Technical Innovations

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1 Technical Innovations Machine-to-Machine Strong Growth of Wireless M2M and Impact of RFID (*) Vincent BONNEAU IDATE, Montpellier M 2M (Machine-to-Machine) refers to solutions that enable machines to communicate with a central server without requiring human intervention. This is a fast growing market, being fuelled by a healthy momentum at the technological, economic and even regulatory level. Its rate of growth in the coming years will vary from sector to sector, with the supply chain, retail, utilities, security and health sectors being among the most promising. Based on a combination of several technologies (data capture, transport and management), M2M is at the crossroads of several ecosystems (computing, electronics, telecommunications). It requires that a specific ecosystem take shape, through the creation of partnerships. M2M has a huge potential The M2M market's potential involves billions of machines, and hundreds of billions of objects that can be equipped with communication capabilities. Regardless of the sector of activity or the application involved, a machine or (*) This IDATE market report provides in-depth analysis of the M2M market based on cellular and RFID technologies, of the leading players strategies, and of the developments taking place on the main vertical markets. COMMUNICATIONS & STRATEGIES, no. 59, 3 rd quarter 2005, p. 175.

2 176 No. 59, 3 rd Q an object increases in value when connected to a network that manages or controls it remotely. The number of M2M modules already totalled 92 million units in 2004, all network technologies combined, and is expected to reach 500 million modules by These modules will involve close to 2 billion machines and 100 bil-lion communicating objects, mainly RFID (Radio Frequency IDentification) tags, with pilots for tagging individual items beginning in The worldwide M2M market is ex-pected to be worth over 220 billion EUR in 2010, compared to the current 20 billion, which translates into an annual growth rate of 49%. The players that will benefit the most are hardware producers and integrators. But, despite the low ARPU involved, mobile operators too are taking an interest in this market, which they predict will account for 6% of their revenues in The market is also expected to benefit not only supply side, but demandside players as well. The different indus-tries, and particularly large accounts, are aware of the potential benefits M2M represents for their operations, helping them to cut costs thanks to optimised real time management of their resources. They can also make use of these solutions to implement preventive mainte-nance services, or to launch new innovative offers. M2M market boosted by thriving technologies M2M is based on a combination of several mature electronic, computing and network technologies. So it is not a new technology in fact, and M2M's guiding principles have been used for some years in certain sectors. Architecture solution M2M Presentation Sensor Machine Sensor IC Module Modem Gateway Interface Middleware Network (Local or wide area) Internet Integration ERP Source : IDATE Data base

3 V. BONNEAU 177 At the electronics level, the various data capture technologies make it possible to gather a range of information that can be used remotely. Standardisation of a few open systems has led to a sizeable drop in costs. At the network level, standard wireless technologies enable the creation of solutions that had not been economically viable up to now (cost of wiring, uncontrolled environment, etc.), or even technically impossible (tracking mobile objects in an open environment, etc.). SMS, and especially GPRS thanks to "always on" connection and packet-based billing are two of the central tide-turning M2M technologies. Added to this, thanks to TCP/IP, the Internet enables low-cost data routing. At the computer level, the widespread integration of ERP and supply chain applications, and even corporate dispatching applications, in companies' information systems allow businesses to manage their resources using a central application. Plus, XML and Web Services have brought common data processing practices. New "technological building blocks" will speed up the M2M market's development While M2M can already make use of an array of mature technologies, it will really begin to take off with the widespread adoption of new technologies that are now in the development stage, and which will have a major impact on the market's future growth rate. RFID, particularly in its UHF version, already allows companies to enjoy new sources of data. This technology has already had a clear impact on supply chain and distribution operations. The eventual use of RFID tags on a large number of business products, and even in retail (provided that information privacy measures are well in place), opens the way to a multitude of new M2M applications. Mobile phones, which can act in the future as RFID readers, are the focus of a great deal of attention for the role they can play in NFC solutions. New short-range network technologies (Zigbee, etc.) designed for telemetry are coming to complement global net-works (cellular, dial-up telephone, etc.), providing low-cost local data collection solutions. One of their outstanding features is low energy consumption, which ensures a long lifespan for the devices. Electronics specialists are also working on intelligent sensor networks (i.e. mesh networks).

4 178 No. 59, 3 rd Q But technical obstacles remain The chief difficulties encountered in deployments are mainly at the network level, in terms of reliability, robustness and latency. More costly solutions do exist based on paging networks (Paknet, Mobitex, ). The level of network service provided is still too low to support certain solutions, whether in terms of quality of service, performance or network coverage and this at the local, and especially the international level. Like with any IT project, security issues are raising concerns, despite the number of technical solutions available. Privacy of data collected by new communicating devices does, however, require new regulatory and technological approaches, particularly for UHF RFID. The swift rate at which the various wireless technologies become obsolete is fuelling reticence in some industries that are ready to adopt M2M. The greatest difficulty lies in the complexity of M2M solutions and ecosystems. Ecosystem needs to be struc-tured to ensure the market's development M2M is in fact a highly fragmented market, made up of a set of technologies and populated by an array of players from different niches from along the value chain. Some offer proprietary solutions, which naturally slows the rate of dissemination, and involves much higher costs. A simplified M2M ecosystem, populated by a host of new players, with several hundred suppliers of complete or partial M2M solutions, is needed to provide the incentive for end users to come on board. Because of mobile operators' very gradual involvement in the market, a lack of international coverage and insufficient quality of service, businesses have often turned to paging network operators (like Mobitex) or to MVNO / MVNE (Wyless, Wireless Maingate, ) specialised in M2M, of which there are a growing number. There are also quite a number of firms specialising in other M2M solution building blocks, at both the software and module level (Wavecom, Nphase, Sen-sorLogic, Comtech, ), which is only further fragmenting the ecosystem.

