How long will it be until there are calls for more value-added services and “more value” in the machine-to-machine (M2M) market?
Not much longer, if a new Frost and Sullivan analysis is correct. One driver is that many M2M opportunities are essentially fragmented and that scale is an issue. That might be taken as an argument in favor of a “connectivity” approach, where mobile service providers offer third party customers use of the network to support their applications, much as service providers sell network service to customers of all types, without supplying the apps that run using that connectivity.
But Frost and Sullivan makes the opposite argument. The opportunities generally involve small average revenue per application, so higher revenue will require higher value.
Currently, telecommunication companies are still focusing on capturing M2M connectivity and additional related services revenues, though, a logical approach.
“Breadth of geographic footprint is not the sole determinant of business profitability in mobile communication services, nor is it the critical success factor in the M2M market,” says Frost & Sullivan Frost and Sullivan Senior Industry Analyst, Yiru Zhong.
If that argument sounds familiar, it is because it is the same argument we have heard about bandwidth services, namely that access faces the problem of becoming a “dumb pipe” with little value added.
But it is not so easy for mobile M2M providers to “buy” third party firms to create such value, for the traditional reasons: many small, innovative firms cannot maintain their innovativeness once acquired by a large telco.
Smaller telcos and other M2M stakeholders perceive acquisitions as a valid path to obtaining market share or market expertise might not face such problems, though.
So though the M2M market remains nascent, we already are starting to hear the first warnings that the simple connectivity business faces a danger of becoming a lower value “simple access” business, while the higher value “applications” are supplied by other third parties.