The growth of the M2M industry is set to thrive over the next 10 years as mobile operators and vendors seek ways to offset the decline in mobile ARPU from consumers. Analysys Mason forecasts that consumer demand for new services will see the number of M2M device connections grow from 62 million in 2010 to 2.1 billion in 2020, at a 36 percent year-on-year growth rate.
M2M solutions are nothing new – the technology sector has dabbled for at least 10 years. However, whereas most deployments have focused on the commercial segment – particularly in the automotive/transport sector, where the first solutions appeared – we expect this balance to shift markedly from commercial to consumer applications.
While the commercial segment accounts for well over half of today's M2M deployments, consumer connections will grow to outpace commercial ones during the next decade. Consumer demand for real-time access to information will foster new services, including home security, health management, vehicle monitoring and connected engine diagnostics.
We also expect to see the balance of M2M solutions shift from developed to emerging markets and from a focus on one sector to a wider spread of applications. The automotive/transport sector accounts for the most M2M device connections today, but other sectors will have overtaken it by 2020 (see Figure 1). The fastest-growing sectors will be utilities, healthcare and security, thanks to a proliferation of connected device-centric solutions in smart metering, supply-side generation management, surveillance, cardio-vascular disease and diabetes management and body area networks. Declining equipment costs and increasing labor costs will also drive demand for M2M solutions in emerging markets, which will eventually achieve higher growth rates than developed markets.
Several factors could inhibit the growth of this promising market, including its cumbersome supply chain, which hinders development of industry-standard solutions. This supply chain spans from chip/SIM manufacturers to IT vendors, communications service providers, application vendors and systems integrators. The leaders in each supply chain category vary by industry solution, with leaders in the automotive/transport sector, for example, being different from those in the utilities sector.
Nevertheless, the financial incentive for operators is real. The average ARPU from M2M services is substantially lower than that from mobile voice or traditional mobile data services: about $5 (U.S.) to $7 per SIM per month; however, M2M ARPUs for a given solution can range from 50 cents to $40 per month. The ARPU per kilobyte of data can be very high. In addition, M2M-related data does not necessarily have a negative impact on the peak-hour dynamics of a mobile network, so adding small amounts of M2M traffic can yield positive cash flow for a carrier with minimal network-related costs.
Steve Hilton is the lead analyst for Analysys Mason's Enterprise research program. He may be reached at Steve.Hilton@analysysmason.com.