Man-to-machine communications -- the next growth area for mobiles

Paul Boughton

The market for mobile telephones for person-to-person communication has grown rapidly across much of Europe, North America and the rest of the industrialised world. Mobile phones, however, are becoming increasingly commodified -- the next major growth area in wireless communication will be in the area of qqqMachine-to-Machine, or Man-to-Machine (M2M) communication.

The key product here will be the wireless communication module: Sony Ericsson is using its expertise in communications infrastructure and radio frequency technology to design and manufacture a range of small devices that enhance the management and profitability of machine-to-machine communications over cellular radio networks.

Called Wireless Communications Modules, they are integrated within other equipment and are used in many different telemetry applications for making Short Message Service (SMS) calls or automatically sending data and voice messages to a control centre. They are being integrated in automobiles, fleet management systems, fire and security alarms, vending machines, public utility meters and other electronic office and industrial equipment.

Sony Ericsson is also using its knowledge of communications system design and operation to help system integrators, service providers and network operators to take full advantage of the many benefits and opportunities that these new devices provide. Changes in the software have also been made to allow the seamless transport of data and information. The module will be built into its host appliance, and controlled through a computerised link.

Modules will increasingly be built into a wide variety of equipment, including domestic appliances, industrial machinery, metering equipment and all kinds of vehicles, and will soon be taken for granted, much as the integration of the microchip is today. Water, electricity and gas meters are already being read digitally and reported automatically by wireless communication. And we already have houses, or business premises, where a break-in or fire is reported to the authorities without human intervention. And cars which not only call for help automatically after an accident, but which can also identify with pinpoint accuracy where they are, and even give some information about what type of incident has occurred.

Modules will thus automate a wide range of existing functions and will stimulate the development of many others, which we cannot yet imagine. This market is potentially significantly larger than the wireless, person-to-person market. The challenge of marketing M2M technology is its more or less unlimited applications -- the only boundary is human imagination.

The future

The potential for wireless module communication could be summed up in the concept of: (at least) aone module per house, one module per car'. What this means is that, in principle, all communication systems could be channelled through the wireless module -- both for the home and for the car.

A single utility or security company - or the builder -- may provide the first module to a household or other premises, and automotive manufacturers may supply a single module to a vehicle for a dedicated purpose.

Once this module is in place it can then be used for a variety of different purposes -- and customers will come to expect more and more communications system to be channelled through a wireless module.

Soon most dwellings will contain several modules: many domestic appliances, such as refrigerators, will be routinely equipped with them. (This is already the case in at least one brand of washing machine.) These alocal' modules will report, probably via a LAN network, to a central agateway' module, which will provide the link between the dwelling and the public wireless network. (Sony Ericsson's Bluetooth, and similar systems are already being developed to achieve this.) The scope for the wireless module is even greater in the B2B world than for these domestic applications: it's generally believed that B2B segments, such as fleet management, remote diagnostics, vending, monitoring of servers, etc, will grow faster and be more significant.

As regards the size of this potential market; a tenfold growth in vehicle numbers is probable worldwide over the next decade, to a total of 500 million vehicles, with an annual increase of 50 million. In addition, in Europe alone there are 100 million households, 10 million vending machines, four million alarms and three million elevators; each of these has a potential need for wireless communication. On top of this there are all types of metering systems, plus many other types of equipment in which the module has applications.

In conjunction with the development of this technology, we are likely to see the emergence of new multi-service providers; organisations or businesses which do not, as yet, exist: these will act as intermediaries to households in supplying electronic services by wireless communication, including; many forms of entertainment, internet access, telephone services, security systems and utility services. We can see the beginnings of this in the current spate of mergers between media-entertainment and telecommunications companies and the emergence of amulti-utilities' companies which provide gas, water and electricity services together.

The capital cost savings which wireless modules can offer (in comparison to landline communication) will provide a powerful stimulus for the already emerging integration of these business areas.

The market for modules

The wireless communication module thus has potential applications in an enormous number of business areas. Anywhere where data can be transmitted from machine to machine, whether this is done today via fixed lines, or whether it could be done in the future, given the technology of wireless transmission. T

hese areas divide into fixed line substitution, and mobile solutions. Fixed line substitution covers telemetry -- that is, areas like vending machine monitoring, alarms, metering for utility companies (gas, electricity, water etc), parking meters, leased office machines, traffic lights. This category also contains the whole area of service and maintenance, eg for lifts and other equipment, and even point-of-sale equipment. Information signals of all types could be controlled by wireless communication.

