As a fan of all things connected -- and I do mean, getting all things in our lives connected, as that's a foundational element of Yankee Group's Anywhere vision -- I have mixed feelings about the recent spate of network operator announcements in the marketplace about M2M (machine-to-machine connectivity) business strategies. If you don't know what I'm talking about, see this Sprint announcement, or this one from Verizon Wireless and Vodafone, or this one from Orange Business Services.
On the plus side, it's all good, because the wireless network operators must commit to M2M. While that industry has been full of dedicated evangelists tirelessly (and correctly) touting the benefits of bringing connectivity to all a business's assets to reduce labor and latency in its activities, the wireless industry contributed more lip service than actual effort to that vision in the past decade. But just in the last few quarters, M2M suddenly represents a critical solution to a common problem many wireless networks face: continued revenue growth. The explosion of mobile data consumption by smartphones is directly linked to a pricing strategy that doesn't give them linear growth in revenue from current mobile subscribers. And the flat-lining of the growth in mobile subscribers in maturing markets means trouble ahead, and soon. So: connect not just people, but things, too.
Welcome aboard. As wireless operators get serious about the fact that a greater diversity of connected devices in the world can benefit from their network infrastructure, it will actually help spawn that diversity. The operators create divisions with skilled, committed leaders like AT&T's Glenn Lurie and Sprint's Danny Bowman chartered to drive revenue from these new sources. These execs force their firms to create offers that are more appropriate for devices other than phones, and develop partnerships with other tech firms that can add to their networks' IQ in supporting M2M applications.
But -- I see some risks ahead.
The short version of the peril is this: recent conversations I've had with a number of wireless networks suggest they are approaching their it's-2010-now-we're-serious commitments to M2M with a similar general strategy, in which these dedicated divisions immediately organize their resources and focus by industry. A team to develop, market, and support M2M solutions for transportation, another team to develop, market, and support M2M solutions in healthcare, yet another for the applications in consumer electronics like the Kindle and its e-reader brethren.
There's certainly a logic to this, as well as an elegance. The sense of it stems from the incredible diversity in M2M applications, so much diversity that the term itself is hardly meaningful because it spans such a breadth of activities and technologies. Is reading an e-book on a Sony Daily Reader an M2M application? Is tracking the location of a lost IV pump across a multi-building hospital campus an M2M application? To be able to collect such diversity under one organizational roof at a network, it stands to reason that you'd quickly want to get some focus on the unique challenges in healthcare (including a thicket of regulations, union rules, and extraordinarily sensitive and expensive devices to connect) versus those in consumer electronics (unit scale in the millions, rapid product lifecycles, and virtually zero attention span in end-consumers of those products for any complexity in their connectivity).
And the elegance of the vertical approach to operator M2M strategy is in the very simplicity of the org charts it induces. Want to add another vertical to your burgeoning M2M division? Just add water, plus the requisite number of industry specialist salespeople, system engineers, and third-party partnerships. Presto: the division's business plan produces another line-item of revenue from a whole new swath of customers. Call Wall Street -- this stock is hot.
The problem brewing here, though, is this: It's too soon for this leap. Even as the M2M industry labored for the past decade to develop technologically and economically viable applications to win its first pioneering Anywhere Enterprises, encouraging other firms eventually to cross that chasm themselves, it's just too soon to be landing on this cookie-cutter approach at the wireless operators to spawn rapid growth in network revenues from M2M's maturation.
It's as if, having just seen the first working internal combustion engines, Ford and his cohorts decide to build a bus factory, a car factory, a boat factory, and an aircraft factory, all in rapid succession. Just add water, and the right engineers to adapt the engine to the type of vehicle it's going to be inserted into. But the actual technology required decades to mature and spawn appropriate variations to be successfully applied in such a wide variety of products.
And I've seen this movie before. The last time I heard network operators talk with enthusiasm about exciting new sources of revenue beyond their mature operations, it was the early days of the consumer love affair with on-line services and the open Internet. AT&T, among others, devised a plan that in Powerpoint form looked eerily like the M2M vertical org charts I'm seeing today. The accompanying script went like this: "We see the on-line world hosting a diversity of consumer activities, from financial services, to travel, to health information, and much more. So we're going to build an online financial services experience, an on-line health information experience, an on-line travel center, and more. Today, of course, we're just announcing the on-line travel offering, but we expect to be rolling out these additional verticals at a rate of about one or two per year. And it's only with the tremendous resources of a global network operator that a firm can imagine the diversified revenue opportunities that will ensue from an expansion of this magnitude . . . " OK, maybe those aren't the exact words I heard in 1996, but it's pretty damn close.
And we know how that movie ended. AT&T and the other network operators, notwithstanding their size, resources, and diversification imperatives, were ill-positioned to rapidly develop a broad set of vertical silos for new online revenues. For almost too many reasons to count, but several that matter to our M2M thinking today: the network itself wasn't sufficiently mature, the time required to build out credible offerings was longer than anticipated, and the network's customers weren't ready for completely silo'd offerings; they were still exploring in unpredictable and heterogeneous ways.
Let's take that last point -- because it's the one that is most often cited by the wireless operators today as the very reason they must focus by sector: their customers need it. Do they? Do they need the comfort of talking to a sales exec very knowledgeable about healthcare -- or do they need the comfort of talking to a sales exec who is very knowledgeable about how connectivity added to important enterprise assets saves labor expense in a very cost-conscious operation?
At a recent M2M conference hosted by Axeda, a partner to several wireless operators that provides middleware to ease the development of applications across verticals, an exciting variety of businesses gathered to examine why and how to extend connectivity in their enterprises to reach more of their assets and activities.
If the customer-needs-it rationale to vertical operator M2M strategies was correct, you'd have expected to only see healthcare sector attendees in the Abbott Labs presentation, and only financial services sector professionals in the discussion by Diebold of its mission to equip its ATM product family with remote diagnostics. But in talking about the challenges and the solutions they each experienced in adding connectivity to their products, both presenters talked about the same core issues. How to assemble a comprehensive solution from the elements the connectivity sector has on offer today. How not to bite off more than your team can chew. How to measure ROI, what metrics matter. How to deal with the assault of exponentially larger quantities of data coming at them with the remote instrumentation of equipment. And the topic that might have garnered the most energy in both presentations: how to organize internally to win the support of other divisions to expand the activity after the first pilot successes.
The people that swarmed these speakers after their presentations weren't looking for industry-specific lessons, but advice and insight that span virtually every sector in which I have yet seen M2M concepts successfully applied. The Anywhere evangelists emerging within enterprises today, who must be supported by wireless operators and their partners to drive connectivity further into their organizations for mutual benefit, don't yet require highly differentiated solutions. There's a lot of commonality yet to build, and exploit, before the set-'em-up, knock-'em-down approach of vertical M2M strategies at the operators can be wildly effective.
What's the right wireless operator M2M strategy? That's something that requires more than a blog posting. But at the very least it's one that allows the richness and uncertainty in the current M2M space to inform all its industry offerings -- one that accretes experiences, solutions, insight, relationships across its early customers before identifying where the real need for specialization comes in their efforts.
The advantages of delaying the specialization of an M2M operation by vertical could included more cross-fertilization by account teams of successful client applications, earlier insights on the additional substrate that the network requires to be valuable across sectors, and lower costs in sales and marketing stemming from a more leveraged investment in M2M offers.
In the end, I want to see the operators' M2M efforts succeed as much as they do. I just hope I don't end up seeing a repeat of the Internet silo strategies of the late '90s.