M2M & Smart Systems Market Opportunity 2010-2014
Harbor Research, Inc.
http://www.harborresearch.com/HarborContent/m2msmartsystems.html
Contents
Introduction & Market Trends Page ..........2
Technology Trends & Forces Page ............8
Supplier Trends & Forces Page .............16
Adopter Trends & Forces Page ..............22
Forecasts Page ............................23
Socio-Economic Trends & Forces Page .......27
Summary Page ..............................28
Introduction & Market Trends
We have entered an era where people, businesses and social organizations are beginning to understand the profound impacts awareness, collaboration, and intelligence will bring. In the not toodistant future, hundreds of millions, then billions, of individuals and businesses, with billions, then trillions, of smart, communicating devices, will stretch the boundaries of today’s business and social systems and create the potential to change the way we work, learn, entertain and innovate.
THE ADVENT OF SMART SYSTEMS AND BUSINESS
Peer-to-peer information, social networking and pervasive computing are combining to create new modes of collaboration and decision making. People, information, and technology are becoming more connected, distributed and pervasive enabling the convergence of physical and virtual worlds. Social networking technologies are moving to the enterprise and will be embraced and experienced differently than in the consumer space. Network awareness will include knowledge, people and things.
These forces are informing a new trend we call “Smart Business.” In its simplest form, Smart Business is a concept in which input—from machines, people, video streams, maps, newsfeeds, sensors, and more—is digitized and placed onto networks. These inputs are integrated into systems that connect people, processes, and knowledge to enable collective awareness, creativity and better decision making. The foundation of Smart Business is made up of “Smart Systems” based on leveraging embedded computing and networking technology to deliver smart, remotely monitorable goods that will support entirely new modes of customer-device interaction and service delivery -- thus, Smart Business.
As networks have invaded the “physical” world, traditionally unique components and interfaces between and among electronic as well as mechanical elements are becoming more and more standardized.
The implications of these trends are enormous. No product development organization or its suppliers of componentry and sub-systems will be able to ignore these forces -- product and service design will increasingly be influenced by common components and sub-systems. Vertically defined, stand-alone products and application markets will increasingly become a part of a larger “horizontal” set of standards for hardware, software and communications.
As it becomes easier and easier to design and develop smart systems, competitive differentiation will shift away from unique, vertically focused product features towards how the product is actually used and how the product fosters interactions between and among users in a networked context. The opportunities this opens up to forward thinking product and service organizations are nearly infinite. Businesses can begin to explore many new possibilities for system solutions unthinkable just a few years ago.
THE INTERNET OF THINGS MEETS THE INTERNET OF PEOPLE
Technologically, the 21st Century began with a very big bang: the dot-com and Web boom and bust. Back then, the Web’s value derived from people: people building Web sites; people “surfing” the Web; people looking at screens with their eyes; people typing on keyboards with their fingers. People, people, people.
Since then, two major technology developments have emerged that appear now to be on a path of convergence—The Internet of Things and The Internet of People (or as most people have become familiar with social networking or Web 2.0).
The technologies collectively driving the Web and Enterprise 2.0 have spread widely in the last five years, particularly among consumers. Social networking sites such as Facebook and MySpace attract hundreds of millions of visitors a month. Web 2.0 covers a range of technologies, including blogs, wikis, podcasts, tagging and social networks. Collaboration technologies are spreading throughout the Internet and leading the next wave of growth. With the advent of participative technologies such as Wikepedia, we can now see the enormous value that can be derived from collaboration on the Internet.
Meanwhile, intelligent device networking, sometimes referred to as “Pervasive Computing” or the “The Internet of Things” is upon us. Billions of devices, are currently being connected to the Internet. The types of devices being connected today extend far beyond the laptops and cell phones we have become so accustomed to. Today, virtually all products that use electricity—from toys and coffee makers to cars and medical diagnostic machines—possess inherent data processing capability. Any manufactured object has the potential to be networked.
In the long run, such “invisible” machine-to-machine (M2M) applications will create many new automated services. These “invisible” services will be much more important to business—and to the evolution of our economy—than today’s cumbersome services. The value of future products will require manufacturers to outfit their products with intelligence and connectivity. This product OEM activity has begun, and will continue to increase exponentially.
These phenomena are not just about people communicating with people or machines communicating with machines: it also includes people communicating with machines, and machines communicating with people. The Internet’s most profound potential lies in the integration of smart machines and people—its ability to connect billions upon billions of smart sensors, devices, and ordinary products into a “digital nervous system” that will smoothly interact with individuals.
Take home health care as an example. Social networks and sensor networks can be combined to support independent living and health support for the sick and elderly. For daily living purposes, we can check the status of friends and relatives or help the elderly find nearby walking buddies to promote mobility. By using semantic representations of information from sensors, we can build on the idea of connecting people through shared activities and interests. More importantly, we can send alerts based on abnormal activity patterns. Through sensor readings of body position or health measurements, we can issue requests for attention not just to doctors or clinicians but to nearby friends in the elder’s social network.
Another example is the The Personal Travel Assistant (PTA) project—an initiative involving the Massachusetts Institute of Technology (MIT), Cisco and select cities—is helping cities connect their urban environments to enhance public services amd improve sustainability. M2M & Smart Systems Personal Travel Assistant (PTA) allows people to access transportation information on any web-enabled device, from any location, helping to improve their transit experience within urban environments and reduce their personal carbon footprint. Unlike map-based direction-finders or trip planners, PTA provides a wide array of real-time information, including sug gestions that allow citizens to reduce the cost of travel and find the route and transportation method that will result in the lowest carbon emissions.
CREATIVE COLLABORATION FOR BUSINESS
As the popularity of collaboration and social networking technologies has grown, it has attracted a great deal of attention in the enterprise realm. Many business organizations are aggressively embracing Enterprise 2.0 by using social networks for new modes of innovation and business development. However, many executives in the B2B world still view open collaboration and social networking as an activity for kids at home or hackers in the night—not tools for real business. Futurists have been describing such collaboration in B2B technology markets for years with little real progress. That is, until now.
Currently, there are over 20,000 core contributors actively producing Wikipedia. A quarter of a million people collaborate on Slashdot. Thousands of programmers contribute to Linux and similar open source tools. Amazon has over 100,000 developers building applications and businesses. Apple with its iPhone and App Store is driving an entirely new form of collaboration and peer product development. The business benefits of large scale collaboration and social networking tools in the B2B arena are finally being recognized.
