The Digital Nervous System: Machine to Machine (M2M) opportunities connecting us everywhere Just as the human nervous system takes inputs from a distance, such as sights and sounds, and processes decisions with little conscience effort, Machine-to-Machine (M2M) establishes digital connections from a distance, and processes information without human intervention. M2M is playing a major role in our increasingly connected world, offering a diverse set of opportunities for enterprises by enabling the collection and analysis of data in real-time across vast geographies and within remote, compact spaces. Businesses can leverage this technology to increase productivity, lower operating costs, develop new revenue streams, and to gain competitive advantage. Advances in M2M technologies are overcoming longstanding issues in security, storage, and data integration. Going forward, M2M will not only create a competitive advantage for enterprises today, but may also bring new benefits and differentiation in the future as the world continues to develop its digital nervous system. The Digital Nervous System 1
Machine-to-Machine (M2M) is poised to experience strong growth over the next 5 years. This rapid ascent brings an array of opportunities for many enterprises. The M2M industry is at an inflection point. While many enterprises are already investing in M2M, several key factors point to increased market potential, including more-standardized technology, lower hardware costs, and greater mobile coverage. These factors make the solutions more accessible and affordable and are set to drive total connections in Canada to nearly double to 3.6 million by 2016. Enterprises are increasingly leveraging M2M to unlock significant value in areas such as asset automation, track-andtrace, and remote monitoring. M2M can further enable multinational operations by offering plug-and-play capabilities so that capital-intensive equipment and assets equipped with M2M technology have a higher level of interoperability and can be used to relay information from anywhere around the world. The term M2M, like the term Cloud, has become an industry buzzword that can mean many things. In this paper, M2M describes any technology that enables automated wired or wireless communications between machines. These machines exchange information and perform actions based on programmed logic without manual intervention, as in the diagram below. Truck Data 009678947299377589 Information is sent wirelessly to the Insurance and Trucking Companies Truck Data 009678947299377589 Device on truck collects data such as miles driven, battery life, tire pressure, and other wear and tear items Insurance Company Trucking Company Rates Records on the Fleet help keep insurance rates low based on insights to wear and tear proactive maintenance taken by Trucking Company Fleet Records 009678947299377589 Data helps identify when the truck should come in for maintenance before a breakdown occurs Needs Maintenance! 009678947299377589 Based on analyzed data the truck is sent for preventative maintenance Truck is on the road and generating revenue for the company while keeping costs down The Digital Nervous System 2
Exhibit 1 Value Chain Component 1 Devices & Hardware Description The device component involves the design, manufacture, and distribution of technology enabled with M2M capabilities Multiple integration tools and developer kits are being created so that Enterprises can easily adopt and adjust M2M functionalities to suit their business needs 2 Network Connectivity The connectivity component provides the infrastructure necessary to transmit messages between various devices and applications Enterprises benefit when they are able to remotely connect and communicate with their assets and equipment, collect data, and monitor performance 3 Systems Integration & Application Providers Systems Integration helps create a platform that can weave together the software and hardware modules, while the Applications allow information relay, collection and storage Apps and Integration makes M2M more user friendly and businesses no longer need to be technology experts to adopt and use M2M 4 Value Added Services The Value Added Service include the creation of products and services for specific industries (i.e. Transportation) Network service providers and other M2M providers are offering customized solutions, including management tools that allow self-service to M2M infrastructure. Source: Pyramid Research, Accenture analysis 2013 Accenture. All rights reserved. M2M sensors can be installed almost anywhere, allowing for a high degree of flexibility and scalability in their applications. They can transform a small, task-specific process or an entire business model. Many companies are capitalizing on this potential by building partnerships with network service providers in order to provide seamless service across multiple geographies and technologies. For example, utility providers in Europe and North America are engaged in partnerships with network and technology providers to offer smart meters that automatically record and monitor utility usage in each household and transmit it to the providers customer management and billing systems. In this case, not only does M2M help increase the accuracy of the data recorded, it also reduces costs because utilities no longer need employees collecting this data in the field (see Exhibit 1). Before treating M2M as the next wave of growth to capture, it is important to put this nascent industry in context in terms of its size today compared to its growth potential. Global wireless connections are approximately 6 billion compared to a global M2M connection base of 125 million that translates into one M2M subscription for every 50 wireless devices. While each M2M device can be connected for relatively small fees, it is important to recognize that, although small relative to the global wireless industry, M2M represents a significant incremental value creation opportunity for Enterprises that deploy M2M to create new revenue streams, or to lower costs, depending on the application by industry. To understand the key forces driving M2M s rapid growth, see Callout 1. The Digital Nervous System 3