 The other area -- mobile solutions -- would include, for example, personal security equipment and equipment tracking, and everything connected with vehicle communications from entertainment to navigation equipment.

The value chain

The major players, who come together in the value chain, are as follows: The supplier/manufacturer of the module (eg Sony Ericsson). The asystem integrator' (eg manufacturers of meters or electronic aend-to-end' solutions for vehicles). The third-party service provider (eg a utility or entertainment company). The network operator (eg Vodafone, Telia). The 'service operator' (eg Maingate, Telia's M2M subsidiary). The end user.

Other interested stakeholders, such as finance companies, banks, and insurance companies may also play roles.

The idea behind the role of the service operators is that of an overall initiator and co-ordinator, bringing together the technology and the other actors to create the market. This role could also be played by the network operator or the third-party service provider (there may be a tendency for network operators to also become service operators) but, in principle, any of the five actors could take on this role -- including the module manufacturer.

These markets are so new that these roles have yet to be well defined. In addition, these value chains will be complex: the allocation of actors to roles may develop differently in different business segments and geographic markets.

An example of this is provided by the main Swedish airtime provider, Telia: it has co-founded a subsidiary called Wireless Maingate specifically to deal with machine-to-machine communication. Wireless Maingate has now also taken on the role of a system integrator, helping to administer the systems of its customers.

Maingate is a pioneer in this role, developing closer and closer relationships with customers. In a similar way, many of the companies within the value chain which traditionally may have regarded themselves as simply suppliers, will now have to learn how to nurture close partnerships both with their customers and with the other amodule actors'.

The wireless module market is an immature one. Its development is still really at the stage of trying to make the cake bigger, rather than competing for market share. In terms of Geoffrey Moore's analyses, from aInside the Tornado'?, the M2M market is still pre-chasm: in other words still dealing with the pioneer phase in terms of product take up. Value chains or value networks have yet to be established. It's still at the stage of team building, of trying to put together networks of players including for example financial institutions. Each of these players must see an advantage in participating.

Modules to the market

The benefits of module communication to the various actors are summarised below. Arguments to convince network operators, are as follows: M2M communication can be programmed to use ff-peak, relatively unused airtime, increasing operators' load capacity -- hence their income -- without affecting existing business. Network operators will also gain large corporate customers -- a single customer who will provide a large volume of regular M2M business for them, and it is predictable business which can be planned and managed.

These operators will also be entering new and profitable business areas. M2M communication and subscriptions may also provide network operators with opportunities to bundle the M2M services with other services to the customer, thereby enhancing their total offering.

The benefits for the other actors are threefold:

First, cost saving and accuracy are almost certainly going to increase where manual monitoring and inspection is replaced by automated wireless communication.

Second, considerably more information will be made available through this cheap and effective method of communication. This will allow for system improvements including proactive maintenance -- anticipating component and system failure and correcting them before they occur, thus significantly reducing downtime. It will also help in planning and investment decision-making, by providing a detailed and dynamic picture of the relevant customer base and/or geographic region.

Third, module communications may enable organisations to offer additional services, which at present are not feasible or not economically viable.

There are many new business opportunities here. These developments can also be linked to the upcoming move toward mobile internet access. The progress of wireless communication has evolved from; first eople-to-people, then people-to-machine and achine-to-people, the next logical step is achine-to-machine. Along with all the other actors in the value chain, the ultimate consumer will also benefit in many ways -- not least (to take a minor example) by always finding the right drink in a vending machine.

The key marketing issues

Two developments are key to unleashing the potential of the module market; first, decreases in air-time costs on public networks and, second, increases in their bandwidth, to enable a much broader range of communication services to be delivered via the public wireless channel. There are also a number of secondary issues concerning standards, reliability, privacy and legal requirements.

What the price structures will be for the vast majority of potential M2M wireless communication applications has yet to be determined. A number of trends are, however, already clear: the differences in the price structures between network operators and between different countries are slowly drawing closer -- and with market volume, this effect is likely to accelerate. A number of costs are almost certainly going to be involved in wireless communication via modules; The cost of buying the module. A aone-off' installation fee. A subscription fee. Charges for the communication traffic.