The example of Wikipedia suggests that businesses can leverage specialization by providing more control over the content of products to collaborators and participants (suppliers, customers, intermediaries, etc.). Does this sound like the world of kooks and hackers? Big IT “arms merchants” like IBM and Sun don’t seem to think so. Their support of open source software development is driving the complete displacement of traditional proprietary tools that manage IT infrastructure.
The Internet and new social networking technologies are allowing companies and their customers to interact with unprecedented levels of richness. Companies like P&G and Peugeot are even drawing customers directly into their product and service definition and development processes. Even heavy equipment manufacturers such as ABB are finding these new tools more than just useful methods for communication between and among employees and customers. New forms of mass collaboration suggest that companies are making real headway with a more self-organized approach to teaming and collaboration.
This collaboration can come in many forms, from an end user and call center operator working together to solve a problem with a piece of equipment, to a service engineer devising shortcuts to streamline repetitive tasks, or a customer working with a service or product design engineer to design a new and improved piece of equipment. These collaborative efforts often lead to new innovative solutions that create long-term value for the OEM, the user and all the value adders involved in its use. Relational capital, that which grows from customer intimacy and collaboration will define new rules of competition.
1.1.4 NEW VALUE AT THE INTERSECTION
Isolated examples of next generation interaction between intelligent devices and humans are plentiful. But to fully understand the true power of collaborative communities, applications must be realized on a large scale. The next chapter of this story will require a sophisticated platform that allows edge devices—be they business, or consumer, human or machine, operated wirelesses or wired—to participate in coordinated knowledge sharing, problem solving, and transactions that span dynamically created communities.
This will take personalization to another level, turning “things” into learning machines that can be trained to know a users’ habits and behaviors. Based on a human’s needs (e.g. a user, fixer, designer, etc.), intelligent devices will be able to infer needs and deliver highly individualized content without requiring a user to search, or in many cases to think about. M2M & Smart Systems The intersection of Enterprise 2.0 and the Internet of Things creates value at two disparate ends of the business spectrum. The adoption of Web 2.0 social networking and collaborative software for businesses is creating new value for businesses, driven from social collaboration between employees, partners, customers and suppliers. On the other end, the rise of the “Internet of Things” has helped transform manufacturing companies into value-added service companies. Manufacturers are learning that by putting products on networks they are essentially placing themselves into continuous contact with their customers, thereby enabling them to better understand their customer’s needs and act appropriately. The intersection of these two emerging trends creates an opportunity for product manufacturers and OEMs to evolve their business model and drive competitive differentiation by cleverly combining the collaboration tools and environment of a common enterprise social networking platform with the ability to support remote devices, machines, and equipment as peer members of the community. These tools are based on commonly available Web 2.0 technologies such as Blogs, Wikis, Instant Messaging and RSS feeds. While they are inherently disruptive and sometimes challenge an organization and its culture, they are not technically complex to implement. Rather, they are a relatively lightweight overlay to the existing infrastructure and do not necessarily require complex technology integration.
In a collaborative community, devices themselves can blog, send & receive messages, report status, share files and interact on a peer-to-peer basis along with humans. Examples of such collaboration include:
• Having devices share their status, history and “knowledge”, through blog posts.
• A service technician having the ability to securely and remotely “chat” with a device to check status and run diagnostic routines.
• Elderly care via a combination of medical device monitoring and community awareness of peers.
• Personal location services that integrate friends, family and co-workers into systems that understand real-time “whereabouts.”
• Customers being able to run value added applications in the community that incorporate device profiles as well as alerts, alarms and value-added notification.
• Customers posting questions regarding unique product usage and systems interactions to a forum accessible to all members of the community.
• Devices having a Facebook-style “wall” allowing technicians, customers, and engineering to post information and learn from other contributions in a new form of input for a knowledge management system.
An example device integration package for such a community includes the ability to “chat” with the device to request status and execute commands, the ability to share files, the ability for the device to “blog” to its community home page or send updates to a feed, and the ability to establish a direct peer-to-peer (P2P) connection to a device for remote desktop or more specialized diagnostics.
A good social productivity suite also recognizes that valuable data can be stored in many locations in many different formats. Therefore, a key feature of any collaborative device community is the ability to aggregate data from many locations as well as the ability to provide data feeds to other existing enterprise applications, knowledge bases, and customer portals.
Finally, one other very important aspect of a collaborative people-device community is its openness, which allows anyone to create applications that can be subscribed to and used by other members of the community. These Software as a Service (SaaS) offerings are similar in concept to the Apple App Store, Facebook “applications” or Google “Gadgets”. These applications may be horizontally focused, such as a predictive maintenance analysis package, or vertical applications focused on specific markets. The fact that these systems can be completely open provides third party Independent Software Vendors (ISVs) with access to a customer base that they otherwise may not have been able to viably approach and eliminates the burden of them having to deal with gaining access to critical device information. Open source development has proven itself as powerful mode of innovation and development.
Technology Trends & Forces
SMART SYSTEMS TECHNOLOGY DRIVES NEW WAVE OF GROWTH
We believe smart systems will drive a multi-year wave of growth based on the convergence of innovations in software architectures; back-room data center operations; wireless and broadband communications; and smaller, powerful, and numerous client devices connected to personal, local and wide-area networks. These technologies will work together in unprecedented ways to solve smarter and more complex business problems than previous generations of computing.
Since the beginning of computing there have essentially been three waves of technology and architecture: mainframe computing, personal computing, and network computing. This next generation of “Smart Systems” technology will add significant new capabilities to computing and network systems. These new capabilities will revolve around real-time situational awareness and automated analysis. As a result, technology moves beyond just proposing task solutions — such as executing a work order or a sales order — to sensing what is happening in the world around it, analyzing that new information for risks and possibilities, presenting alternatives, and taking actions. Smart Systems are:
a new generation of systems architecture (hardware, software, network technologies and managed services) that provide real-time awareness based on inputs from machines, people, video streams, M2M & maps, newsfeeds, sensors, and more that integrate people, processes, and knowledge to enable collective awareness and better decision making.
