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Transcript of M2M Solutions
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Filing Information: August 2012, IDC #236365, Volume: 1
United States Mobile Enterprise Services: Insight
I N S I G H T
M o b i l e O p e r a t o r M a c h i n e - t o - M a c h i n e S o l u t i o n s
A d d V a l u e t o t h e H e a l t h I n d u s t r y
Suzanne Hopkins Carrie MacGillivray
I D C O P I N I O N
As mobile operators investigate growth strategies, machine-to-machine (M2M)
solutions are emerging as a focus for future opportunities within their B2B
organizations. Monetizing the opportunity of M2M solutions across verticals is a
challenge operators are attempting to overcome. At the same time, the health
industry is confronted with stark challenges including cost constraints, federal
approval cycles, regulation changes, and health delivery models. As a result, the
industry has increasingly looked toward M2M solutions to help drive efficiencies and
better quality patient care. The prospect for widespread deployments of cellular M2Msolutions is limited, but opportunities do exist in the select pockets of the healthcare
segment. IDC examines these trends and presents the following highlights from its
analysis:
IDC expects M2M (cellular) connection revenue from the health sector to reach
$67.9 million in 2012, an increase of 80% from 2011. Revenue for the healthcare
M2M segment is expected to grow at a five-year CAGR of 67.3% to reach $493
million in 2016.
The aging population is putting increased pressure on the healthcare system,
especially as more people are surviving with chronic diseases and the
importance of preventive care is increasing. Solutions to manage thisphenomenon are key items on the agendas of healthcare providers. These
providers are increasingly looking at cellular M2M solutions as a viable solution
to some of these issues.
Conversely, for many M2M use cases within the health industry, alternative
technologies can be used. Most notable are smartphone applications, which can
communicate similar information but can be introduced into market faster.
I N T H I S I N S I G H TThis IDC Insight examines the role machine to machine (M2M) plays in the health
sector and the opportunity that exists for mobile operators in the United States. It
evaluates current market conditions, considering the demands of health providers and
health professionals while looking at the implementation of solutions and the impact
of alternative technologies. The analysis in this document provides a snapshot of the
existing landscape and outlines the future trajectory of M2M connections within the
health industry.
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M e t h o d o l o g y
The research and analysis in this document are based on both primary and
secondary research sources. IDC sized the M2M market by analyzing mobile
operator financial statements, quarterly and annual results by the mobile operator
community, and IDC analyst conversations with mobile operators, solutions providers,device manufacturers, vertical pure-play vendors, end users, and other key players in
the M2M ecosystem throughout the year.
Note: All numbers in this document may not be exact due to rounding.
S I T U A T I O N O V E R V I E W
Adopters of M2M solutions range across a variety of industries, including (but not
limited to) automotive, transportation, health, energy, and manufacturing. Certain
verticals have been labeled as high-growth opportunities, including health. The
number of prospective M2M applications within the health industry appears to be
endless; however, in reality, IDC has a bearish outlook on the future trajectory of
cellular M2M connections in this industry. Massive spending in healthcare is expected
over the next few years; however, mobile operators will generate a very small portion
of this spending in this sector from M2M cellular connectivity.
This document examines the M2M market as the connection of machines using a
cellular connection (2G, 3G, or 4G). Within the M2M market, a variety of other
technologies can be used to connect machines, including WiFi, Bluetooth, ZigBee,
and even wired connections. This document limits its scope to B2B connections as
opposed to B2C M2M opportunities (focused on the consumer market).
In the past few years, mobile operators have investigated new sources of revenue as
they are confronted with the decline of their legacy markets (voice revenue) and
challenged by how to monetize increasing levels of data traffic. The smartphone
market continues to be the leading cause for the growth in data consumption. In the
past few years, most IT markets were negatively impacted by the economic
recession. However, when compared with other IT markets, the smartphone market
was largely insulated. In 1Q12, nearly 54% 41.2 million of AT&T's postpaid
subscriber base were smartphones. Similarly, nearly 47% 41.2 million of
Verizon's postpaid subscriber base were smartphones. The increase in smartphone
adoption, which has higher ARPU rates than traditional voice connections, has helped
operator revenue continues to grow. However, there are high costs associated with
increased data traffic on the mobile network (i.e., limited spectrum, network buildout
costs, acquisition costs). As a result, operators are investigating alternative revenue
opportunities, such as M2M, to supplement their growth strategies.
