Opportunities in Smart Systems and M2M

Systems are getting “smarter”. IBM, Cisco, HP, GE, Siemens, and many other firms are investing heavily into this new industry and revenue expectations are high. Smart Systems considerably contribute to the development of the so-called ‘Internet of Things’, in that they provide smart functionality to everyday objects, e.g. to industrial goods in the supply chain. With the help of new technology like RFID, the concepts of M2M, wireless sensors, real-time sense and response capability, energy efficiency, as well as networking functionality, objects will become smart objects.

Machine-to-Machine (M2M) refers to technologies that allow both wireless and wired systems to communicate with other devices of the same ability. Location based services (LBS) are a subset of M2M. According to Juniper and IDC, the global M2M market is projected to be worth $18.9B in 2014, with 412 million M2M devices expected to be connected. From millions of end points for personal computers, and billions of smart phones and PDAs, we can expect smart objects/smart machines in the trillions by the end of this decade.

Although I mentioned some key players above, the ecosystem of players is still very fragmented. We can roughly differentiate between services, network, software and hardware players. Some of the larger Solutions that these players target are around Health, Utilities (Smart Grid), Safety and Security and other industries. An interesting field is also what IBM calls Smarter Cities or Cisco calls Smart and Connected Communities. Huawei, HP and GE have also a significant stake and interest in these Solutions. Smart Cities can be identified (and ranked) along six main axes or dimensions. These axes are: a smart economy; smart mobility; a smart environment; smart people; smart living; and, finally, smart governance. These six axes connect with traditional regional and neoclassical theories of urban growth and development.

But back to the concept of Machine-to-Machine. I predict that only the B2B side will have a significant and sustainable growth over many years. On the B2C side, or specifically location based services (LBS) will find the peak in consumer revenues in 2013. Although the amount of LBS users is growing with a CAGR of 76% in the US (2008-2013e), the average pay-per-use transaction price is falling sharply and premium services are becoming a commodity. Expect the monthly subscription ARPU for these services to fall by 50% over the next three years.

In summary, we’re looking at an extremely attractive market which is still fragmented and industry heavyweights are investing strongly. With a global market for M2M alone of $18.9 billion by 2014, it is strongly recommended to secure stakes now and refine the approach with a well though-through strategy.