The three previous waves of technology each have had significant impacts on productivity and efficiencies;; mainframes standardized transactions; personal computing placed processing power into the hands of professionals; and, networked systems enabled business process automation. What is important about this next wave of Smart Systems is the combined impact of the cycles of innovation. While there is standalone value in each of the innovations in software systems, server infrastructure, network infrastructure, and client devices, it is the combination of all these innovations that will allow computing technologies to inform smarter systems.
SMART SYSTEMS OPPORTUNITIES
Where will the investment flow in smart systems over the next five to eight years? It will likely be into a mix of traditional IT and network systems technologies coupled with new investments in core smart system technologies. We expect the rate of investment in smart systems to be measureably higher than in maturing infrastructure and occur in three key areas:
• Smart System Platform Technology: Next generation foundation technologies for unified communications, embedded processors and network enablement tools, virtualization systems technologies, and software infrastructure will be the foundation elements of Smart Systems.
• Purpose-Built Device & Hardware Innovation: Innovations in new mobile terminals, information appliances and the integration of a broad range of sensing capabilities into intelligent devices will continue to provide an ever broader variety of features that support the integration of digital information and sensory inputs from the physical world, thus broadening the range of possible applications available and also improving and simplifying the user experience and interactions.
• Business Process Integration: New software products will continue to automate business processes (asset management, CRM, contract administration etc.), but more importantly, drive integration across business processes and systems (demand management systems within supply chains for example).
• Value-Added Application Services: Vertically focused solutions that increasing integrate all the people and assets a company has or serves -- systems that allow for real-time energy management; health systems delivery and intelligent transportation systems management to name a few.
NETWORK TECHNOLOGY DRIVERS FOR SMART SYSTEMS
Overall, the decline in connectivity cost coupled with declining device costs are driving growth in virtually all device communications. This trend coupled with substantial regulatory investM2M
ment (e.g. smart grid) and the emergence of new features from network operators and IT infrastructure suppliers are all driving the connectivity trend. Additional drivers include:
• 3G Will Drive Convergence of Mobile Internet and Non-IT Devices: The majority of machine-to-machine (M2M) and Smart System applications have historically required low bandwidth. At the cellular level applications have almost always been enabled by 2G technologies. With 3G technology on the rise around the globe, new M2M applications are beginning to emerge that require high data speeds.
Integration of new mobile internet devices such as the Kindle and iPad with new types of sensory inputs will drive the need for 3 and 4G systems. In the transportation industry, high speed telematics, real time navigation, and in-vehicle infotainment are becoming relatively commonplace services that
• require high bandwidth. Media-rich bandwidth hungry content is increasingly being delivered to a growing population of digital signs around the world. Along the same lines, 3G connectivity is being used at ATMs and vending machines where frequent OS downloads
• are standard. Finally, there are video surveillance and CCTV applications that have long been the “poster children” of 3G M2M. A new breed of high bandwidth applications is not the only reason why 3G technologies are making inroads into M2M. For starters, some network operators have indicated that they will shift the majority of their data applications to 3G for spectral efficiency gains. Additionally, many end users are concerned with the future proofing of their devices. Basically, if devices are going to be in use for 10-15 years, then it will be necessary for technology that does not become obsolete and unusable during this timeframe. Overall, the marketplace is starting to realize that 3G will play a larger than expected role in M2M and Smart Systems as the connected world continues to expand its presence.
• Wireless Standards Converge: After a long drawn out battle between CDMA and GSM (the two dominant cellular network standards), it finally looks like we have winner. While still years away from mass implementation, 4G cellular connectivity will be brought to market through the Long Term Evolution (LTE) standard. LTE is a GSM based technology that has received an official seal of approval from the majority of cellular carriers and infrastructure equipment makers around the globe. Long-time CDMA supporter Verizon has even decided to switch to the new GSM based technology. GSM has been eating away at CDMA’s market share for some time and the arrival of LTE will continue the trend. While neither CDMA nor other proprietary technologies will completely disappear from the marketplace anytime soon, over the next 10-15 years it is likely that GSM’s market share will increase to around 85-90% of the market as the 4G rollout truly gets underway.
• Wireline and Wireless Application Providers Square Off. In the early days of the Pervasive Internet application service and platform providers often focused on either wirelessor wired technologies. However, as the space matures and becomes more economically attractive, application providers are crossing traditional “boundary lines” as they seek to garner more business.
Wireline application providers are faced with an additional dynamic – the prospect that wireline technologies continue to lose market share to wireless. Overall these forces are converging and creating an increasingly competitive dynamic between two sets of players that did not originally compete.
• Competing Technologies Will Drive New Solution and Integration Capabilities: There is an increasing chance that WLAN technologies will compete with WPAN over market share as it relates to the “Internet of Things”. Initially it was thought that WPAN technologies had an edge for applications that required a large amount of sensors and nodes to be deployed. For starters, WPAN technologies were thought to be generally much cheaper to deploy, additionally mesh networking capabilities often made WPAN technologies more readily deployable in large sensor based applications.
Now though, the game is changing. 802.11s is due to be released in the very near future and it is set to feature mesh networking capabilities, thus eliminating one edge for WPAN. Second, the prices of WLAN modules and related “sensors” are getting closer and closer to the cost for WPAN solutions. If prices continue to converge between the two technologies then competition is likely to increase. Last not be least, there is the issue of familiarity and deployability. Many end users are much more aware of when/how to implement and use WLAN solutions. While not necessarily complicated to adopt, WPAN solutions often M2M & Smart Systems face more questions due to lack of familiarity. Couple this with the fact that a significant amount WLAN infrastructure is already in place and it is not hard to see where the benefits of solutions using Wi-Fi come into play. Overall, this is not to say that WPAN will disappear as it sill has many unique benefits such as low power features. Market dynamics are simply getting more complex and competitive and this could lead to a significantly larger adoption curve for one side or the other down the road.
• IP ... Everywhere: The Pervasive Internet needs a universal alternative to the many existing techniques for connecting ordinary devices to the Internet. The other techniques all have something to recommend them; each is optimized for a special purpose. But in return for their optimality, they sacrifice compatibility. Since most device connectivity rarely requires maximum optimality, compatibility is a much more important objective. IP is the only answer.
