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Keith Mallinson |
Market growth with machine-to-machine (M2M) communications and the Internet of Things (IoT) will be significantly enabled by mobile technologies, but much of the value and income will be accrued in adjacent verticals such as automotive, medical electronics and home automation.
My October column on smartphones was the first in a three-part series examining continuing strong market growth in mobile devices and operator services. The mobile ecosystem is also rapidly expanding and converging into other industries with devices which are not handheld or worn. This second article focuses on M2M communications and IoT.
Mobile expansion and convergence
The mobile ecosystem has expanded substantially, and in various different ways, but mobile has overwhelmingly been about personal communications so far. Mobile communications:
- Was almost entirely about voice until the widespread adoption of text messaging, beginning in the late 1990s or early 2000s in most nations;
- Brought novelty with ringtones, rarely-used services such as picture messaging, and niche adoption of wireless email, mainly on BlackBerry devices, in the mid-2000s;
- Did not change significantly for most mobile operators or users with the initial introduction of 3G services prior to 2005; and
- Was revolutionised by modern smartphones, including high-level operating systems, with the introduction of the iPhone in 2007 and first Android devices in 2008. These devices exploited the mobile broadband services which have also started since around 2005.
The smartphone revolution has expanded the mobile ecosystem enormously as mobile phones have become personal computing, information and entertainment devices. Change and growth has been profound, but it has almost entirely been about personal and handheld devices. Mobile apps development became an expansion to the mobile ecosystem because it was an entirely new phenomenon. This change and growth will continue including significant potential for emerging product markets in wearables such as smart watches.
In addition, we are currently on the brink of dramatic change and market expansion which might well become as significant as the smartphone revolution, with a large proportion of objects communicating with each other and being constantly connected to the Internet. Many of these will connect through wires, fibre and Wi-Fi, and some will use cellular communications to do so. However, most will also become accessible and controllable by personal mobile devices including smartphones and tablets.
Show time
Increasing numbers of people at the Mobile World Congress (MWC) trade fair in Barcelona provides a useful proxy to quantify the enormous ecosystem expansion which is enabled by mobile technologies and services. The addition of App Planet in recent years, for example, attracts entirely new kinds of show attendees including applications software developers. MWC attendees were up 18 per cent over 2013 to 85,000 in 2014, according to the GSMA. That is substantially more than the 55,000 who came in 2008--seven months before the global economic meltdown which started with the collapse of Lehman Brothers in September that year. Last week when I booked my travel plans for the 2015 show, I noticed a scarcity of hotel accommodation being offered on the official website, which makes it seem attendee numbers will grow further for this upcoming show.
I wonder whether the show might even outgrow Barcelona. It outgrew Cannes–when attendance was around 28,000 a decade ago. That was before moving to Barcelona, and before the ensuing smartphone revolution.
Mobile M2M communications is nothing new, but it used to be a rather small niche. What we have seen so far in connected cars, medical electronics, home automation, smart metering and a whole lot more is only the tip of the iceberg in market potential. Adoption will transform M2M from being specialised, and in many cases relatively costly or customised industrial applications, to a true mass-market.
The presence of car manufacturers and their cohort at the upcoming MWC, for example, will show their significant commitment and market expectations. Initially, the consumer propositions will be on the basis of product differentiation and utility rather than price. A connected car will command a multi-thousand-dollar premium price, which is irresistible to car manufacturers. Drive-assisted and eventually driverless cars may add up to tens of thousands of dollars to prices.
Multiplier effects
For many in the supply chain, competition will be fierce and cost-driven but growth will substantial. According to Infonetics Research, the M2M module market is set to double in revenues from 2013 to $2.9 billion (€2.3 billion) in 2018.
This is just one small element in the market. Overall ecosystem growth including applications, product integration and services will be much larger. Statista estimates the entire M2M market at $45 billion in 2013. On that basis, modules only represent 3 per cent of the market value. By comparison, the market for baseband communication chips in mobile phones, including smartphones, was less than $20 billion last year. That is only around 5 per cent of a total $377 billion in mobile phone sales. The broader market enabled by these devices, including applications and mobile broadband services is much larger still.
There are numerous collaborating and competing initiatives underway in development of IoT technologies, standards and products. Participants include hundreds of companies in ICT and from various industry verticals. For example: the AllSeen Alliance and the Open Interconnect Consortium (OIC) are working to standardise IoT and make devices interoperable. Google is promoting its notion of the physical web, and the Thread Group for home automation. Intel is offering an IoT Platform--an end-to-end reference model to unify and simplify connectivity and security.
Predictions of up to 75 billion connected devices by 2020 (versus 8.7 billion in 2012) by various observers illustrate widespread optimism for growth. Most of these connections will not include cellular modems; for example, one's fridge can probably most cheaply and reliably connect to the Internet, if at all, via home Wi-Fi, given spotty mobile coverage. However, it is likely a significant proportion of connected "devices," such as cars, will include cellular communications including LTE. Yet even where an appliance does not require a mobile connection itself, it will, for example, be a "chiller" app on one's smartphone which interrogates or is alerted by the appliance when the beer runs out. This all signifies substantial market growth--both within and without what is generally regarded as being "mobile communications."
Similarly, growth in personal mobile payments also represents both expansion in the mobile ecosystem and convergence with an existing industry--in payments processing and banking.
Unless the GSMA reexamines its 2011 decision to stay put in Barcelona, I think I'll be booking my hotel earlier and earlier each year to make sure I'll have somewhere to stay in town in competition with increasing numbers of mobile newcomers from adjacent industries.
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. Find WiseHarbor on Twitter @WiseHarbor.