There are several reasons why a mobile operator would want to support M2M
connections over its network. For example, M2M connections have low acquisition
costs, typically longer contract periods, and low bandwidth requirements (in the
majority of instances) to name a few. There is expected to be an unprecedented
number of M2M connections in the future. IDC forecasts there will be approximately
85.2 million wireless M2M connections in the United States by 2016. For an operator,
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there are multiple revenue streams that exist within the M2M business model.
However, the revenue potential depends on the types of services offered. Simplified,
revenue streams for mobile operators can be broken down into two pieces, the
connection and value-added services:
Connection. This is the revenue extracted from connecting devices and
transmission of data over the network.
Value-added services. This revenue is associated with services outside of the
wireless data connection. Through partnerships or in-house projects, operators
offer services related to but not limited to device enablement, consumption
management, application development, business intelligence and analytics,
security services, and professional services.
T h e H e a l t h O p p o r t u n i t y f o r M o b i l e O p e r a t o r s
The M2M healthcare segment is labeled as having high-growth potential over the next
few years. According to the U.S. Census, spending on healthcare, including services,
equipment, and research, was $2.5 trillion in 2009 and is projected to grow at
approximately 5% per year over the next decade. Despite the massive spending in
healthcare, mobile operators will generate a very small portion of spending in this
sector from M2M cellular connectivity. IDC estimates the industry will generate $67.9
million in revenue in 2012.
Many mobile operators are dedicated to the health sector to ensure its success. Yet
each of the operators is employing different strategies to influence the M2M
healthcare market. A sampling of operator strategies incorporates vertical experts,
partnerships, outsourcing, and innovation centers. In more detail: First, to understand
the requirements, some mobile operators have in-house vertical experts. For
example, AT&T has an in-house chief medical officer (CMO) as well as a full team of
medical experts to help the operator match solutions with the diverse needs across
the healthcare value chain. Second, operators understand the strategic benefits of not
only using internal resources but also leveraging partnerships with vertical market
leaders. Operators choose partners that offer existing solutions to the health industry,
which helps reach a larger customer base and gain critical buy-in from decision
makers. Third, some operators prefer to not develop deep vertical expertise and
would rather outsource full solutions to partners. T-Mobile is primarily focused on the
connection aspect of an M2M solution, handing off deployment and implementation
components to its partners. RACO Wireless is the preferred provider for T-Mobile.
Finally, to foster innovation, mobile operators have launched centers that allow
developers and industry experts to experiment with solutions. For example, Sprint
launched an M2M Collaboration Center in Burlingame, California, and Verizon has anM2M Innovation Center in Waltham, Massachusetts. Each of the operators
incorporates some (or all) of these strategies to ensure success within the M2M
healthcare market.
M2M Health Solutions
There is a wide range of M2M health solutions currently offered in the market. Each of
the mobile operators has targeted different solutions to gain market share. To provide
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context to the wide range of solutions, some of the most-common cellular-enabled
M2M healthcare solutions today are:
Remote patient monitoring
Remote device diagnostics
Clinical trial monitoring
Home healthcare solutions
Telehealth
mHealth (i.e., medication reminders)
Asset management of healthcare providers' inventory
Medical imaging solutions
Value Chain
To fully understand the opportunity for M2M solutions, it is critical to understand how
the healthcare industry functions. The value chain in the health industry is
complicated, and with the introduction of M2M solutions, the value chain gets even
more convoluted. Because the health industry is a highly regulated industry,
traditionally, there has been a vast array of players required for the delivery of health-
related products and services. The existing value chain includes the government (i.e.,
the FDA), associations (i.e., American Medical Associations [AMA]), medical device
manufacturers, payers (i.e., insurance companies), healthcare providers (including
physicians, hospitals, and healthcare systems), and the end customer/patient. With
M2M solutions, the value chain expands even further to include mobile operators,
application developers, service delivery providers, and other contributors to M2M
solutions. As more businesses insert themselves into the mix, time to market for
solutions slows and complexity increases.
