harbor research m2m
TRANSCRIPT
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Robin Duke-WoolleyPrincipal
The Growing StrategicSignificance of M2M
B O S T O N | S A N F R A N C I S C O
Copyright 2007 by Harbor Research, Inc.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means --
electronic, mechanical, photocopying, recording, or otherwise -- without the permission of Harbor Research, Inc.
This document provides an outline presentation and is incomplete without the accompanying oral commentary and discussion.
Boston I London I San Francisco
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Harbor Research: What We Do
Harbor focuses on helping executives understand the impact of unseen market and technology
disruption on their businesses in order to take advantage of it.
We combine strategic consulting with innovative business intelligence tools to accelerate thedevelopment and execution of creative business strategies to assist:
Emergent and established suppliers of technology - hardware, software, integration, services
Equipment/product OEMs technology adopters
Harbor Helps Clients:
Create new business platforms basedon the dynamics of Smart Services andthe Pervasive Internet/M2M
Identify catalytic relationships andalliances that drive sustainingdifferentiation
Build thought leadership and acceleratestrategic decision making
MarketRelationships
DomainResearch
Strategy &Business
DevelopmentConsulting
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Harbors two key constituencies:
1. Industry sector players mainly focused on developments in own industrysector and adjacencies. Typical companies in this segment:
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2. Technology suppliers mainly focused on the opportunities for theirtechnologies in all industry sectors. Typical companies in this segment:
Harbors two key constituencies:
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eCommerce
Focus on revenue
Connecting tosupplier systems
Enterprise e-Enablement
Connecting PCs andHandhelds
Focus on productivityand visibility
Orchestrating supplychain
360 view of customer
Time
BusinessImpact
Wave 1
Wave 2
Pervasive Internet &M2M
Connecting physical
assets and devices Next level of
productivity and assetoptimization
Focus on growth
through services Wireless is critical
enabler
Next Big Wave
Pervasive Internet & M2M Is The Next, Significant Wave
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Mobileinfo
appliances
Static infoappliances
Mobile devices
Static devices
Controllers
Smart sensors
Microprocessors & Microcontrollers
Mobile phones, PDAs, scanners, Web Tablets,GPS, etc.
PCs, servers, etc.
Vehicle cargo containers, tankers, supplychain assets (SKU)s
Medical Device, HVAC, industrialmachinery, distributed generation
Industrial controllers,appliance controllers
Accelerometers, pressuregauges, flow, position,speed, temp biosensors,etc.
8-, 16-, 32-, 64-bitchips, etc.
Hum
an-c
entric
Device-cen
tric
1.5 billion
500 million
350 million
375 million
500 million
750 million
35 billion
Intelligent Device Hierarchy Potential
Defining The Pervasive Internet Opportunity:All Intelligent Devices Wireless & Wireline
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Use the Internet for real-time monitoring,diagnostics andmanagement of devices
Proactive
New services
Secure Enterprise wide
Remote control formaintenance,training, andtroubleshooting.
Reactive
Internet-based
Reduces visits
One-to-one
Reactive
Low-speed
Specific functions
One-to-one
Manually downloadlogs files and e-mail
them to serviceorganization.
Reactive
Inaccurate
Manual
One-to-one
DesktopControl
M2M
Reactive Proactive
Software Agents
Device Middleware
Applications
Dial-Up Email LogFiles
M2M Is A Natural Evolution from Earlier Service Initiatives
Direct dial-up
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Three Categories of M2M Applications - Examples
Traditional Applications
Regulatory
OEM Product-based
Service led
Medium/High Volume All sectors Embedded networking Low cost per unit
Regulation led Medium/High Volume during install Specific sectors/applications
Embedded networking Low cost per unit
Application led Low/Medium volume per application All sectors Add-on networking
Medium/High cost per unit
Vending
Toll Collect Meter Reading
eCall
OnStar/Telematics
HandheldTracking
Retail Supply
VineyardMonitoring