The technical development in low-cost sensors and actuators combined with low-power communication technologies such as IEEE 802.15.4, low-power Wi-Fi, and power line communication has accelerated in the last few years. However, the biggest problem with the evolution of wireless sensor networks has been the large number of proprietary or semi-closed systems that lead to non-interoperable solutions.
The current situation for wireless sensors looks like computer networks two decades ago: islands of computers communicating with their own protocol, for example SNA, IPX, and the like, interconnected by complex multi-protocol gateways. Subsequently, these architectures evolved to IP-based tunneling mechanisms such as DLSw or XOT. Today, these networks operate on fully end-to-end IP-based architectures. Many of today’s non-IP-based sensor architectures are evolving toward a protocol-translation gateway model, similar to the path computer networks went through before quickly moving to fully IP-based architectures. Protocol gateways are complex to design, manage, and deploy. The network fragmentation leads to non-efficient networks because of inconsistent routing, QoS, transport and network recovery techniques. End-to-end IP architectures are widely accepted as the only alternative available to support the design of scalable and efficient networks comprised of large numbers of communicating devices.
Existing standards can use IP in wireless sensor networks. Using IP in WSNs eliminates today’s requirement for separate gateways for each WSN application where communication travels upstream to an IP network. Embedded networking technologies such as IEEE 802.15.4 and 6LoWPAN have enabled new systems to operate with native IP connectivity. IP enables interoperability at the network layer, but does not define a common application-layer standard, thus making it optimal for use in a wide variety of applications ranging across several industries.
HORIZONTAL SOFTWARE TO ENABLE VERTICAL APPS
Once a device becomes networked and is monitored for the primary purposes of device status, usage tracking, and consumables replenishment, it will also serve the larger business purpose of being a key driver for the vertical customization of services in general. For example, “asset management” is an important service that incorporates a number of different variables and systems (diagnostics for equipment health monitoring, location services for maintenance and spare parts planning, etc.). Application service providers need to organize the devices and system capabilities they offer configured for the environment in which they operate—factory, office, hospital, and elsewhere. A product inventory program will have a much different configuration in a factory than it will in an office building. More than ever before, the drivers, needs, and environmental conditions will determine the way technology is implemented. Ultimately, all devices and services, like asset management, will be highly configurable to match the needs of a particular venue, or even of a particular end-user. We have historically referred to these foundation/platform functions as “Systems Applications.” By this we mean a set of state-based application functions that are horizontal in nature and often characterized in a general sense as “middleware” that are not seen by the end user (we do not like the term middleware as it risks generalizing capabilities that are unique to the Pervasive Internet and offer unique opportunities for suppliers).
In its most basic and practical form, our concept of “systems applications” is based on “managed services integrated with embedded computing.” But that’s not as simple as it sounds. Capturing the real value of Internet-connected devices goes much further than providing connectivity, databasing, and some XML-based transport scheme. For example, real pervasive managed services will allow networked, embedded devices to execute remote applications as if those applications were part of the internal operating system. This type of enablement can bring extraordinary value to the growing population of network embedded devices.
System applications are fairly generalized and are created by applying generic connectivity functions to a particular venue. The breakdown of System Applications is as follows:
• Status, Monitoring & Diagnostics: Status applications capture and report on the operation, performance, and usage of a device, or the environment that the device is monitoring. Diagnostics applications allow for remote monitoring, troubleshooting, repair, and maintenance of networked devices.
• Upgrades & Configuration Management: Upgrade applications improve or augment the performance or features of a device. They can prevent problems with version control, technology obsolescence, and device failure. This kind of program makes site visits to upgrade products unnecessary and eliminates the need to keep track of what has been upgraded and when, thus saving time and money.
• Control & Automation: Control and automation applications coordinate devices into a sequenced pattern of behavior. These applications also allow for special-case discrete actions of a device under certain circumstances.
• Location & Tracking: Profiling and behavior-tracking applications are used to monitor variations in geography, culture, performance, usage, and sales of a device. These applications can also be used to create a more customized or predictive response to end-users of a device.
• Data Management & Analytics: Business intelligence and specialized analytical software such as data mining and predictive analytics, video image analysis, pattern recognition, and artificial intelligence algorithms.
ANALYTICS DRIVES REAL-TIME VALUE
“Real-time awareness” is driving renewed interest and deployment of analytic tools. Analyzing and storing the massive amounts of data that will be received is only possible with extensible and adaptable systems. Rules engines and work flow are the existing technologies for deciding which alternative courses to pursue, either automatically through the application of a rule that says “if this happens, do this,” or through human review based on work flow engines that route the anomaly and alternative courses of action to the right person to make a decision. The basic function of rules engines and work flow will stay constant — seismic leaps will be necessary in the data flow and analytical inputs in a world of vastly expanded real-time awareness.
The conversion of process applications to service-oriented architectures will allow these process apps to be adapted to business scenarios, with specific components pushed down to intelligent devices where they can execute a specified action. For example, alerting a citizen on her smartphone to the updated arrival time of a bus that was stuck in traffic, notifying a doctor on a tablet device about the drug allergies of a patient he is about to see, or directing the thermostat in an individual home to raise the temperature by turning down the air conditioner by three degrees.
VALUE-ADDED APPLICATION [MANAGED] SERVICES
An important characteristic of the Smart Systems opportunity will be the importance of vertically focused solutions -- the bulk of which will increasingly be delivered as a managed or value-added applications would be called upon and integrated in differing configurations to provide vertical value-added applications. For example, a combination of monitoring, diagnostic, control and tracking functions could be configured to provide basic functionality required to enable an energy management application.
Value Added Application Services are solutions that integrate people, business processes and assets and are delivered as managed services. Examples of value-added applications services include the following:
• Asset management and optimization
• Supply chain integration & business process management
• Customer support
• Energy management
• Security management
Players will create solutions that combine elements of industry-specialized hardware devices, vertical industry software, and industry-focused wireless/wired networks with industry-oriented analytics to optimize business processes and performance both operationally as well as financially.
Smart Systems technologies and applications will help organizations address the key challenge of optimizing the value of their balance sheets, allowing them to move beyond financial assets and liabilities to their physical assets and liabilities (like electric grids or hospitals) and then to their intangible assets and liabilities (like a skilled workforce or brand). Assets and liabilities tend to be very industry-specific, even more so than processes that may be common across industries. And the task of optimizing the value of these assets and liabilities is vertically focused because optimization requirements and goals vary dramatically from industry to industry.
