| Article no.: | 4 | |
| Topic: | Building a profitable M2M business model for connected CE devices | |
| Author: | Jahangir Mohammed | |
| Title: | CEO | |
| Organisation: | Jasper Wireless | |
| PDF size: | 289KB |
About author
Jahangir Mohammed is the CEO of Jasper Wireless. Mr Mohammed founded Jasper Wireless in 2004 and serves as the company’s chief executive officer.
Prior to founding Jasper Wireless, Mr Mohammed founded and served as the CEO of Kineto Wireless. Kineto pioneered the convergence of WiFi and Cellular technologies. Kineto’s technology has become a GSM standard. He continues to serve on the Board of Kineto.
Previously, Jahangir Mohammed worked at AT&T Bell laboratories and Lucent.
Article abstract
The M2M opportunity may result in 50 billion connected devices of a very wide range. This market dynamics and expected volumes require entirely different approach. The business model of additional fixed fee is not effective for a user base suffering from ‘subscription fatigue’. They may still be tempted by ‘impulse-buy’ of various M2M services. This means that huge numbers of devices need to be provisioned on ad-hoc basis and dormant services need activating at the appropriate time. Billing systems need to cope with numerous micro payments, often in various currencies. Therefore, service providers entering the M2M market must automate and scale up their business and operational processes.
Full Article
First coined as a phrase in 1999 by RFID (Radio Frequency Identification) expert Kevin Ashton, the ‘Internet of Things’ has become shorthand for the next phase of growth in connected devices as we start to look beyond not only PCs, but also smartphones, as channels for new services. Whichever numbers you believe, the implications are significant. While there are already more than five billion activated mobile phone subscriptions globally, four times the number of PCs, some vendors forecast there could be as many as 50 billion internet-connected devices by 2020 across both fixed and mobile networks.
Looking specifically at cellular-based connected devices, the scale of the opportunity for mobile operators, device manufacturers and their M2M (Machine-to-Machine) partners is clear. With new categories of connected devices comes a new ecosystem. At the heart of it is the question of how to monetise both these new connected devices and the relationships behind these new services.
M2M Opportunities in Asia
The market for connected wireless consumer devices is still in its early stage, but poised for a period of dramatic and significant growth. Driven initially by connected device categories such as mobile PCs, internet tablets, e-readers and PNDs (Personal Navigation Devices), in 2010 growth was fuelled by internet tablets with embedded connectivity shipping in large commercial volumes. According to industry analyst Berg Insight, the number of connected consumer devices shipped is set to almost double during 2011 to reach 39 million units and grow to more than 270 million devices with embedded cellular connectivity by 2015.
However, it is not enough that there is a rapid growth in devices with embedded connectivity – the connectivity must also be used with the device activated and attached to a cellular network. To this end, the cellular attach rate for connected CE (Consumer Electronic) devices is expected to reach over 50 per cent by 2015. It is the combination of these two trends that is creating a major new opportunity for mobile operators, CE device manufacturers and their M2M platform partners.
In this world of connected devices, we have to look beyond simply mobile phones and laptops and to new categories of devices that are viable for connectivity, including personal navigation, e-readers, gaming, healthcare, tracking and in-car navigation systems. Within this, there are some regional differences in the applications and connected CE devices seeing uptake. For example, while in Europe telematics applications are more focused on logistics and navigation, in some Asian markets it is in-car infotainment services that are proving popular and driving automobile manufacturers to look at embedding connectivity into their vehicles.
In Asia, particularly in developing nations, connected CE devices are leapfrogging fixed networks and WiFi connectivity and going straight to cellular. While Japan has long been at the forefront of innovation in CE devices, today we are also seeing rapid growth in connected devices in markets such as China and Singapore.
Although there is an immense amount of potential in this market, many operators are only now entering it with vigour. Keen to understand the implications for their network and business models of deploying connected consumer devices, operators had delayed entering until they were certain that the potential would translate into business success. However, with operators such as AT&T in North America, Telefónica and KPN in Europe, Telstra in Australia and América Móvil in South America now delivering M2M services, the market is hitting the mainstream.