F U T U R E O U T L O O K
IDC believes the total M2M market will significantly grow over the next few years
increasing at a five-year CAGR of 37% reaching $2.5 billion in 2016. The
healthcare M2M market will increase from $67.9 million in 2012 to $493.4 million in
2016. Penetration and adoption rates vary across each of the M2M segments
because each segment is impacted by a different set of barriers.
A d o p t i o n : D r i v e r s a n d I n h i b i t o r s
A number of factors, discussed in the sections that follow, are impacting the adoption
of M2M solutions in the health industry.
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Drivers
Drivers leading to the adoption of cellular M2M health applications include the
following:
Cost reduction initiatives. Hospitals and the overall health industry are
confronted with astronomical costs. M2M can offer solutions to hospitals that
monitor patients from their home instead of at the hospital, which reduces costs
and opens up space in the hospital. Preventive care measures will also reduce
the number of critical patients, thereby reducing costs.
Patient Protection and Affordable Care Act (PPACA). The healthcare reform
act was signed into law by President Barack Obama in March 2010 and upheld
by the Supreme Court in June 2012. With the law, all individuals must maintain
insurance coverage or pay a tax penalty. As a result, insurance companies and
health providers will need to develop innovative solutions to comply with these
new country regulations, offering consumers affordable health insurance plans.
Demand for improved delivery services. As insurance companies are
confronted with changes caused by PPACA, alternative pricing systems will be
required. By leveraging M2M solutions such as pay as you drive (PAYD), which
is currently used by auto insurance companies health insurance companies can
customize insurance rates, offering plans that best match the needs of their
customers based on the actual health data of individual consumers.
Operational efficiencies needed. M2M can offer hospitals and healthcare
providers a strategy to more efficiently manage their assets. For example, with
the use of M2M, inventory analytics will improve a hospital's ability to refill
supplies in real time, thus decreasing inventory costs.
Aging population and chronic diseases. The aging population is putting
increased pressure on the healthcare system, especially as more people are
surviving with chronic diseases. Solutions to manage this phenomenon are being
raised to the top of discussions and the agendas of healthcare providers.
End-user expectations. Cellular coverage across the United States is virtually
ubiquitous. Some patients need constant monitoring, thereby making other
technologies (such as WiFi) inappropriate. Further, the younger generation are
already comfortable and reliant on technology for other services. Thus the
younger generation are more likely to adopt (and demand) remote telemedicine
business models, driving market demand for new solutions in the future.
Inhibitors
There are a number of inhibitors affecting the market as well. Undoubtedly, interest
and demand for M2M health applications will continue to rise; however,
implementation of these solutions will be slow in the short term. Some of the major
inhibitors within the health segment are:
Payer debate: Who is responsible for paying for these solutions?As M2M
solutions are developed, a debate of who pays for the solutions introduces
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complexity into the healthcare business model. Should it be the insurance
companies or the end users (consumers)? How do doctors and healthcare
providers impact the types of solutions adopted?
Health information requires QoS. Health information distributed via M2M
solutions can be propriety and critical information related to the care of a patient.
In some cases, this information is life critical. To use a cellular connection,
providers must ensure that the information is delivered, within certain time
constraints, and is secure. In some cases, the ability to deliver information at the
necessary QoS levels inhibits adoption rates.
Alternative solution: Smartphone applications. For many of the high-profile
use cases of M2M within the health industry, alternative solutions can be used.