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M2M Application Categories
Traditional ApplicationsNetwork add-onLow hanging fruitHigh Cost
Low Volume
RegulatoryEmbedded networkSpecific products
Low CostHigh Volume
OEM-basedEmbedded networkAcross all venues
Low CostHigh Volume
Time
Connections
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Networked ProductsProfits come from consumables, services,
and content
Non-networked ProductsProfits come from the product /
device itself
Level of device-performancerequired by users
Time
NetworkedMarketplace
Non-Networkedmarketplace
Transition point
Unfilled needs
1. The device becomessecondary to the value itbrings to the customer
2. A way to deliver the service
3. Services become the meansto cultivate an ongoingcustomer relationship
Vast Profits from Value-Add, Not From Devices
Value
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Benefits: > 70% market share among
digital players (Nov. 06)
Core product sales +26%
Market cap jumped 350% in 18months
500% increase in iPodshipments over three years,over 70 MM sold to date
Musicdownloadecosystem
Move to home
entertainmentsystems
Product
lineextensions
Networkedstorage andmanagement
Extended toautomobiles
Product as Service Portal : Apple iPod a delivery vehiclefor music downloads service (iTunes)
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DegreeofOutsourcing
/
Value-Adde
d
High
Low
Type of Recurring Service
Infrastructure to Enable Service(Pay per transaction)
Information Collection and Exception Reporting
Data Analysis and Tooling
Decision Support
(Can include real time or expert system)
Totally Outsourced Solution
Energy
Service
s
Regulato
ry
Service
s
AssetMg
mt
Service
s
Info/IT
Service
s
Facilities
Managem
ent
S/WSupport
&Development
System/Network
Integration
Chang
e
Managem
ent
HelpDe
sk
Service
s
Training/
Consulting
Administrative
Tasks
Dispatch/
Maintena
nce
Pervasive Internet Technologies Drive New Value
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Pay per use
Huge Capital Investment for Hospitals, Medical Clinics
Replaced by Pay Per Use by product manufacturer
Result: Scanning used regularly for medical diagnosis
Manufacturer takes over risk
Monitors everything remotely Detailed cost and use analysis to maintain business case
MRI scanner as a totally outsourced solution
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Example : GE Healthcare MRI Scanner
Device FaultNotification
RepairsReturns
Service ProcessMgmt Engine
PredictiveMaintenance
Business Rule Violation
Remote DiagnosticsActivity TrackingBilling
Usage
BasedBilling
Workflow / Business Rules
Intelligent Data Feed
Enterprise Connectors
Applications
Firewall
Internet
GE Healthcares InSite Program is driving asset and patient monitoring coordinating, scheduling and enabling technicians, doctors,
nurses, equipment, supplies and patient records
MRI
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What Keeps Product OEMs Up At Night
Equipment OEMs have uneven knowledgeabout their customers use of their products,because the only times the equipment OEMtouches the customers life is:
when the product is sold
when it breaks
A networked device continues to generateinformation value over its lifespan. Thisinformation can be utilized throughout anorganization for:
sales and marketing efforts
product development
customer service
Start-Up
Operate
Maintenance Design
Build
Sell
Finance
Install
DeviceIn-Use
Life Cycle
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Networked ProductBusiness Model
Value in services willgrow significantly
Competitive advantagefrom proprietary, limited-use products willdiminish
Nearly ubiquitous
networked embeddedintelligence will capturemore value
Product-DrivenBusiness Model
Sys Integration
Product Services
System ProductsSoftware
Products
Electronics
Va
lue
Stack
Time
What Is The Value-Add Opportunity And Impact?
Embedded Platforms
Systemic Products
DeviceMiddleware
DeviceApplications
Value-Added
Services
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$8 billion $19 billion $80 billion
GE Product-Related Services Growth (not GE Capital)
CAGR = 17%
Example, GE Energy Services*:
58% of Segment Revenue
95% of Segment Profits
70% Service Attach Rate(from 25% in 1998)
11%
15%
36%
* Monitoring and diagnostics, asset management and performance optimization, remoteperformance testing and tuning.