Reliability/signal quality

Several of the potential module applications discussed above, such as video films and computer games, will require greater band width than is currently available via public networks. These hindrances will, however, soon be overcome by new generations of module and wider bandwidth standards which are currently being developed.

The increasing use of wireless communication for all types of emergency alarm systems will obviously put greater demands on its reliability as a communications channel, not least from a legal point of view: the USA already requires certification of the robustness of public networks and the EU Commission is looking into the issue of wireless communication for emergency alarms, with a view to producing a Directive on the subject. Standards and 'roaming' are also important issues in the automotive and fleet management markets.

Privacy/security

The increasing use of wireless communications raises the question of privacy, both for individuals and for companies: for example, making the location of people and vehicles traceable by unauthorised third parties can clearly be regarded as undesirable. On the other hand, two features of modern communications systems are available to counter these risks: first, the growing use of digital rather than analogue signals in itself significantly reduces the possibility of third party access, and second, if the privacy issue is considered absolutely critical, then encryption is always a possibility.

However, information will always be accessible to the authorised personnel who operate these systems. Ultimately they have to be trusted not to disclose this information in illegitimate ways.

Sony Ericsson is a leader in the infrastructure for mobile communication. At present, this infrastructure is used almost exclusively for voice only, ie person-to-person communication, but increasingly it will also be used for M2M communication. Sony Ericsson's goal is to also be a key player in this enormous future market, and the company has a number of competitive advantages:

Target business areas

The Automotive Industry market. The potential for wireless communication in vehicles includes such things as -- entertainment systems; climate control; mechanical status reports to dealers or vehicle maintenance centres; satellite navigation via GPS (Global Positioning Systems); traffic information including map guidance and advice on traffic congestion, etc. There are other possibilities, although further into the future, including immediate accident reporting using the triggering of airbags to signal an alert to the emergency services.

The report could also provide an exact location using GPS; seat sensors could provide the number of passengers, and the details of which airbags have been triggered could provide some information about the type of accident, for example whether it was a head-on collision. At present products of this sort are being developed for the high end of the car market, but three to six years down the line they could become standard specification, even in volume cars.

The Fleet Management/Vehicle Positioning market. For this application, each vehicle in a fleet will be equipped with a wireless module capable of providing three principal functions -- checking the vehicle's position; monitoring and reporting for security, including alarms, etc; and as a backup for, or alternative to, the driver's mobile phone. The module can also be used for vehicle diagnostics.

The Utilities market. In this market, modules will be used for remote metering of the consumption of the various utilities, gas, electricity and water. Other applications in the utilities business area include infrastructure monitoring, involving observation and reporting from water pumping stations, electricity distribution sub-stations, remote switchgear etc, as well as service and maintenance functions. A typical characteristic of this market is that there may be only one signal every 24 hours from each meter - reporting usage for the period just ended -- but at a regular time, which could be during off-peak periods.

Customers in this market will be the meter manufacturers, who will buy modules and incorporate them into their meters. The actual service providers (ie the gas, water and electricity companies) will, however, be the main players in the process of introducing modules in the utilities business area. The main business relationship in this market is between meter manufacturers and network operators.

The major market driver in this industry is the increasing introduction of deregulation, as state monopolies are privatised and opened up to competition. The issue of metering becomes very important, with the opportunity to change rapidly between suppliers; for example, in Sweden, consumers may have the option of changing electricity supplier once a month. This market is currently concentrated in Scandinavia (including Finland), North America and Great Britain, but other markets will follow soon.

The Security Systems market. This market divides into two; automotive alarms, and household and commercial property alarms.

The auto alarm sector involves the retrofitting or after-market for alarms, fitted into vehicles after they have been manufactured and sold. The second sector covers building alarms, for households, commercial premises of various types, and other buildings. Security companies are interested in wireless communication for two specific reasons; firstly, because they provide a more secure alarm reporting system, given that physical land lines can be cut or damaged and, secondly, it's a lot less costly to install. And of course, once a household has a wireless communication module in it, many other opportunities are opened up; the module can be used for many other applications. For example, systems for monitoring the wellbeing of elderly people. This is a step towards the concept of the aintelligent house'.

