Monday, 15 August 2011

Machina Research Global M2M forecasts

It’s been a busy summer so far at Machina Research.  We’ve been working hard to finalise our first Global M2M forecast, including devices, traffic and connection technologies (all for each of 54 countries, and 5 ‘Rest of’ regions). I thought that it might be useful to post an interim update – the figures below are the total number of M2M connected devices in each sector by 2020, in 000’s.

M2M Devices in Intelligent Buildings                                          4,900,000
M2M Devices in Smart Cities & Transportation                           work in progress
M2M Devices in Automotive                                                      1,400,000
M2M Devices in Consumer Electronics                                      4,200,000
M2M Devices in Healthcare                                                      770,000
M2M Devices in Utilities                                                           1,500,000
M2M Devices in Manufacturing & Supply Chain                          work in progress
M2M Devices in Retail & Leisure                                               140,000
M2M Devices in Construction                                                    33,000
M2M Devices in Agriculture                                                       82,000
M2M Devices in Emergency Services & National Security            51,000
M2M Devices in Smart Enterprise Management                           work in progress
M2M Mobile Broadband Devices                                                 work in progress

The figures listed above already total somewhere North of 13 billion M2M connected devices by 2020.  Mobile Broadband devices such as tablets, phones and laptops don’t strictly qualify as M2M according to our definition (“Connections to remote sensing, monitoring and actuating devices, together with associated aggregation devices”) but it looks like Matt (co-founder of Machina Research) has already identified around 9 billion such devices, and only counting those connected to WWAN networks.  More musings and meanderings on mobile broadband at Matt’s Wireless Noodle.

Machina Research will be publishing our Global M2M forecast in September, and I will be posting the occasional update here as we continue to develop it.  The report will adopt our usual approach of discussing drivers and barriers for growth of the relevant M2M markets and will be supported by an Excel data sheet including granular 10 year market forecasts for 54 countries and 6 regions. The forecasts will cover numbers of connections, traffic and revenue for each of the sectors, together with splits by technology (LAN, MAN, 2G, 3G and 4G, etc).  More detailed information on any of the sectors is/ will be available in our specific sector reports, as we publish them.

Monday, 8 August 2011

Mobile industry closing door on M2M in consumer electronics

From a recent Machina Research press release: “The role that mobile operators, and mobile connectivity standards, might potentially play in the consumer electronics market is severely limited by the cost of WWAN embedded modules. Chipsets for Wi-Fi and other short range communications technologies generally contribute under USD2.50 to Bill of Materials costs, and often less than USD1.00. By comparison, 3G embedded modules cost of the order of USD30-60, with 4G costing more still, and effectively price the technology out of the highly competitive Consumer Electronics market. If those prices don’t fall, then the mobile industry might just have to sit out the opportunity for M2M connected Consumer Electronics and stick to already established mobile broadband devices.”

There are three factors underlying the relatively high costs of WWAN connectivity:

* Any consumer electronics device incorporating WWAN connectivity really has to be multi-mode (2G+3G) and multi-frequency -- there's no real way around this (other than in the case of extremely low bandwidth devices, with sufficiently short expected lifetimes that 2G switch-off will not be an issue) and the increased complexity of the underlying chipsets increases the cost of those chipsets.
* IPR costs (fees for Qualcomm, mainly, and mainly in the case of 3G) are charged essentially on a per-device basis.  That's fine in the case of a smartphone where 3G data transmission rates really improve the user experience: the additional upfront premium seems worth it. But in the case of a digital photo frame, the premium for 3G connectivity doesn't look like quite such good value.  An easy way around this problem (well, easy in theory, if a little harder to implement) would be to persuade Qualcomm to accept royalties on the basis of 3G traffic carried, rather than 3G devices sold. This would reduce the licencing costs of typically low-bandwidth M2M devices. Qualcomm would win too, since a lower IPR payment received in relation to a 3G connected digital photoframe is better than nothing.
* Interoperability testing is expensive, particularly when expressed as a cost-per-device for devices with relatively low expected sales volumes. All devices with WWAN connections need to undergo interoperability testing of some form before they can connect to a carrier network, but it's complex and expensive.  A CE manufacturer can reduce the testing burden by using WWAN modules, rather than chipsets, but, again, these add to BOM costs. From the perspective of a CE manufacturer, all this just serves to make WWAN connection options less attractive relative to WLAN connection options. Unfortunately, the trend here seems to be for mobile operators to close internal test departments and outsource testing capabilities in a tightly controlled way. Yes, the closed-system/ walled-garden strategy is getting another spin. If mobile operators took a more open approach to interoperability testing, then the market might benefit from competition between platforms and approaches. There would be scale benefits too, as individual test houses could be expected to have relationships with a greater number of mobile operators.

Of these three factors, it's probably the cost of interoperability testing that's the showstopper, and we're unlikely to see any breakthroughs in IoT cost levels anytime soon because of the relatively closed nature of the market. Reluctantly, we probably have to conclude that the mobile industry has effectively closed the door on the vast bulk of the potential M2M consumer electronics market (at least where viable alternative technologies, such as Wi-Fi, exist).  Conversely, opening the market for interoperability testing might just have the potential to be a bit of an iPhone moment.