Callout 1 Mobile network coverage is nearly ubiquitous Wireless coverage in Canada now surpasses 99% of the population, with LTE surpassing 75%. This global connectivity and growing demand for traffic presents a fruitful environment for M2M. An increase in coverage means more reliability for M2M technology, so Enterprises can use it without worrying about connectivity or coverage. Prices for M2M components continue to drop Between 2007 and 2010 the average price of a M2M module dropped by 49 %.2 This decrease has shifted the economics of installing sensors and monitoring equipment and thus increased the number of industries that can afford to experiment with M2M ideas, sometimes making it more affordable for Enterprises to adopt M2M than human intervention, or even wire-based collection and transfer of data. The Forces behind M2M s Steep Adoption Trajectory M2M s ecosystem today can be compared to the Internet in the mid-nineties still forming but poised for quick growth and characterized by a more intuitive rather than explicit sense of value. In M2M s case, there are four key drivers of growth. M2M standards are being developed and agreed upon internationally Numerous international standards organizations have come together to create M2M standards. In Canada, there is a task force in place to help facilitate standard connectivity. Multi-National Enterprises will benefit from the standardization because equipment and assets will be able to perform the same M2M functions with or without an easy change of a SIM card. Data storage and analysis capabilities continue to follow Moore s law Data-driven insights are increasingly a competitive differentiator. Companies are using insights to drive and optimize business decisions across industries.3 At the same time, computing power continues to increase and prices continue to fall, allowing organizations to be able to afford to store, transmit, and analyze more data than ever before. 1 International Telecommunications Union. The World in 2011 ICT Facts and Figures. Rep. United Nations, Dec. 2011. Web. 14 Jan. 2013. 2 The Machine-to-Machine Market. Rep. Pyramid Research, Oct. 2011. Web. 14 Jan. 2013. 3 How Big Data Can Fuel Bigger Growth. N.p.: Accenture, 2011. PDF. M2M services will help a diverse set of industries capture incremental value M2M s potential impact provides numerous opportunities within six key industries. Although they may appear unrelated at first, one key characteristic ties these industries together: a clear opportunity to improve capital efficiency. Automotive companies can use M2M ecosystems to differentiate their products As consumers come to expect constant connectivity, vehicle manufacturers and after-market parts providers will need to develop partnerships with third-party vendors if they are to develop connected cars. Some of the solutions in use today include anti-theft services, monitoring / maintenance products which can improve safety, and infotainment devices. For example, a large American automotive manufacturer recently teamed up with a network service provider to allow owners of its electric vehicles to remotely assess the battery s charge and range, and to find the car in a parking lot. Transportation and logistics companies can improve asset management using M2M By adopting M2M, transportation companies can better understand their vehicles performance, which in turn can help manage maintenance costs and asset turnover. Trucking companies can use M2M to remotely assess and adjust refrigeration levels in container vehicles to maintain quality. Logistics companies can yield significant value through courier package tracking and route optimization by adjusting driver routes based on the locations of both existing and newly posted pickups and deliveries. The Digital Nervous System 4
Utilities can generate new revenue streams and reduce costs with M2M Governments at all levels across North America are mandating the installation of smart meters, meaning utility companies should prepare for a significant capital outlay. With the introduction of M2M services for meter reading, network maintenance, and home energy monitoring, utilities can help offset capital expenditures by generating incremental revenue and cost reduction. In addition, smart metering solutions can improve the customer experience as they are able to see and manage their usage. The security and safety industries can improve communication and protection through M2M Businesses and consumers alike can benefit from enhanced building and facility management. For example, the home security company, ADT, has created an entire product line around Home Solutions that relies on M2M. Some of these services include the ability to route intercom calls to a mobile phone, unlocking the door remotely, and receiving notifications through email, text, or real-time video when someone enters or leaves the house. Governments can improve public safety while lowering cost of service Always eager to lower the cost of service, governments can leverage M2M to improve the management of highways, bridges, and traffic. For example, governments