Case analysis strategy

The use of business case analyses in promoting the sale of the wireless communications module has several objectives: first it provides detailed information about targeted business areas segments; the goal is to totally understand the customers' business rather than just supply modules as a commodity.
In terms of this learning function, a Case-Based approach is an alternative to conventional, consultancy type market research, involving questionnaires and so on. The Case-Based approach can provide a much more concrete picture of targeted businesses. And this is certainly a second goal -- to get to know actual customers by concentrating on actual cases: it can directly generate leads.

 Finally it enables presentation packages to be constructed based on cases. The strategy should create a generalised case for each target segment. These should be based on actual visits to prospects and kept constantly updated. For promotional purposes, these cases can be used on the Web, sent out via direct mail, placed in the trade press and salespeople can use them as handouts.

Business case analyses of module applications can be presented to potential customers, such as service providers, network operators and system integrators. These business cases cover: A general market overview. Possible objectives and strategies for the various actors A financial analysis of implementing wireless modules for the different parties in the value chain.

These business cases have three objectives: To increase the internal understanding of customers' business. To facilitate a structured strategic discussion with customers and partners. To use the business cases as an important part of marketing strategy.
Ideal segments which can be developed in terms of this Case-Based approach are; firstly fleet management and vending machines and, secondly, security systems and utilities.

The idea is to take a holistic approach to these businesses and aim the presentations at key players. We can take vending machines as an example of the Case-Based approach:

Vending machines

In this case akey players' includes; the vending machine manufacturers, the makers of the coin systems for the machines, the owners of the machine (the vending operators) and the owners of the point of sale, which could be a cinema or a supermarket. Installing a wireless module in a vending machine offers a large number of benefits: it enables enormous price flexibility, for example offers on certain items can be made automatically and remotely depending on the local competition for a particular machine.

Other payment options can be introduced for example 'micro-payments': people could order and pay for goods from a vending machine via their mobile phone.

Such payments could, for example, be added to their mobile phone bill. In addition the module can provide an enormous database giving rich and accurate information on the usage of each machine. This data can be used to optimise the positions of machines, the distances between machines and the stock each one contains.

aving this data, and these functions, available can potentially increase the pre-tax profits of a vending machine operator by well over 100 per cent.

The strategy is to present specific alternative scenarios where the various actors might play different roles. For example, in the vending machine business we can look at two alternative scenarios for implementing a micro payment system via mobile phones.
In the first scenario the key actor would be the vending machine manufacturer: they would provide the initial investment. The manufacturer would need to from a partnership with an application service provider who would manage this specific communication service for vending machines. The manufacturer would then sell or lease the communication platform, ie the wireless module and other equipment, to the machine operators.

The partners would also need to recruit and o-ordinate the activities of several other players; a Telecom Operator and Access Provider to provide and manage the physical communication processes and a Content & Application Provider to support the service, plus an Internet Payment Provider to manage the financial transactions .

A second, alternative scenario would be for a Wireless Application Service Provider (WASP) to be the entrepreneur: this is basically the same player who was a junior partner to the vending machine manufacturer in the first scenario, but in this scenario they'd need a strong financial partner, such as a bank or a telecom operator.

The WASP would take the initiative to set up a particular micro-payment service and would recruit and organise the other necessary players. The WASP would then sell or lease the communication platform to the machine operators.

The WASP may simply be a tiny entrepreneurial tart-up. On the other hand, the strong partner they're going to need to succeed will be a major national bank or telecom operator, which, ideally, would already be a global player.

In the M2M wireless communications business there is no complete aproduct' which can be produced and sold by one of the players alone -- unless all the necessary players co-operate to deliver these communications services, the aproduct' doesn't exist. This is why a case analysis is so useful here: it can helped to create the sort of relationships and the sort of co-operation which, as yet, doesn't really exist, but which is going to be necessary to get these businesses launched. The Case-Based approach is the best way to get people to imagine the possibilities.

This article is an edited extract from Dr Steve Minett's book B2B Marketing -- a Radical New Approach for Business-to-Business Marketers, Financial Times/Prentice Hall, 2002, ISBN 0-273-65425-X, website; www.business-minds.com

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