M2M winners and losers

When M2M (“machine to machine”, which connects isolated machines and devices to the internet to create an ‘Internet of Things’) becomes reality, who will be the winners and losers?

October 2014 by Becky Bruce

We all look forward to the day when, thanks to M2M, our fridges order our milk and our smart meters regulate our heating. But as M2M (“machine to machine”, which connects isolated machines and devices to the internet to create an ‘Internet of Things’) becomes reality, who will be the winners and losers? How can industry giants avoid being also-rans in the “new machine age”? How much value from M2M will be captured by the data carriers? If they are not careful, the answer will be: not much.

The market is evolving rapidly. In their 2014 M2M Adoption Barometer report (https://m2m.vodafone.com/cs/m2m/insight_news/2014-07-03-vodafone-report-shows-global-market-for-machine-to-machine-surging-ahead?categoryTitle=Press+Releases) Vodafone say 20% of companies now actively use M2M technology and IDC forecast that the M2M market size will exceed $7trillion by 2020 (http://www.machinetomachinemagazine.com/2014/06/06/idc-report-iot-market-size-to-exceed-7-trillion-by-2020/).

However, amidst the speculation as to how M2M can unlock new sources of value, it is unclear as to who is best placed to extract it. For large corporates, innovation is constrained by existing operating models, designed to drive existing business strategies. But success in M2M will require new business models supported by very different operating models.

Consider Telematics Usage Based Insurance (UBI) from Vodafone and Towers Watson which improves alignment of insurance premiums to risk. Data analysis from car journeys helps insurers tailor policies and offer advice for ways to reduce the premium. Insurers see higher profits and churn is reduced. Vodafone is at the heart of a new business proposition.

However further success in M2M will derive from entrepreneurial vision and new thinking, not size and an incumbent position and, let’s be honest, both are largely absent from global corporations. It’s hard to be an entrepreneur in big business, but in an M2M world, the future will be owned by the fleet of foot and those able to embrace disruptive business models.

M2M presents global Telcos with both opportunity and threat and significant challenges that should be exercising their leadership:

• Where will the real value-add propositions and businesses in M2M come from and how can potential be identified early enough?

• How can we be entrepreneurial enough to capture a share of the value?

• What assets and capabilities do we have that make us genuinely indispensable to big future M2M plays and where will we simply be a utility?

Of course there will be many more failures than successes. Being entrepreneurial means being prepared to place bets, to move swiftly, nimbly and decisively, to build propositions but fail fast. Sound like any corporation you know? They have real difficulty doing this and the idea that they can absorb or grow legions of real entrepreneurs sounds appealing but is notoriously hard to do in practice – just ask “corporate venturers” from the late 90’s. Few corporates genuinely succeed in consistent game-changing innovation.

So if entrepreneurial spirit is lacking, what value will the big Telco’s bring to the party? Vodafone’s UBI partnership demonstrates this challenge well. Although the heart of the proposition is Vodafone’s capability in moving large volumes of data, any carrier could do this. What Vodafone successfully did was place itself at the heart of the proposition with partnerships as the foundation of a new global business. The technology innovation was pure chance: it was business innovation that created the value. Vodafone did not replicate itself in this business model – it created something new.

However to repeat the success will require innovation at the heart of the business otherwise UBI will simply be the first of a series of opportunistic plays in a market that is getting away from them. But the corporate environment can be a hostile place to be for the truly entrepreneurial so the odds are against it, despite asset advantages and deep pockets. Management and leadership in the key career-forming roles are rewarded for running the business, not disrupting it. And of course when they do land on a great business idea, and commercialise the business, the tendency is to “boil the ocean”. Telco’s are designed to run at scale, and treat new propositions the same way.

But in order to stay ahead, Telcos must learn when and how to get behind proven ideas: running a “pilot” M2M businesses are not enough, they need to be able to divert resource, capability and investment into a business area once a pilot has demonstrated potential. Telco’s must be able to capitalise on scale and reach without stifling innovation, and need to be clear on where they add value in this evolving environment: being a big incumbent will not be enough. New M2M business models will need transformed operating models that are very different to the corporate giant. Question is: are they up for that, or are they fated to be the giants who got left behind?

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