Research Notes

Machine to machine communication

– Can mobile operators make money in this area using their current strategies? We think not!

Recently there has been a great deal of focus on machine to machine (M2M) communication and this business sector is continually receiving an increasing amount of attention, as more and more operators are allocating resources in this area and announcing ambitious plans. Today many large operators view this business area as an important future revenue stream. But how profitable is this business area today and how much will it grow in the future?

Strand Consult has spent some time examining and analysing the current M2M market and we believe that the business strategy that many operators are currently using when launching on the M2M market will not be able to handle the many different types of customer segments in any cost efficient manner. The operators’ current technical setup and their sales and marketing costs will result in this business area easily developing into a financial nightmare as the market matures and the customers become more professional.

The question is whether mobile operators perhaps should consider handling most of their M2M customer segments via partners in the IT industry and MVNOs that have specialised in M2M communication. These types of partners can add value to the transmission area of M2M communication, thereby improving the operators’ business cases by reducing costs.

Our analyses show that being successful in the M2M area depends on a number of criteria. First you need to segment the market regarding which types of solutions different types of customers will need. Then you need to examine how to add value to the data transmission area, and finally you need to examine how to initially attract and thereafter retain your customers, by developing cost-effective and mutually beneficial business models.

Results from the mobile market show that using independent distributors or dealers is a far more effective business model for selling mobile telephones and contracts, than having operators directly selling mobile phones themselves. Furthermore there are numerous examples of MVNOs being far more cost efficient regarding attracting, retaining and servicing mobile customers than many national and even international mobile operators. Even within the sales of mobile services, content providers that sell mobile services are more successful than those operators that try to sell mobile services themselves.

Quite simply there are countless examples in the mobile sector of operators achieving a healthier business case via partnerships, than trying to handle everything themselves. So it is only natural for us to ask operators whether this could also be the case within the M2M area? According to our analyses the answer is without a doubt YES!
M2M is not just about delivering a SIM card which is inserted into some machine and then uses various types of data traffic to transmit data, but instead how to add value to that SIM card and how to help customers by offering more intelligence solutions.

In Strand Consult’s report OneAPI – Next Generation Value Added Services in the Mobile industry, we have taken a closer look at some of the “Lego bricks” that operators can use to add value to the transmission services they are currently selling, and in our report about the mobile broadband market Successful Strategies for the Mobile Broadband Market , we have examined how the different types of MVNOs can help operators reduce their distribution costs.

We believe that operators can choose between the following M2M strategies:

1) Handling all tasks in-house including investing in technical platforms, acquiring and educating a sales force and attempting to understand the many different types of customer segments and how to best target and service them.
2) Outsourcing that part of their business to an international M2M market player and use that company as their M2M division within that operator group.

3) Partnering with a number of M2M market players that compete over customers. As end-user prices on the actual data traffic will usually only vary marginally, the primary competition on this market will be based on the services M2M market players can offer on top of the data traffic.

In practice we believe that operators that consider themselves to be intelligent bitpipes and that understand the importance of partnering with other market players, will have the possibility of ensuring wide distribution on the M2M market and at the same time significantly reduce their distribution costs and improve their earnings.

If you would like more information about how an operator can build and run an effective machine to machine business strategy through partnerships, you are most welcome to contact us to learn more about the statistics, information and knowledge we have gained from our analyses in this area.
More information:

OneAPI – Next Generation Value Added Services in the Mobile industry

Successful Strategies for the Mobile Broadband Market

Related Reports:

Show me the money – The future Business models for mobile Broadband Services

Successful Strategies for the Mobile Broadband Market

How MVNO´s can get success in the Mobile Broadband market

How media companies can get success on the mobile broadband market

How to get success with Value added services on the Mobile Broadband market

How can a Wimax operator survive in a world full of WCDMA

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