Harbor Research M2M

8/9/2019 Harbor Research M2M

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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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www.harborresearch.com

Robin Duke-WoolleyPrincipalHarbor Research Inc.1 Liverpool StreetLondon EC2M 7QD, UKTel: +44 (0)870 285 1758Fax:+44 (0)870 285 1762E-mail: [email protected]

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