can better capture toll information from passing vehicles using M2M technology, reducing the loss of toll revenue. In addition, M2M can also help to process toll transactions more quickly so that vehicles can be identified faster with fewer errors and less human intervention. Traffic sensors can also better manage when roads can be closed for construction based on real-time traffic delay information. These industries will continue to develop more market-specific solutions as M2M adoption increases; however, M2M capabilities are beginning to coalesce around four major solution areas: tracking, sensing, controlling, and revenue enhancement (see Exhibit 2). By understanding these high level definitions, enterprises can better understand potential opportunities within their industry. In addition, mapping the industry and solution alignment can reveal preferred options for potential partners to help deliver M2M solutions. Healthcare companies can leverage M2M to improve patient outcomes Healthcare companies can lower overall costs while improving patient outcomes by taking advantage of medical monitoring, remote diagnostics, and tele-medicine opportunities. For example, healthcare firms can use M2M technology installed in home medical devices to remotely monitor patients with diabetes, cardiac arrhythmia and other chronic diseases; the devices alert practitioners that immediate care is needed. In addition, M2M can be integrated with the GPS sensors in patient bracelets to allow family members to track patients with dementia and Alzheimer s. The ability for M2M to remotely monitor patient conditions can help increase the efficiency of healthcare providers and patient outcomes while effectively managing costs. The Digital Nervous System 5
Callout 2 Tracking Sensing Controlling New Sales Channel Source: Accenture analysis Solution Components 1 2 Subscription Management Managing the customers who have subscribed, both individuals within a company, and the company as a whole Device Control Managing the devices in the M2M ecosystem effectively will ensure that all customers can easily leverage the service M2M Application Billing Management Being able to easily and accurately bill for services based on usage and rate plans Reporting & Analytics A tremendous amount of value lies in being able to analyze and report out on operational and financial M2M metrics 3 4 At a high level, all M2M solutions are made up of 4 major components. The first 3, Subscription Management, Billing Management, and Device Control are operational components. They should be expected of any major M2M vendor. The last component, Reporting & Analytics, is where a significant portion of the value lies. However, it is also the most complex area to get right. The sheer amount of data, coupled with the various types of data (i.e. structured or unstructured), will pose a challenge for M2M vendors looking to provide innovative, holistic solutions. As a result, getting this component right will provide Enterprises with the right decisionmaking data to accurately improve performance over time. The current M2M landscape is still very much in development; across the six key industries, only the automotive and transportation industries have access to a robust set of M2M applications such as GM s OnStar. Even then, there are clear opportunities for enterprises to develop both vertical (cross-solution type) and horizontal (cross-industry solutions). For more information on the key components enterprises should focus on for M2M, see Callout 2. Exhibit 2 Solution Type Tracking Solution Description Key Question: Where is an asset? Involves identifying where an asset is and using that data to deliver meaningful information to end consumer Major industries impacted include Transportation, Automotive, and Government Automotive Transportation Utilities/Energy Security Healthcare Governement Key Question: How is an asset performing? Identifies and records the performance level of an asset Sensing Major industries impacted include Utilities / Energy, Healthcare, Security and Government Controlling Key Question: How can an asset s performance improve? Allows machines to adjust performance level of asset based on programmable logic Major industries impacted include Security, Government, Utilities/Energy and Automotive New Sales Channel Key Question: What value is created for our customers? Sales opportunities through new business models or by sales through new channels Major industries impacted include Automotive, Utilities/ Energy and Healthcare N/A Source: Accenture analysis Represents Applicability of M2M Represents less applicability of M2M The Digital Nervous System 6
Key Components to look for in an M2M Solution: As organizations embark on their M2M journey, they must be prepared to address the challenge of managing new data sources. Getting the following components right will be critical to successfully meeting these challenges. Subscription Management The management and control of M2M devices will become important as the number of devices continues to climb. Self management tools empower Enterprises to stay in control and direct operations across all their connections. Understanding the details of where the asset is located, how the asset is performing, and to control the asset s intent, enable the organization to work in real time. It is most effective to centrally orchestrate the addition and removal of assets, ordering SIMs, logging requests, reviewing request status, implementing updates and tracing assets in real-time. Real-time monitoring of network traffic with triggers and alarms can help manage a large volume of assets. Billing Management By