How IoT is changing M2M economics

February 27, 2014 // By Nick Flaherty
Most of the money from the Internet of Things is going to come from additional services rather than connection fees within the next few years.

As a result, the proportion of machine-to-machine (M2M) fees generated from non-connectivity services is expected to increase from an average of 21% in 2013 to over half (53%) by 2016 says analyst Morgan Mullooly in a new report from Analysys Mason in Cambridge.
The threat of decreasing connectivity revenue, which mobile network operators (MNOs) have been confronting on the consumer retail side of their businesses in the past few years, is beginning to emerge in the M2M sector as it matures and competition intensifies. Operators are moving up the M2M value chain and delivering end-to-end solutions, rather than just simple connectivity, in an effort to combat this trend.
With billions of things – cars, utility meters, TVs and even furniture – linked via the Internet and sending information about their status and condition, operators need to determine what role they will play in this ecosystem he says.
Many verticals and industries are adopting M2M technology to connect many different devices and machines. As a result, M2M has gained significant traction as a new business area for MNOs. Operators are well placed to provide the near-ubiquitous connectivity needed to maintain links between modules and sensors and to help drive business transformation for their clients but the M2M connectivity sector is maturing. Enterprises have had only a few choices when procuring an M2M solution, but more and more MNOs are launching services for this market. Competition for connectivity is also coming from dedicated M2M MVNOs, satellite connectivity providers and other connectivity service providers using dedicated, non-cellular spectrum.
The margins associated with connectivity will be squeezed as competition increases. The proliferation of new M2M applications that use 3G and 4G networks and generate high data usage, such as video surveillance or connected car services, could offset declines in connectivity revenue. Nevertheless, MNOs will face the challenge of remaining competitive while M2M connectivity is becoming commoditized and connectivity margins threaten to stagnate or shrink