Supplier Trends & Forces
SUPPLIER TRENDS, FORCES & MARKET DEVELOPMENT
After displaying signs of relative indifference for many years, people and companies across the globe are finally waking up to the fact that we are entering a new era of connectivity. The world is rapidly evolving beyond the point of cell phone and traditional PC internet connectivity. In this new cycle physical assets and devices are being connected and enabled with sensors on a daily basis. Recognizing this scenario, technology suppliers around the world are now devoting major resources to addressing the opportunities associated with Smart Systems.
For most vendors, selling existing servers, PCs, storage devices, and enterprise applications will be a recipe for shrinking revenues, given the impacts of cloud computing on these product markets. But demand for these purchased technologies will not disappear. A few vendors that focus on being the consolidators of these shrinking but still large product markets will be able to survive and even thrive.
What will be required of the technology supply community? Here are the success factors:
• Systems Integration: Ability to pull together the hardware, software, and network elements of Smart Systems. These solutions will not work if they are a collection of separate hardware, software, and network products from different vendors unless, and until, there are clear standards and protocols that define how each part works with the others. Those standards and protocols for interoperability, security, and performance will come in time. But, for now, vendors that can provide all the elements of a full solution, and can do so as a product that can be sold to many clients, will have the edge.
• Expertise: For vendors that go after vertical industry solutions, balancing horizontal infrastructure elements such as systems configuration management, asset management and contract life-cycle management (to track and manage the contracts related to these assets and liabilities) will be key. Successful vendors will need to have analysis tools and skills, and the ability to design systems to create awareness of asset status, structure the analysis of this data, define rules and work flow, and identify the right applications to initiate the appropriate actions. Further, for those vendors that pursue a vertical industry strategy, choosing which verticals to go after will be a key success factor. Because balance sheet challenges tend to be unique to an industry, crafting the right combination of Smart System elements to address these challenges requires deep understanding of that industry and those challenges.
• Service Delivery Platforms Are Key To Success. With more carriers focusing on the Smart Systems opportunity the competition for customers is heating up. Network operators realize that in order to be profitable it will be necessary to connect large volumes of devices since many M2M applications require just minimal bandwidth, therefore limiting the data/usage rates that carriers can charge.
In-turn operators are seeking ways to differentiate their services since already low data rates limit the opportunity to compete on price. One emerging area for differentiation centers around Service Delivery Platforms (SDPs).
Connecting and managing networkable devices has traditionally been a problematic area for customers. In the past, it took several months to get a device network certified. Once the device was connected there was often little visibility into how it was performing on the network as well as limited back end control. SDPs have emerged as a critical tool that can help address these areas.
SDPs provide configuration services, provisioning, SIM management and reporting, billing, upgrades, and troubleshooting services. Realizing that these services are crucial to end customers, carriers are increasingly developing their own SDPs and/or partnering with platform providers in an attempt to customize their services and meet the needs of their constituents.
• Managing the Contention Between Horizontal and Vertical Opportunities: In a period when horizontal technologies make up the bulk of IT purchases but grow slowly if at all (and vertical technologies provide much of the growth, but still are only one-quarter of the market), solving this dilemma will be the biggest challenge that many vendors face. Large vendors with dominant shares and scale economies in horizontal technologies can add elements of cloud computing and consolidation to outpace their stagnating market segments. Small vendors and new entrants can easily prosper in new vertical niches. But everyone else will need to carefully pick the horizontal technologies that they want to master and/or the verticals that they want to dominate and give up the others.
• Alliances Are Key To Success. The dynamics surrounding the Pervasive Internet are incredibly complex. Basic enablement, network connectivity, middleware services, value-added services, and other device management functions are all needs that generally must be addressed when customers seek to connect devices. Given all of the aspects that must be addressed from the customer standpoint, alliances between suppliers often represent the best available means to address the issues facing the end customer and also create maximum value for all parties involved.
By addressing multiple customer needs, technology suppliers have a better chance to be profitable in the long run. From the customer standpoint bringing a device to market is a multi-step process in an industry that is difficult to navigate. Suppliers that choose to go at it alone will have a hard time solidifying their place in the Smart Systems arena as they will be unable to meet the many needs of the end customers. On the other hand, those suppliers that form alliances will be able to provide a host of customer solutions from cradle to grave, thereby speeding time to market and simplifying device management issues.
WINNERS & LOSERS
Who will be the winners and who will lose as the Smart Systems opportunity develops? In the much larger and more complex world of business-to-business and government technology, there is no vendor that has the clear leadership position that Apple has in consumer Smart Systems. While the “Internet of Things” represents a market of vast potential, technology suppliers must be aware of the current industry dynamics if they are to successfully navigate the market. How well will various supplier groups align with the Smart Systems opportunity as it develops?
• Impact on IT “Arms Merchants:” IBM has a lead position but needs to add apps and overcome its consulting services bias. IBM already owns many of the hardware, software, and network elements of Smart Systems. Its Smarter Planet marketing initiative shows that it understands that balance sheet issues in key verticals are the biggest opportunities, and it has built enough success cases in these verticals to speak credibly to business executives in these industries. It is creating software frameworks in these industries that combine IBM and partner products to provide solutions. But it will need to acquire client device technologies and key software apps if it is to offer Apple-like product consistency that speaks directly to the client desire for an easy-to-purchase-and-use solution.
Oracle has many Smart System elements but only a nascent vertical strategy. Oracle has the apps that IBM lacks, comparable analytics and Services Oriented Architecture (SOA) platform software products, and a presence in hardware through its acquisition of Sun Microsystems. Additionally, it has the potential to offer separately branded vertical solutions as the result of acquiring many vendors and sustaining their brands. However, Sun puts Oracle at the wrong end of the hardware market, selling servers when virtualization and cloud computing is eroding demand, thus leaving Oracle lacking the client devices needed for true solutions.
Microsoft has to choose between competing with Apple in consumer tech or IBM in business. Microsoft has the size and resources to compete with IBM and Oracle in Smart Systems, as well as the analytical, SOA platform, and application software products to provide credible solutions. Its Xbox and Zune offerings, as well as years of working with PC and smartphone vendors, provide experience in client devices. But Microsoft, in all likelihood, derives too much of its revenues from horizontal technologies like Windows and Office to be able to pivot toward primarily vertical solutions. Above all, Microsoft is as much a consumer tech vendor as it is a business tech vendor.