centrally managing and viewing the billing application, costs can be kept under control, and policies can be adjusted based on real-time automated triggers on set thresholds. An effective M2M solution will contain all contract details including price plans, roaming, historical charges, and assign rate plans to each asset based on expected and historical usage. Reporting and Analytics The challenges of managing M2M connections and the vast amounts of data are not only addressed, but much additional value can be realized, through effective reporting and analytics. Access to detailed billing reports, usage and traffic, alerts and incident reports and daily statistics dashboards, are all important. But, analytics can help enable process automation to save operational costs, as well as new usage-based business models to increase revenue. For example, as mentioned in Utilities above, Smart Metering can completely abolish the need for customer site visits. In Transportation, track and trace services can command a premium price and/or reduce revenue leakage. Utilizing relevant and detailed diagnostics about each connected device enables this new way of doing business. Device Control Managing critical business assets such as tools, supplies, equipment, fleet or products poses a significant challenge and can be a highly labour-intensive and costly process. Additionally, the theft, loss, breakdown or delay in delivery of assets can have significant financial implications - loss of working time, delays in production, costly rental equipment and increased insurance premiums. M2M solutions can help automate manual processes, increase efficiencies, reduce theft and loss, optimize utilization of assets. A M2M solution should provide enterprises with real time visibility of assets and putting the enterprise in control of their assets no matter where the assets are located. The Digital Nervous System 7
Key M2M Deployment Areas to Get Right Even as M2M evolves, four hurdles remain in the implementation process. Data Security When devices transmit personal data such as where someone has driven, or when medical information is collected on a home device security naturally becomes a topic for discussion. As a result, governments and standards organizations are working to coordinate data privacy policies. When deploying M2M technology, enterprises should be able to address concerns about security and privacy with standards on the market today, where network services providers offer additional security layers as part of their M2M solution. Data Integration Enterprises that are able to integrate the data collected from M2M systems into internal processes and functions will realize M2M s full value. While it may not be easy to add a layer of complexity in integrating M2M data across ERP, CRM, and analytics systems, it can significantly enhance decision making, create actionable insights, and automate what would otherwise be costly work effort. Alliance Management As shown above, four kinds of companies make up the M2M industry: device manufacturers, network providers, system integrators / solution providers, and valueadded service providers. Most enterprises will focus on industry-specific solutions, meaning they will have to team with vendors from the other three value chain components in Exhibit 1. This requires establishing a rigorous partner management capability to ensure M2M success. Many are partnering with their network service provider as a single point of contact and conduit to these other value chain partners. Customer Change Management Any new technology requires significant support and education to improve user awareness and this is no different in M2M s case. Without efforts to improve awareness, adoption will remain low hindering the ROI of M2M investments. To mitigate this issue, solution providers are offering self-service portals and dedicated customer service to help ease enterprises and end-customers through the adoption process. Three questions to help determine if your enterprise is ready to pursue M2M One of the most difficult parts of taking advantage of new technology is creating the conditions for seamless adoption and usage. Our analysis has identified three critical questions that enterprises should ask themselves as they invest in M2M: Do I have a clearly defined area in my business that M2M can help with? At a high level, enterprises can leverage M2M to either create new revenue opportunities or pursue cost reduction opportunities. In the case of the former, there can be significant implications for a firm s channel strategy. Enterprises should not only be keenly aware of the opportunities M2M presents within their industry but also need to understand how their channel strategy might shift, depending on which segment (B2B, B2C, or B2B2C) is targeted. Do I have the right IT and business infrastructure to store, manage, and analyze the increased data volume that M2M brings? Ensuring that data captured through M2M sensors can be analyzed and acted upon quickly and in some cases in real time requires the IT department to collaborate with operations, product development, CRM, finance, and corporate strategy, among others, to ensure that the enterprise has the right infrastructure and business process to unlock the full value of M2M solutions. The Digital Nervous System 8
