Paolini: Will carriers miss the boat on M2M in the consumer market?

By Monica Paolini, Senza Fili Consulting
M2M has a staggering potential for disrupting wireless telecoms on a scale comparable to mobile broadband, yet growth is still elusive. Innovation, new technologies, and lower cost equipment have not yet translated into mass adoption in the consumer market. Even the staunchest believers--and I count myself among them-- admit to some disappointment. Why?

Success of M2M relies on the development of a strong, supporting ecosystem, in which operators have to commit to support M2M connectivity to motivate vendors to put their efforts in developing and marketing connected devices. In turn, both vendors and operators have to have faith that user demand will materialize in the near future.

Understandably, operators are wary to support of M2M devices with a long lifespan, because they do not want to have a commitment to maintain legacy networks to support these devices. This is a concern voiced by many operators I talked to during a recent survey I did. Especially in the automotive segments, where cars are expected to run for many years, operators see a huge opportunity, but also the risk to get trapped in supporting legacy networks.

At the same time, vendors have to be ruthlessly aware of costs, and need to be able to rely on high volumes to reach the price points that will drive adoption in the consumer market.

A new approach to accelerate M2M adoption

Maybe there is a different way to drive adoption, and break this mutual dependency of operators and vendors that in this initial phase is slowing down innovation. The main challenge in the prevailing model is that the connected device is expected to have cellular connectivity. But cellular embedded modules are still expensive and not easily upgradeable. Perhaps even more importantly, each device has to support different embedded modules for different markets and operators, resulting in a high number of SKUs and, correspondingly, high manufacturing, marketing and support costs.

So, what if we decouple the M2M device from the cellular network, but preserve mobile connectivity by using the phone as the aggregation point? By no means is this a novel idea. Wi-Fi access points do this in a home network, although mostly not for M2M devices. In the smart grid, smart meters typically transmit to a concentrator, which in turn connected to the wide-area network.

This model has not yet been widely used for mobile M2M devices, but there is a large scope for market growth, even though, as we will see below, this poses some challenges for mobile operators trying to monetize M2M (and wishing to avoid following a similar path to OTT applications).

Enter the Zeo

The Zeo, a device to monitor sleep patterns, exemplifies very well this approach to M2M in the consumer space. While it is not a medical device, the Zeo is one of a new class of devices like the Fitbit or the Whiting Wi-Fi scale and blood pressure monitor that are becoming cult items within the personalized medicine crowd (see the just published books by Agus and Topol on the topic).

What makes the Zeo stand out--other than being a beautifully designed product--is the way it relies on iPhone and Android smartphones. To track sleep patterns, the Zeo uses a headband with sensors that is worn overnight and is connected by Bluetooth to the smartphone (for more detail see here and here). Throughout the night, the headband sends the data to the phone (or to a tablet). When you wake up, all the data is stored on the phone, you remove your headband and all the data is seamlessly synched to your online Zeo account for viewing and coaching. The same data is used by the phone to wake you up at the right time in your sleep cycle if you want.

The Zeo

There are several strengths to this approach as Meher Nerkizian, Zeo's Director of Engineering, pointed out to me:

  • Single SKU across markets, lowering costs for product development, sales, and support. The same headband can be used across the globe, and in fact the Zeo comes with adapters for different countries.
  • With Bluetooth, the headband can be manufactured cost effectively, has a low weight and long battery life (Wi-Fi or cellular did not fit the bill).
  • The phone becomes a free screen to leverage to show the data, and becomes a free alarm clock. By comparison, a different model of the Zeo that uses a separate unit to collect data with a display costs $150, while the mobile Zeo is $100.
  • Perhaps even more valuable is the ability to effortlessly transmit the data over the network, with no marginal cost to the user or to the vendor. The volume of the data is extremely low (in the kbyte range) and sent once a day, so there is no major impact on the mobile network either.
  • Reliance on the smartphone makes it much easier to use the Zeo when traveling. This is valuable as travel can exacerbate sleep problems. You only need to pack the headband and small docking station, and the phone will transmit the data wherever you are.

Incidentally, the revenue model is quite attractive--although it may be too onerous to users to be sustainable. The Zeo does not charge any subscription, but the headband has to be replaced every 90 days and three cost $50. For someone that uses the Zeo every day, this translates in $200 per year. Not too bad.

Parasite or enabler?

The advantages of the Zeo approach are clear to users and M2M vendors. They can leverage the connectivity, computational power and display of a device, the smartphone, that is widely adopted, heavily used, and relies on accessible interfaces.

Using smartphones or tablets to aggregate traffic and support additional functionality is a very effective way to enable new M2M devices and services, in the health and fitness market and beyond. For instance, in the car, manufacturers may add a cradle for the phone and use it instead of a cellular modem in the car. This would eliminate the dependency of the vendor or car manufacture from mobile operators, lower costs (single SKU), and open any M2M device to the global market.

From a mobile operator perspective, however, such devices can be seen as parasites, insidiously feeding off their networks and depriving them from the revenues they would get if the devices were directly attached to their network. M2M devices tethered to the phone have the potential to replicate the OTT script: just like mobile apps, they are cheap to purchase, free to use, address a niche market that exists across operators and that operators would find it fiendishly difficult to address independently (i.e., no operator is likely to develop a Zeo-like device), and use the mobile network as a dumb pipe.

Can you monetize that?

At first sight, this cannot be good news for mobile operators. They cannot charge additional fees to subscribers to use devices attached to their phones. They would be hard pressed to get revenues from the vendors especially if the volume of data transmitted is negligible.

But what's the alternative? A device with tight cost, battery life, and size constraints like the Zeo would have no market if it had to have separate cellular connectivity in its target market. At least in the short term, this means that they do not impose a substantial revenue penalty on operators. Eventually, however, this may be the case, if this model proves successful with a wider range of M2M devices--those that operators hope to see in their line-up of connected devices.

The potential threat to operators has to be addressed to avoid the M2M market to become an expansion of the OTT market. The threat can be averted because, attractive as the Zeo model is, it is not ideal (having to reset the Bluetooth connection every night before going to sleep becomes quickly tedious, especially if you have to do the same for multiple devices). I believe that in the longer term, an independent connection to the cellular for many M2M devices will be preferred and increasingly adopted, provided that mobile operators facilitate and support these services. But in the shorter term, the Zeo model can be the wake-up call the consumer M2M market needs.

Monica Paolini, PhD, is the founder and president of Senza Fili Consulting and can be contacted at [email protected]. Senza Fili Consulting is an analyst and consulting firm that provides advisory services on wireless data technologies and services.