SAP is stuck in many ways. Like Oracle, SAP has both the apps and the analytical engines to put into Smart Systems solutions. However, its SOA platform lags behind IBM’s and Oracle’s, and lacks any hardware products to evolve into client device offerings. SAP, of course, understands that balance sheet issues do matter, and its product suite can be, and has been, used to address these issues in some industries.
Cisco has aspirations to play in Smart Systems but has to overcome its historic network gear bias. Network technologies are key elements for solutions, and Cisco has been making acquisitions to strengthen its offerings in the enterprise and other markets. It also has been developing software and client hardware capabilities that in principle could allow it to provide awareness and analytical capabilities at the edge of the network. However, because Cisco is just starting to develop a vertical industry focus, it still has major gaps in its software offering, and tends to think and act like a network gear vendor rather than a Smart Systems solution provider.
HP, Dell and EMC are all still in the horizontal tech space and have been slow to embrace Smart Systems. While all three have made acquisitions of software vendors, and HP has added EDS, none have the portfolio of analytical tools and applications needed to offer smart solutions on their own. While EDS does bring HP some experience in smart meter systems and other industry solutions to go along with HP’s IT asset management tools and other middleware capabilities, both look more likely to try to dominate their horizontal technology domains than to play in vertical solutions.
• Impact on Larger Diversified Manufacturers & Solutions Players: Players like GE and Siemens are using their strength in key verticals to move into Smart Systems. Most people don’t think of GE or Siemens as IT vendors that compete in the same space as IBM, Oracle, or Microsoft. However, that is changing. In key verticals like healthcare, GE and Siemens are already providing core software products, as well as core medical technology equipment which represents some of the core assets of hospitals and healthcare providers. Both are major providers of power generation and transportation equipment (where they are leaders in adding the sensors and analytical software for tracking the performance and condition of these assets). GE, Siemens and their peers will, in our opinion, become significant players and evolve to a position of dominance as the Smart Systems opportunity continues to develop.
• Impact on Traditional IT Consulting & Professional Services: In the short run, companies will need consulting help to plan strategies for SOA, unified communications, and emerging Smart Systems solutions. Systems integration (SI) projects will do well as companies revive their postponed capital investment plans for CRM, ERP, SCM, SRM, and other stalled applica
Source: Harbor Research, Inc.
• tions. However, the emergence of Smart Systems solutions for different verticals will present challenges for IT services vendors. For example, smart meter solutions for utilities or a healthcare records management offerings for hospitals are not just a collection of different products from many different vendors that an SI would assemble as a general contractor as they have in the past.
These are vertical solutions requiring more industry-driven experience.
• Network Operators [Need To] Get Serious. Having nearly reached the saturation point with mobile phones, carriers are now turning their attention to non-IT devices capable of being connected to a network. After carrying a somewhat low profile, this space has been remarkably active in the past year. Almost “en masse”, network operators announced strategies aimed at grabbing a piece of the rapidly developing Smart Systems market. AT&T for example, announced the opening of the AT&T Control Center through an agreement with Jasper Wireless. The Control Center is a Jasper powered platform that aims to speed time to market for connected devices, thus addressing a traditional area of concern for customers/developers. Verizon continued to hone its Open Development Initiative (ODI) and also announced nPhase, which is a joint venture with Qualcomm aimed at enabling Smart Systems across a variety of vertical markets. Additionally, nPhase reached an agreement with Verizon Wireless and Vodafone that allows the company to offer global connectivity, certification, and pricing for M2M solutions. Meanwhile, in late 2009 Sprint reorganized the majority of its legacy M2M business into the Emerging Solutions Group (ESG). ESG will focus on both B2B and B2C opportunities and also look to leverage its 4G services in the M2M marketplace International network operators were not quiet either. Vodafone expanded the breath of its M2M service programs, Telefonica established a multinational M2M global unit, and Orange continued to successfully target market verticals as part of its growth strategy, while also establishing an International M2M Center. Asian carriers looked to capitalize on the region’s hunger for more technology. China Mobile and China Telecom ramped up service offerings/capabilities for M2M as the country continued heavy investments in IT Infrastructure.
• Impact on Traditional M2M Players: The traditional M2M vendor ecosystem is extremely fragmented and includes a wide variety of small vendor participants. For the most part, we believe this fragmented group of players will align with larger partners, focus on vertical application solution value or disappear.
PLAYERS IN CONSUMER ARENA ARE DRIVING NEW SUCCESS MODEL
Apple and some of its peers in consumer space present an interesting case for how Smart Systems will develop. Althoughm Apple is primarily a consumer-focused tech vendor, with no need for vertical industry capabilities, they provide an ideal Smart System solution. By combining technologies from multiple domains and packaging them into a cohesive solution, Apple is able to win buyer acceptance. Looking beyond Apple to Google, Amazon, Facebook and other players coming from the rapidly evolving mobile internet arena, there are a variety of new business models emerging from cloud and related services platform players which embody Smart Systems innovation. Adding to this innovation are application developer communities -- Amazon has over 100,000 developers building applications and businesses; Apple with its iPhone and App Store -- which are driving entirely new forms of collaboration and peer product development.
The business benefits of large scale collaboration and social networking tools in the B2B arena are finally being recognized.
Adopter Trends & Forces
ADOPTION TO SHIFT FROM INTERMEDIARIES TO END USE SEGMENTS
After a long period of market development where M2M players have largely focused resources on serving OEMs and intermediaries, attention will begin to shift to end use segments. Typical of emerging tech markets, today’s M2M solutions are often application-specific, meaning that each M2M system is built to support a single type of device or restricted set of devices. As a result, the market for M2M and smart solutions has been in a protracted and uneven development cycle. This is due to several reasons:
• The need for more compelling business cases;
• The fragmented state of supply side solutions players; and,
• Multiple, parallel standards bodies and requirements.
