A New Analyst's View on the State of the M2M Market

By Kathryn Lawhon

A couple of weeks ago I attended my first M2M/IoT conference at the 5th Annual Fall M2M Evolution held in Las Vegas.  I had the opportunity to listen to several compelling conversations about the state of the machine-to-machine market.  In an industry where confusion reigns, I gained clarity on the size of the marketplace, M2M expansion, customer interests, standards issues, and acquisitions and rollups.  Let’s take a walk through the conversation.

How big is the marketplace?

As we know, a wide variety of forecasts for the size of the marketplace have been cast over the past few years.  But the better question to ask is does size really matter (insert pun here)?  Currently, many of these forecasts don’t make sense.  One of the reasons why a good answer can’t be given is because no all-encompassing definition of M2M exists.  No one really knows what anyone else is talking about when the “size of the M2M marketplace” is thrown out in conversation.  Are we talking about connected cellular devices?  Bluetooth?  Wifi?  Wireline?  Zigbee?  Connected cars?  Connected homes?  Etc. etc. ad nauseam.

In light of these technologies, the market size gets confusing, definitions become broad, and the numbers begin to diverge.  What if we move beyond definitions and look at the estimated five billion devices that aren’t connected but are intelligent enough and have enough processing power to be connected and the connected devices that are yet to be built?  We know at least one thing is true and agreeable among all: The size of the market is significant and growing.  As one analyst stated, “The market is big and it’s going to be huge.  Enough said.”

The cycle is just beginning and we don’t want to miss it.

Are we missing certain vertical industries by focusing strictly on sectors where M2M is already being widely applied?

There are a few industries where M2M is growing at rates between twenty and thirty-five percent and then there are verticals where the growth rate looks like a hockey stick.  If we look at the space from a global big-lens perspective, the largest markets are obvious and mainly encompass transportation and distribution.  However, very few industries can sustain exponential growth.  It’s important to look beyond the giant global industries in transportation and distribution and begin looking through a micro lens to find the important industries that vary based on geographical landscape.  In Brazil, those sub-industries are track and trace and theft deterrent solutions within the automotive market, while in China, it’s connected security and surveillance.  It is in these micro areas that we will either see or miss tremendous growth.

What are customers looking for in terms of guidance and where are we in this cycle?

Before we can ask what kind of guidance the customer is looking for and where we are in that cycle, we have to start with defining the customer and the exact service they are looking for.  Is the customer looking at process?  New opportunities?  Business realignment?  It is crucial to understand that people use this technology for three reasons: to make money, save money, or compliance.  If you can hit all three, you’ve found the jackpot.  When we look at how many companies have bought in to M2M to undergo a true and total business transformation, we find that hardly anyone in the space has accomplished this.  The kind of transformation that saves or makes money and increases efficiency is what customers are really looking for. 

Smaller companies are recognizing they don’t have the size or structure to aggressively pursue opportunities in the M2M world but have the same needs as larger organizations.  At the same time, some large companies are not tuned in to M2M as an industry because they don’t understand the value proposition.  And others just can’t navigate the number of acronyms.  Where does that leave us?  Evangelists within the space will need to leverage strategic guidance to move companies towards solutions that will greatly benefit both business and consumer.

As far as adoption of M2M technology, are we crossing the chasm or are we still in initial early adopter mode?

While I believe we are still in early adopter mode, M2M and IoT is certainly a market where companies are beginning to produce copycat products.  Though it is unusual for any two companies to be exactly alike and some copycat companies end up with a throwaway solution, if the first cycle works and solves problems within a business, other people see this and think, “OH, I can do that?  Let me do the same thing with parts of my company.” 

Oftentimes we call the process of trial and error and of replicating successful solutions of our peers “productization.”  Functionality grows and potential is realized when you actually see the technology solving real problems.  This realization transforms theory into strategic business moves and as more companies begin to realize this, we will begin to cross the chasm rapidly.

Where are with standards and how important are they?

The problem with standards is that everyone has their own.  Oops…did I just say that?  No, my boss did- and everyone laughed.  The idea that there is a mandate requiring everything to function under one standard is unreasonable.  If this is truly becoming the Internet of Everything, more than one standard has to exist.  Instead of focusing on the creation of one standard, it is more necessary to have already functioning standards make more sense by defining what matters, what doesn’t matter, what is missing, and what needs to go.  We can think of standards like languages, where each market has a unique way of functioning, and naturally needs to speak a different language. While standards are important, some will be more applicable while others can be thrown out based on the markets in which they are functioning.  What is far more important than standards is doing things in a standard way.

Where is the investment money in M2M?  How are Venture Capitalist and Angel investors reacting?  What do acquisitions look like?

Right now, we are seeing lots of angel funding and bootstrapping.  Traditional venture capital exists in the market but is not as active as in years past.  Venture Capital and Private Equity firms are too confused about the space to invest on an initial level with many of the startups currently emerging.  While there are many fascinating ideas and plans in the beginning phases, the investment community has too many parameters for success on companies because the majority of people are confused as to what success actually looks like.  Is it number of connections?  Subcribers?  EBIDA?  Market perception?  Growth rate?  Team size? 

There are so many questions because there are so many companies in the space.  For instance, a tier-one mobile network operator has over 890 companies listed on its M2M partnership page; this alone points to the confusion within the industry and the need for M&A.  This new era of consolidation will be more difficult to accomplish than finishing a 10,000-piece jigsaw puzzle.

The number and sizes of companies are all over the map from five-person bootstrapped teams to big three letter companies like IBM and ATT.  We are seeing a quandary because these big companies can’t move as quickly as the smaller companies, but small companies don’t have the metrics or the resources to scale.  As a result of this and the large number of companies seeking to solve the same problems, acquisition and roll up has to happen as the industry matures, no matter how difficult.

The End of this Blog is in Sight

While this article has left as many questions as it has answered, one thing is certain: the need for clarity, understanding, crisp definitions, and accurate market estimates is necessary.  Until that changes, I am provided with a tremendous amount of job security. 

My hope is that this will spark some conversation in the industry.  Feel free to reach out if you would like to discuss some of the thoughts expressed here.

kathryn@jbrehm.com 

I graduated from The University of North Carolina at Chapel Hill with a degree in Economics and a Minor in Entrepreneurship focused in social and artistic ventures.  I joined James Brehm & Associates in July in tandem with a two-year program called Venture For America that trains recent graduates as entrepreneurs by sending them to work in the trenches of start ups.  Just when I thought post-grad life couldn’t be more complicated, I decided to join ranks with the M2M/IoT geniuses of James Brehm & Associates…and life got a lot more intense.  I believe this technology is powerful—it can work to solve businesses’ biggest problems, increase efficiency, and reduce waste, facilitating a more dynamic and responsible world.  If you’re not on this train, you need to hop on now.