Leaders Such As GE Are Betting Big On Services To Drive Future Growth
1995 2001 2010
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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4
0
5
10
15
20
25
30
35
40
45
50
19 95 1 99 6 1 99 7 19 98 1 999 2 00 0 20 01 20 02 2 00 3 2 00 4
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4
Leaders
Peers
Profit Margin
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4
Return on CommonEquity
P/E Ratio
ROA
3X higher profitability
Greater value from existing assets
Leaders held $66 B vs. Peers $12.7 B
Strategic acquisitions
Exceed expectations in times ofuncertainty thru:
Broad business portfolioGeographic reach and scale
Evolved from being ProductManufacturer to a Services Provider
Technology-driven innovation
3X higher profitability
Greater value from existing assets
Leaders held $66 B vs. Peers $12.7 B
Strategic acquisitions
Exceed expectations in times ofuncertainty thru:
Broad business portfolioGeographic reach and scale
Evolved from being ProductManufacturer to a Services Provider
Technology-driven innovation
Next Gen Leaders Are Significantly Ahead Of Their Peers
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Total installed base = 67K units
Average revenue stream per unit = $3 M
$200 billion service opportunity over the
next 6 year
10% growth expectedCumulative#ServiceU
nits
Energy (HD Turbines)
Rail (Locomotives)
Healthcare (Smart Units)
Aircraft (Commercial Engines)
Example: GE Installed Base (partial)
Service Opportunities Made Possible By Pervasive & M2M
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1990 2000 2003 2004
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Peers Are Creating Business Opportunities with Connected Service
Reduction in totalservice costs
-14%
Reduction inequip. downtime
60%
-32%
% of alerts whicheliminated a call
Smart Services and leveraging the installed equipment base of the OEM is the singlelargest growth and value creation opportunity available to OEMs for the next several year.Benefits include:
Remote Services has saved peers on average 14%+ overall (in service cost $$)
60% of alarms/notifications from devices resulted in service call avoidance Significant reductions in downtime (32% reduction in downtime)
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0
20000
40000
60000
80000
100000
120000
140000
160000
2003 2004 2005 2006 2007 2008 2009 2010
Value Added Services
System Applications
Network Services
Internet Enablement
Source: Harbor Research 2006
Revenue ($MM)
Year
Revenue Potential from Networked Products
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Comparison of Revenue Streams
Percentage of Total Business Generated
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011
Managed Services
Network Services
Enablement Revenue
Source: Harbor Research 2006
% of TotalRevenue
Year
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What Are The Adopter Business Models
Product
Service
Embedded Innovator
Embedded Innovators allow traditional stand-alone services to be embedded directly into theproduct.
Solutionist
Product
Service 1
Service 2 Service 4
Solutionists provide many or all of the servicesaround the total lifecycle of a product
Service 3
Aggregator
Dealer Dealer Dealer
OEM
Customer Customer Customer
Aggregators integrate the sales and service of theproduct, as well as the interaction with the customer
SynergistAggregatorFunction
Synergists are contributors and participants in analliance web where no single company owns theaggregator function
Synergist
Synergist
Synergist
Synergist
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Product
Service
New digital technologies such as pervasive computing
and device relationship management allow traditional
down-stream services to be built into the product. By
freeing the customer of the need to perform thoseservices, the newly configured smart product can
save considerable labor costs, which the customer is
typically willing to share with the manufacturer.
Business Case Embedded Innovators
General Motors OnStar system embeds global positioning and cellular-based data communications within passenger and light-duty vehicles. Thesystem offers a variety of safety, security and convenience services.
Airplane Information Management System (AIMS) provides airlines withembedded monitoring and diagnostic services that improved airplane turn-around time between flights.
GreenStar system provides farmers and agricultural traders (such as ArcherDaniels Midland) with accurate, real-time information on crop yield, while thecrop is being harvested.
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AirbagWarning
OnlineConcierge
Information AccidentAssist
Stolen VehicleTracking
RemoteDiagnostics
RideAssist
EmergencyRefueling
CustomerConcierge
Routing RemoteUnlock
EmergencyAssistance
PersonalCalling
EmergencyServices
OnStar provides driving directions, emergency assistance, news, information,email and within a vehicle. OnStar offers a variety of services. The systemintegrates the cars onboard computer with a Global Positioning System(GPS) sensor and a cellular radio and links to the OnStar customer servicecenter. Customers can access the system from within their cars, online, or
via the phone. Basic Safety Service Package Commercial Service Package Fleet Management Service Package Luxury Service Package
OnStar Remote Services
GM OnStar
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New digital technologies such as pervasive
computing and intelligent device management allow
manufacturers and their channel partners to operate
more efficient supply chains.
Dealer Dealer Dealer
OEM
Customer Customer Customer
Business Case -- Aggregators
Eaton is organizing networked building systems and power qualitysolutions via alliances and acquisitions and channel coordination utilizingM2M technologies to build a smart building solutions eco-system
In addition to selling paints and finishes to automotive companies, DuPontnow provides software and services that control the painting equipment tooptimize the paint mix formulas and control finish quality Dupont hasorganized relationships with paint equipment manufacturers.
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Synergists are contributors and
participants in an alliance web where no
single company owns the aggregator
function
Business Case Examples -- Synergists
AggregatorFunction
Synergist
Synergist
Synergist
Synergist
Citgo pioneered the concept of linking, via satellite, all of its retailoperations, as well as independent operators, with a real-time inventorytracking and replenishment system.