We believe the entry of the IT equipment and infrastructure players coupled with the renewed interest on the part of carriers, a new chapter in the development of the market for Smart System has begun. These supply-side maneuvers will couple with several related market forces to drive growth, including:
• Fundamental demand. Concerns over safety, security, air pollution, congestion, infrastructure reliability and transport efficiency provide public pressure to find solutions. These concerns significantly impact public opionion and thus are driving public policy decisions to invest heavily in solutions for improved public infrastructure and environmental challenges. As government money becomes available, OEMs increasingly are targeting resources toward “public” projects.
• Changing workplace demographics and evolving skill requirements. In many industries, issues surrounding an aging workforce are impacting hiring and staff management policies. Additionally, it is becoming less economical to devote personnel to simple but essential tasks such as meter reading or tech support of equipment. Remote services will drive substantial impacts on workplace skills and functions and OEMs/adopters will be able to greatly reduce expenses in the process.
• Financial incentives. For every piece of equipment, there is a company that needs to monitor and/or maintain it. Companies spend a great deal to monitor equipment manually and, more importantly, lose a great deal of time and money to false alarms, malfunctions and leaks. This story is repeated in many industries. It is becoming less sensible to send technicians or meter readers out in high cost vehicles just to retrieve simple pieces of data. Similarly, the high cost of transportation means even small gains in efficiency can translate into significant profit improvements.
• Customer expectations. Customers now expect better service in less time. Using M2M applications to ensure that data is in the right place at the right time is an important step in a rapid shift to “real-time” customer support and content/information delivery.
• OEMs will seek increased knowledge of customer behavior. OEMs will want to be as close to their customers as possible, knowing that users are placing more and more emphasis on effective service and support. Additionally, increased intelligence on customer behavior will open up several new revenue streams for OEMs.
• Need for demand-based, just-in-time servicing. This means companies can run their systems closer to capacity, manage resources effectively and improve productivity while cutting costs. Networks, whether unified or virtual, are providing greater one-stop shopping and further improvements for operational efficiencies. End-to-end systems, which were once available only through private systems, can now be tailored to specific industry requirements.
• Customer experience. As customers creatively apply and integrate technology in their work and personal lives, end users will, more often than not, require a tailored experience from service providers. Not only will customers expect providers to anticipate their needs, they will also expect providers to offer a full experience for them. Furthermore, end-users are tired of being overcharged for services they do not use. This will lead to increased amounts of “Pay-Per-Use” and “Pay-As-You-Go” options being offered to consumers.
Forecasts
PRONOUNCEMENTS ABOUT FUTURE SCALE OF OPPORTUNITY
Many IT equipment suppliers and wireless carriers have made recent pronouncements concerning the scale of the Internet of Things. Our analysis points to the many significant challenges in realizing such growth:
• Challenges in adopting new business models and making the business case to support investments.
• Complex services and solution delivery eco-systems that require businesses to relate in new and different ways.
• Anticipation of new product, service and systems innovation modes that are not widely adopted today.
• Fragmented M2M and Smart Systems vendor landscape that is not yet well aligned with the larger IT infrastructure and carrier players.
• Requirement for vertically-focused solutions from a supply-side world that historically has been far more horizontally driven.
Though their business models are intermingling today, all of the major categories of solution suppliers (or as we like to call them - “The IT and Network Arms Merchants”) have historically operated within well-established business models that reflected the distinctive competencies that each group believed to be at its core. The advent of Smart Systems is causing a blurring between these legacy business models forcing all the major suppliers to re-think their strategies.
We do strongly believe that the Pervasive Internet and Smart Systems market opportunity is reaching a new level of maturity; there is now substantially greater recognition of the technological capabilities and the potential benefits of connecting devices to the Internet than there was even 2 years ago. This represents a whole new generation of technology innovation and, if history repeats because certain conditions repeat, we expect to see a significant wave of growth in Smart Systems. Here are some related points:
• Mobile IT, telephony and media devices will grow to approximately 1.4 billion units (shipments) in 2010 -- networked non-IT device and machine volume will represent about 10% of that unit volume in 2010;
• ICT investment topped 2.6 trillion dollars in 2010, we believe that Smart Systems investment has already reached approximately 5% of the ICT market;
• Our analysis indicates the rate of investment in smart systems will be measurably higher than in maturing IT and network infrastructure technologies; we are forecasting Smart Systems growth at 3X the compounded rate of traditional ICT technologies;
• Investment in Smart Systems, particularly as the market and supply side players recognize its distinct requirements and characteristics, will likely increase in scale to as much as 10% of all of ICT investment within five years; and,
• As the market for Smart Systems continues to move to a period of sustained growth, the portion of mobile IT, terminal/appliance and telephony device volume that is impacted by integration machines, instruments, sensors, etc. will also rise significantly.
The Smart Systems opportunity is not just about people communicating with people or machines communicating with machines: it also includes people communicating with machines, and machines communicating with people. The Internet’s most profound potential lies in the integration of smart machines and people—its ability to connect billions upon billions of smart sensors, devices, and ordinary products into a unified “digital nervous system” that will smoothly interact with individuals.
Forecasts in this report are presented at three levels - Enablement (embedded and module level), Network Services and Managed Services. Of these, Managed Services is then broken down further into horizontal System Applications, and vertical Value-Added Applications that are specific to each venue (or vertical market sector). All forecasts are presented worldwide and broken down by region.
Further breakdowns by country can also be provided. Also included are breakdowns of the expected revenue generated within each venue.
The following lists the major findings of this report:
• In the early days of connected devices, hardware and module suppliers drove the market. Now, hardware prices are falling across the board and the basic enablement opportunity is decreasing. Today, the most substantial revenue opportunities can be found in the managed services realm. As technology stabilizes it becomes more valuable to focus on service opportunities to drive future growth.
• Overall shipments of modules for Wireline, WWAN, WLAN, and WPAN are expected to increase from over 135 million devices in 2010 to 803.4 million in 2014, representing a compound annual growth rate (CAGR) of 44.2%. The Pervasive Internet and associated smart systems markets are expected to show particular strength as the economy recovers.
• Total device revenues will grow from over $4 billion in 2010 to $10.7 billion in 2014, representing a CAGR 20.0%. The more modest growth in device revenue is due to the falling average selling prices for all modules across all technologies. The module business is becoming increasingly commoditized.