Service providers entering this space are faced with a key challenge: the dynamics and applications necessary for servicing this market are entirely different to those of the traditional handset market. As much as they have the network capabilities to enable devices with connectivity, they lack sufficient automated and real time provisioning, activation and scalable management processes that are capable of supporting millions of varied connected devices whilst also creating significant new revenue sources.
An Apple a day keeps ‘subscription fatigue’ away
As mobile operators in Asia look to monetise new opportunities around M2M services, the growth in connected consumer electronic devices attached to their network is a compelling area for new service launches. Connected CE devices can act as a channel for these new revenue-generating services. To unlock this new channel and launch new services such as in-car infotainment, operators need to be able to manage and monetise a new category of services based around a new business model. However, for the end-user consuming these services, there is a real danger of ‘subscription fatigue’.
Over the space of a month, consumers might be willing to give Apple £25 in return for several songs, or a couple of movies to watch while away on business or to keep the kids occupied on vacation. This boils down to the premium price consumers are willing to pay for immediacy. However, if those same consumers are asked at the beginning of the every month if they would be happy to commit to £25 in advance for the promise of some great content in return, or at the start of a year to commit to 12 x £25 per month, they would, in all likelihood, steadfastly refuse.
The typical subscriber is already overwhelmed with monthly bills. Between their phone bills, data card bills, Netflix (movie streaming) bills, cable TV bills and a list of other utilities, the last thing a subscriber wants is yet another monthly service charge. Simply put, they already have ‘Subscription Fatigue’ – they have too many content and service subscriptions and they are tired of them. However, this emphatically does not mean that they are also tired of consuming more content or services. Their appetite for content is nowhere near sated. This is why the Apple model works so well. A 99p song here, a £1.99 app there – these are easy micro-transactions which subscribers gladly pay when and where they want them.
When it comes to developing a connected device strategy, a mobile operator or service provider must address not only the technology, but also the business model. The M2M platform must support not only the technical requirements, such as the automation of operational processes and the delivery of a zero-touch experience that enables the customer’s device to work out of the box, but also address how the new services will be monetised. When it comes to services used by consumers, the most important thing is to get the consumer to actually buy the service.
From price-per-megabyte to connected-business-strategy
The market has been conditioned by mobile operators to think of connected services in terms of a monthly subscription that commits the consumer to at least eighteen months, and often over two years or more. However, just as Apple has successfully proven that this no longer need be the case, so consumer electronics and automotive companies are able to set aside old models and embrace what consumers clearly want – the ability to buy content and services when and where they want it. Micro-transactions allow subscribers to purchase digital content on-demand, and it is these ‘impulse’ buys that hold the key for expanding revenue streams in the connected device market.
Transparency is key to the consumer uptake of micro-transactions. To ensure sales, the automated purchasing process must appear effortless to the consumer. Operators must ensure they can eliminate the complexity associated with micro-transactions and have the necessary tools in place to support recommendation engines, simplified billing and instant provisioning systems.
The issues associated with micro-transactions, however, should not be underestimated. Both OEMs and service providers need to have the tools in place to process and bill for a multitude of small payments, often from a multitude of currencies. Devices can lie dormant on a retail store’s shelf before needing to be activated out-of-the-box when the consumer first purchases the device and turns it on, meaning the billing and charging infrastructure needs be able to cope with spikes in demand around seasonal peaks such as Christmas, when many devices are activated on the mobile network for the first time.
By partnering with M2M platform providers, OEMs (Original Equipment Manufacturers) and service providers can harness the necessary intelligence required for the nuances of micro-transaction provisioning. Finding a flexible business model that takes into account the unique usage profile of devices, across all demographics can also help OEMs to optimise costs.
An M2M platform provider can offer the intelligent rate plan management and sophisticated automation necessary to support this ever-changing market. Connecting devices for the first time requires specific intelligence and provisioning, creating grey areas for operators that prevent or delay them from entering this market. Connecting CE devices requires additional agility and flexibility skills to cope with a permanently changing environment, fast pace product development cycle and changing customer expectations. Getting the platform is one step ahead, but maintaining its innovative and competitive advantage is another. However – get this right and the potential for M2M is huge.