Do I have the right people in place to help me launch and execute an initiative involving M2M? The skill sets needed to successfully adopt M2M may be different from the skills many enterprises currently have. Deep industry knowledge leads the list of criteria required to launch a successful, positive revenue generating or cost reducing M2M initiative. Leveraging data across multiple sources to develop actionable insight requires deep analytical and technological understanding among key staff members. Moreover, skills are needed to develop the programmable logic to ensure that M2M applications measure the correct metrics and take the appropriate actions, sometimes fully automated. Enterprises will also have to focus on partner management. Most organizations will have to team with multiple firms to deliver a M2M product, which means that team management and coordination capabilities will be in high demand. For more information on what to look for in potential M2M partners, see Callout 3. Answering yes to these three questions can help ensure the successful adoption of M2M. The story of Metro Transit in Saint Louis weaves these topics together. Metro Transit runs the St. Louis, Missouri public transportation system. Each year the local public agency transports more than 46 million passengers using 590 vehicles. With a fleet this large, maintenance costs are a constant concern. In early 2005, agency management decided to test an initiative known as Predictive Monitoring. It deployed sensors on vehicles in order to capture information about potential performance issues so that the agency s mechanics could conduct proactive maintenance on smaller issues (e.g., brake shoe wear) before they become larger ones (e.g., badly worn brakes). In addition, this approach to maintenance helps optimize schedules by servicing vehicles as necessary, rather than on an arbitrary schedule. As of 2012, a Metro Transit bus experiences mechanical issues once every 20,000 miles compared to an industry average of once every 6,000 miles. That means the average bus is about three times more likely to fail than Metro Transit s buses. In order to further improve its service, the agency s award-winning maintenance team is working on breaking even more barriers to provide service standards unheard of in the industry. Their preventive maintenance schedule is saving money, improving reliability, and extending the life of the vehicle, saving the agency 25% in capital replacement costs, according to an internal report. Metro Transit had a clear view of the benefits M2M would provide. In addition to being able to deliver proactive maintenance to its fleet, Metro Transit was able to reduce its maintenance costs. The organization worked with a hardware manufacturer and systems integrator to deliver its predictive monitoring service. This is typical of current M2M solutions, since many M2M vendors are not able to provide end-to-end solutions. Metro Transit relied on the skill of the hardware manufacturer and systems integrator to help reshape specific processes and ensure that the IT infrastructure could not only handle the deluge of data, but also had the right governance structure to keep the data secure. The results have been a clear success and this is a powerful example of how to successfully take advantage of M2M s potential. M2M platforms and applications are enabling enterprises to manage assets in Callout 3 Capability Pyramid Low High One partner does not have to possess all the capabilities shown in this diagram, but in order to develop a robust M2M solution all five are needed. First, Enterprises need access to the pipes and poles that enable M2M communications. Number of Potential Partners Value Added Services E2E Solution Plug and Play Industry Solution Core / Utility Solutions Value of Capability Second, utility solutions such as subscription management and billing are needed to create the core of any M2M service. Third, the ease of implementation will influence how quickly M2M services are adopted. As such, having access to a Plug and Play solution can help Enterprises ensure the rapid adoption of new services. Moreover, having industry specific solutions will ensure vendors understand key business issues within an industry. Fourth, a partner with an E2E solution requires the Enterprise to have only one point of contact. This can simplify the implementation process, which involves setting up hardware, conducting system integration activities, and configuring any specific software to an Enterprise s IT landscape. High Source: Accenture analysis Connectivity / Network Access Low Fifth, Value Added Services, which refer to non-core products, can help increase the value of an Enterprise s M2M offerings to its end consumer. Having a partner who provides these services will be critical for Enterprises looking to be industry leaders. The Digital Nervous System 9
For the determined Enterprise bold, but measured, action is required M2M s future will be dominated by market players who invest today by quickly understanding the opportunity, teaming with the right firms, and building the necessary capabilities. Many enterprises are transforming products into services by maintaining communications with their products after purchase which creates an ongoing connection to customers and increased customer intimacy. This helps achieve the objectives on companies agendas across industries: accessing a new level of insight into day-to-day performance, creating a more robust picture of an end consumer, a more competitive cost structure and generating new revenue opportunities through real-time analysis. Implementing the right M2M solution can deliver relatively short term, measurable results that will ultimately lead to improved operational performance and profitability. As constant connectivity continues to become the norm and our digital nervous system grows, Enterprises with a welldefined M2M strategy can build a true competitive advantage. The Digital Nervous System 10