Amidst the much-discussed love affair between consumers and their mobile devices, another relationship is blooming in the mobile sector. Device manufacturers from nearly every industry vertical (transportation, energy, health, payments, etc.) are increasingly offering devices and products equipped with mobile connectivity, transforming “dumb” devices into “smart” ones. Providing connectivity for these devices currently amounts to a small percentage of mobile operators' overall business, but the market is growing and the future potential of this industry is huge.
Machine-to-machine (M2M) communications – essentially “smart” networked devices talking to each other – is undergoing a period of fundamental change and significant growth. Traditionally, M2M deployments have been in the enterprise sector. A company deploys sensors to track its assets as they are shipped across the country or manage its vehicle fleet during deliveries or service calls. In recent years, declining sensor and chipset costs, along with cheaper network access fees, have expanded the number and types of companies that can make use of M2M communications in a cost-efficient way. Utilities can now monitor pipelines in remote locations, and vending companies can monitor machine inventories in real time to plan restocking trips more efficiently.
M2M is primarily a B2B industry and will remain so for the foreseeable future, but M2M deployments are increasingly reaching consumers directly. New consumer-facing applications and business models are emerging in the consumer electronics, connected home, connected car, and wireless health and fitness industries. Of these, the connected car market is the most mature and benefits from the groundwork laid by the enterprise telematics industry.
The core service feature of connected cars (or “consumer telematics”) is connecting passengers to a live agent in an emergency. Some models include collision sensors that will automatically notify agents via the in-vehicle telematics system. General Motors (GM) has been offering connected vehicle services to its customers through OnStar since 1996, but in recent years, the types of applications and services available through connected car systems have exploded. Drivers can now remotely control certain vehicle systems, such as the A/C, door locks, and horn; locate their vehicle if it is stolen; receive optimized directions based on traffic patterns; turn their vehicles into Wi-Fi hot spots; and access any number of infotainment apps, including music, news, social networking, and weather apps.
Not every connected service is enabled by an in-vehicle cellular radio. Many OEMs leverage the connectivity the passenger brings into the car, mainly his or her Bluetooth-enabled mobile phone. There are pros and cons to both approaches, but as this market matures, most OEMs will take a hybrid approach and adopt both types of technology. Embedded cellular radios can provide reliable connectivity for the most important use cases such as emergency and roadside assistance, while smartphone-enabled connectivity can ensure a steady stream of the latest and greatest consumer apps.
With multiple connectivity options offered in a widening array of vehicle models, connected cars are becoming more widespread. According to Parks Associates consumer data, 16% of U.S. vehicle owners who live in broadband households have the ability to contact emergency services directly from the car, a figure that doubles among those owning a car less than three years old. Newer car models also offer access to a variety of apps. About 60% of consumers who own a newer vehicle with a built-in display can access apps related to maps and directions, and 40% can access the Internet and music apps.
The connected car space will continue to see compelling growth going forward. Parks Associates estimates that 45% of all new cars rolling off the line in the U.S. in 2017 will have embedded cellular modules. Seventeen million consumers will subscribe to cellular-enabled connected car services in the same time frame.
Consumer telematics is but one of many industry sectors integrating M2M communications into their products, processes, and services. This steady growth in the overall M2M market over the past decade has piqued the interest of mobile network operators. Mobile operators participated in the early development of the M2M market primarily by wholesaling network access to other specialized network providers. Many M2M deployments are small scale and require custom design and services, resulting in a time- and resource-intensive process that was unattractive to large operators. Carriers perceived a better business case in monetizing network access by wholesaling than by attempting to provide these low-profit customized services themselves.
This outlook is now dated, however, and operators see M2M as a way to diversify their revenues and provide valuable business services to large enterprise clients. Many Tier 1 operators are building out their internal M2M businesses and seeking strategic partnerships with M2M vendors. It is very likely that this increased attention from operators will benefit all M2M players; most industry players – even those now directly competing with the carriers – will benefit from mobile operators’ resources, scale, and marketing power.
The M2M market has seen steady growth over the past decade, and Parks Associates projects an even brighter future. Declining sensor and networking costs, increased interest from mobile network operators, expanding use cases, and new business models are converging to drive the M2M industry forward. Companies with a product design and development play should be tracking the evolution of the M2M industry and planning for a future of smart devices.