Walmart pioneered low cost, big box retail efficiencies combining supplychain automation with consumer modeling and behavioral analysis will driveeven lower costs and greater adaptability and personalization
Coca-Cola provides its bottling companies, independent bottlers, retailersand vending machine distributors with an inventory tracking and controlsystem.
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Product
Service 1
Service 2 Service 4
Service 3Solutionists tap into the total-cost-of-ownership
spending around a piece of equipment, such asfinancing, installation, repair, maintenance, facilities,storage, operator training, de-installation, anddisposal.
Business Case -- Solutionist
Pitney-Bowes expanded from its base of postage and mail handingequipment into comprehensive services including corporate mailroomoutsourcing and equipment rentals. 75% of revenue now comes fromservices and equipment leasing & renting.
Similar to GE, IBM now derives 48.2% of its revenues from its GlobalServices and capital services business units. IBM provides comprehensiveservices that address the TCO of IT systems for its customers.
General Electric is the leading industrial example of comprehensive servicessupporting an equipment based-business, with 46% of its revenues comingfrom services; finance, insurance, outsourcing, maintenance, repair, etc.
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Physicalproduct isthe value
Automated cradle-to-grave customer valueenvironment is thevalue. Product isminimally profitable or
even given away.
Far from customer Partnered with customer
PURE PRODUCT COMPANYActivities: Designs, manufactures, and sells non-networked objects. Any inherent productintelligence is trapped in the box and unleveraged. Offers reactive or proactive services tomake sales and retain customers, often leaving money on the table with servicesbundling.
EMBEDDED INNOVATOR
Shift: Product becomes smart and networked. Customer experience of owning and using theproduct is greatly improved
Activities: Offers truly pre-emptive maintenance & replenishment via remote monitoring &diagnostics of its smart, networked products
VALUE
OFFER
ED
CUSTOMER PROXIMITY
AGGREGATOR/SYNERGIST
Shift: Device data is integrated across the entire customer fulfillment network, creating servicesynergies and much better responsiveness
Activities: Provides device-data access to third-parties for a fee or a share of services profits.
Invests more aggressively in warehousing and mining of networked device data
SOLUTIONIST
Shift: Considerably expanded number of activities throughout product life-cycle. Contiguous valuesprovided in related services become smart and integrated
Activities: Owns product life-cycle and full spectrum of the customer relationship. Co-designs,finances, installs, maintains, replenishes, and disposes of product. Enters the customers business
as a problem-solving, value-creating partner
Business Models Are Progressive
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Intelligent Device Networking Solutions Are Complex
SIGNALSmartCategory
SSmart Services
SSmart Services
I
Infrastructure
I
Infrastructure
GGateway
GGateway
NCore Network
N
Core Network
AAccess
AAccess
LLAN
LLAN
SmartSmart Devices
SmartSmart Devices
Next generationservices offerings driven bymassive volumes of device data
Enterprise systems to deal withthe data unleashed by device
networking
Logical entities that change oneinfo transmitting protocol toanother
Any part of the network capableof direct global data
transmission
Any entry point into the global IPnetwork (Internet)
Any device networking thatoccurs before the core global
network
Any manufactured object withcomputational power and theability to be networked
Asset Mgmt, Energy MgmtSupply Chain & Replenishment
Data Centers, ApplicationEnablers, Middleware, Web
Services
Access Node, Local Server, OSGBox, Voice Gateway, WAPGateway
Internet Backbone, Core ATMNetwork, QoS Network, Long
DIstance
Cable, Satellite, Wireline,Wireless, xDSL, POTS
Ethernet, Wi_Fi, Bluetooth,Zigbee, UWB, RF, IR
PDAs. Phones, Appliances,Sensors, Controllers, Electro-Mechanical Devices
What Is It? Examples
CompleteEnd-T
o-EndSolution
Network
Services
Connectiv
ity
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Eco-Systems will be critical
Honeywell
Philipscustomers
Chipcon
Retail
Industrial
Power
venues
products
Buildings
VenturePartners
StrategicInvestor
Venture Capital
Capital Partners
Corp Ventures
vendors
IBM
HP
Oracle
BEA
Xsilogy
Developer Kit
Gateway
peers
SIGNALSmart
Philips
Honeywell
Eaton
FreeScale
Wavecom
alliances
sourcing
M2M
Suppl iers
channel
Node
strategic
Smart Devices
LANs
Gateways
Sensors
Wireless
marketing
investors
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Robin Duke-WoolleyPrincipalHarbor Research Inc.1 Liverpool StreetLondon EC2M 7QD, UKTel: +44 (0)870 285 1758Fax:+44 (0)870 285 1762E-mail: [email protected]