5 V. BONNEAU 179 No single player is capable of single-handedly providing all of the technologies needed to implement an M2M project. This means that partnerships need to be formed around core solutions or platforms. "Go-To- Market" solutions built around a single vendor, which is what most M2M customers are looking for, are gradually taking shape marketed by the most advanced specialists and by IT giants, most of which have only recently entered the M2M market. Mobile operators need to adapt to a new market M2M is a new market, and a new busi-ness area for wireline and mobile carri-ers. As a market, it has more in common with computer services than with telecommunications. Sales are more driven by sector of activity, and the technologies can be used pretty much across the board. Customers' needs are stated more in terms of features and uses than of technology, and solutions generally need to be customised as requirements will vary from industry to industry. Network requirements are fairly limited, both for voice and data, since high bitrates are rarely needed. This means that the ARPU involved is relatively low. However, certain performance levels (latency, security, etc.) are critical for some players. This market nevertheless appeals to operators, since it is based on solutions with a long lifespan (virtually no churn), deployed on a large number of modules (average project involves thousands of devices), and this for a single client (low acquisition cost). It also helps boost the rate of return on a deployed network by increasing the traffic on 2G and 3G networks, for instance. Most mobile carriers have only recently entered this market, and many different approaches are being taken. Aware of the market's potential the most highly involved operators are offering technological platforms (Orange) or vertical packages (BT, Vodafone, ). Some, on the other hand, especially in the US, have confined operations to selling bandwidth either directly or via MVNOs.

6 180 No. 59, 3 rd Q M2M market now enjoying a strong momentum The involvement of leading ICT firms and mobile operators means that M2M could soon become a mass market. Major module producers like Siemens and Sony-Ericsson have invested in this segment, with programmes well under way, to compete against strong specialists like Wavecom. Their presence on this highly competitive market has led to an aver-age 20% annual drop in the price of modules. IT giants (Oracle, SAP, Microsoft, IBM, Intel, ) are mainly involved in designing RFID solutions. With the ex-ception of IBM and its middleware, however, most are not that much involved in any other aspects of M2M. The cost of the modules and the communications have dropped sharply over the past three years, as competition between leading players heats up and GPRS become increasingly ubiquitous. More and more concrete deployments, offering proof of benefits and tangible ROI, are taking place in all fields of application (video surveillance, te-lemetry, tracking, e-payment, remote control, ). A key part of M2M deployment, RFID is benefiting from mandates issued by leading retail chains (Wal-Mart, Metro, Tesco, ) and by other major accounts (DoD). Certain regulations indirectly order the implementation of M2M in Europe, and to a lesser extent in the US. A host of industries are involved here, including public utilities, for automatic meter readings in deregulated energy markets, and distributors for food traceability. Public policies on the environment (pollution control, energy saving plans, etc.), safety (especially road), public transport and health are also helping to promote the use of M2M. Market taking shape around a few vertical industries The M2M market is currently developing, and will continue to develop, by sector of activity. A growing number of players are providing vertical packages, from operators (BT has more than 7 different packages) to solution providers (Numerex for security, Vianet for vending machine, numerous players in fleet management, )

7 V. BONNEAU 181 The industries with the most ad-vanced use of M2M are transportation, for fleet management and advanced telematics (security, emergency services, dynamic navigation, ) and public utilities. At the same time, segments like point of sale payment and security, which have long relied on wired technologies, are migrating gradually to mobile technologies. The most promising segments involve open supply chain management, particularly with RFID-based solutions, telemedical systems and energy man-agement solutions, along with site or building management solutions. Certain industries too are designing their own innovative services, like the automotive insurance business's "pay as you drive" system, new vending machine systems and preventive maintenance solutions for office equipment. Home automation and smart home applications, on the other hand, are not likely to offer any credible economic opportunities in the next five years, aside from security which is already a well-developed field. The M2M market will get a major boost when RFID smart tags begin to equip individual products in shops (grocery and consumer electronics) and advertisements, leading in the future to new consumer marketing applications. Conclusion M2M is not really a new concept, but is now under the spotlight because of the benefits of some mature cost-efficient wireless technologies (SMS, GPRS, ) and of some emerging technologies (mesh networks, RFID, ). M2M is poised to grow in almost every vertical sector, allowing for solutions with better return on investment and/or for new services.