• A large portion of the overall growth will be due to a surge in adoption of WPAN devices. In 2009 36.0 million WPAN devices were shipped and by 2014 this number is expected to increase to 479.3 million devices, representing an annualized growth rate of 67.8%. The projected growth in WPAN is substantially affected by the number of devices expected to be deployed in Wireless Sensors Networks (WSNs). Devices in WSNs are shipped together in order to construct a single application, ensuring higher volumes than other technologies that are usually accounted for with a minimum number of connections per application.
• WWAN device shipments are predicted to grow from about 50 million in 2010 to 148.9 million in 2014, representing an annualized growth rate of 29.0%. Additionally, Harbor projects that by 2014 76.2% of WWAN devices shipped will be using GSM based technologies, while 20.8% will be using CDMA standards. The remaining market share belongs to other technologies including satellite, Mobitex, Common Channel, paging, and other proprietary networks. Overall, GSM is increasingly being embraced as the standard of choice for wide-area M2M applications globally.
• More modest growth is expected for Wireline shipments which are projected to increase from 26.3 million units in 2010 to 73.7 million units in 2014 for a CAGR of 22.8%. Although the technology continues to face stiff competition from wireless alternatives, Wireline remains that standard of choice for many mission critical applications and devices that can’t afford to be impacted by dropped signals.
• Network & Carrier Services revenues are projected to grow from almost $20 billion in 2010 to $71.8 billion in 2014. This represents a CAGR of 30.8%. With mobile phone growth and laptop growth slowing, major network operators are now looking to connect non-IT devices as they seek new sources of revenue.
• Revenues associated with System Applications, or middleware, are expected to increase from abot $15 billion in 20010 to $48.5 billion in 2014, representing an annualized growth rate of nearly 28%. Much of this growth is due to application service providers and end-users who are seeking easy means of managing devices.
• Value-Added Services / “Smart Services” is presented as the total of the available opportunity, given the projected adoption of M2M technology. Total value-added service revenues have the potential to grow from over $50 billion in 2010 to $204.1 billion in 2014 for a CAGR of 31.6%. Several large opportunities exist in the Smart Services realm including asset management, supply chain and logistics, energy management, and others.
• Total Pervasive Internet & Smart Business revenues streams (including the potential associated with Value-Added Services) are expected to hit $353 Billion by 2014. The adoption of connected world technologies and applications is well underway. Ultimately, adoption of smart connected systems is no longer a “luxury” as these types of solutions are increasingly needed to meet the growing demands of modern societies around the world. A perfect example of this fact is the need to modernize electricity grids around the globe.
Several sectors of the global economy are presently driving regulatory and policy initiatives that will drive Smart Systems growth. A few key trends include:
• Government Spending & Stimulus. Massive government stimulus programs and spending packages are promoting the use and adoption of pervasive technologies. Nowhere is this more evident than the Energy venue where nearly $20 billion dollars has been committed by governments around the world to support the development of smart grids. Included in this estimate is the installation of 200-300 million smart meters by 2015.
• Eco-Friendly Push. Climate change and its impacts continues to be an issue faced by countries around the world. Governments are looking for ways to curb emissions and control pollution in response to increased reports of negative impacts on citizens and resources. The Buildings venue has been particularly impacted by the drive to go green as governments seek to limit emissions from buildings. Many studies have concluded that buildings around the world account for 50-70% of annual greenhouse gas emissions. With this statistic in mind, policy makers are targeting the venue and considering ways to optimize the performance of buildings. One example of this trend can be found in the EU’s Directive on the energy performance of buildings.
• Manage Cost of Healthcare. The sheer amount of attention regarding escalating healthcare costs coupled with the consumer drive towards wellness will help stimulate a significant amount of Smart Systems growth. Attention to the use of information technology (IT) in health care is intensifying rapidly, with many stakeholders driving the development of electronic medical records (EMRs), computerized physician order entry (CPOE) systems, decision support, and related tools. In addition to digitizing the information that providers use to care for their patients within organizations, clinicians, patients, and policy makers are looking ahead to sharing appropriate information electronically among organizations.
• National Security. The safety of people, assets, and infrastructure is an issue confronted by governments on a near constant basis. New legislation is consistently being introduced that calls for the tracking of goods & services, as well as the securing and protection of ports and others critical assets. The constant threat of terrorist activity is not going away any time soon. With national security and military personnel already struggling to keep up, governments around the world are increasingly turning to technological solutions to bridge the gap and help keep their citizens safe.
• Transportation Infrastructure Overload. As the population increases and more people have the ability to afford cars, cities are facing major traffic congestion problems in combination with the declining health of transportation infrastructure. To combat these problems policies are being introduced that aim to manage the flow of traffic into and out of cities, with the end goal of protecting the health of both the people and assets involved.
Summary
Harbor expects that Smart Systems and machine to machine opportunity will continue to shift away from basic connectivity enablement towards more complex managed services opportunities. Based on all the knowledge gathered about supplier progress, technology, and customer adoption, here are our summary conclusions about the Smart Systems opportunity today:
• Intelligent device growth will rise rapidly. Electronic devices will have rapidly increasing intelligence and functionality. Demand for adaptability, agility and features will grow. Sensors, in particular, will grow significantly in types, applications and capabilities as well as numerous client devices connected to personal, local and wide-area networks.
• Connectivity/Communication will become nearly ubiquitous. Communications options will increase, have greater bandwidth, and be cheaper (free Internet access). Phone lines, Data lines, Power lines, Cable and Fiber Lines, Cellular, Satellite, and Radio Frequency options will abound, all in service to providing communications and connectivity.
• Electronic devices and systems will be self-adapting. As witnessed by computers beating chess pros and with automatically adjusting car seats, the digital nervous system will increasingly be of service to users, not the other way around. Companies will exist to house, facilitate, and recommend better options for dealing with individual needs and tastes, where people will opt for service contracts instead of buying products outright.
• “Communities” will emerge. Networks of collaborating companies, customers, people, devices, and sensors will be linked together in border crossing relationships that will foster the development of a connected, smart world. Inputs from the constituents listed above will be processed in real time in order to provide instantaneous feedback thus keeping the overall environment/ecosystem in balance.
• Vertical Smart Systems Solutions. End users will emerge as a force and place greater emphasis on vertical solutions that readily integrate with enterprise systems -- end customers will demand innovative solution design and more effective service and support.