For example, smartphone applications can communicate comparable information
such as medication reminders and monitoring statistics. Compared with an M2M
application (which would require a module/device, a connection, and an
application), smartphone applications can be introduced to market much faster.
Since the installed base of smartphones in the United States continues to rise,
targeting customers with solutions leveraging their smartphone may prove more
valuable than investing in another application and device.
Regulation, policy issues, and patient security. The health industry is
extremely regulated. Significant approvals from the FDA and other organizations
are required before going to market with new medical devices and services. In
addition to regulation and policy issues, patient security is of top concern. It is
important to have the appropriate level of security to ensure patient data is not
exposed. The threat and concern of this exposure will be a significant inhibitor to
mass adoption. Liability concerns may inhibit some value-added solutions in the
short term.
The list of inhibitors outlines critical reasons for IDC's expectation of slow adoption of
M2M services in the health industry. Other challenges related to this market include
the following:
Alternative connectivity is good enough. In many cases, a cellular connection
is not required. In these situations, leveraging cheaper connections such as
Bluetooth, ZigBee, WiFi, or wired connections can provide connectivity at the
same level of service. Within a hospital, this is evident as a hospital will most
often already have WiFi or wired connections available. Furthermore, the industry
has been able to leverage RFID strips in the past and can continue to use this
technology (or NFC) for many M2M applications.
Costs and cost effectiveness. To offer M2M services, medical devices need tobe built with cellular components. The addition of new components can drive up
costs, thereby decreasing adoption. Further, time to market for medical devices
is long (two years), thus delaying implementation of new solutions. The ROI of
these medical devices is also uncertain at this time.
Resource issue and competing priorities. This is an industry plagued with
staff shortages and tight budgets. Questions arise, given staff shortages, about
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who will manage the connection, make sense of the data compiled, and leverage
the information to make changes. The health industry is undergoing significant
changes; while M2M may help streamline some of these changes, the ROI might
not be clear to decision makers that have competing IT and patient care priorities
during this time of change.
Doctor and insurance company buy-in. Established relationships and
arrangements will make it difficult for mobile operators to insert themselves into
the value chain. Since suppliers and buyers have these established relationships,
switching costs within this industry can be very high. Finally, confusion about
M2M is prevalent; convincing decision makers to move to and implement a new
system can be difficult.
E S S E N T I A L G U I D A N C E
A d v i c e f o r M o b i l e O p e r a t o r s
Based on the analysis discussed throughout this document, IDC offers the following
suggestions for long-term success related to mobile operators offering M2M services
in the health industry:
The health industry is a complicated environment, plagued with governmental
regulations and policies. To succeed, mobile operators must have an internal
team dedicated to the success of M2M health solutions. Armed with vertical
expertise, mobile operators will be able to understand the requirements of the
market and match those needs. These relationships will help operators navigate
the labyrinth of liability and policy issues and will also offer operators insight into
alternative solutions, such as preventive products and services, that do not have
the same level of regulatory and liability issues.
In the M2M ecosystem, partnerships are critical. Mobile operators have strong
relationships with device manufacturers. Leveraging those existing relationships
will be critical for long-term success. Furthermore, it will be important to establish
vertically specific relationships, for example, with healthcare regulatory and policy
makers as well as healthcare providers.
Many mobile operators are currently building out extensive managed mobility
portfolios, where they are helping enterprises manage employee devices. There
is an opportunity for operators to leverage the technologies and systems related
to managed mobility to their M2M portfolios, taking full ownership of managing
M2M devices and machine connections for customers. This will help combat QoS
issues that currently exist.
There are many opportunities to offer value-added services to the healthcare
industry using the cellular network. However, mobile operators should not limit
themselves and should instead look to alternative technologies and solutions
outside of the cellular network. Solutions can be offered through technologies
such as WiFi and wired technologies.
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Buy-in among healthcare decision makers will be a deterrent for many M2M
solutions. Mobile operators must understand their clients' needs and then
customize a solution to match those needs. Remaining flexible will help clients
understand and extract real value from an M2M solution.
L E A R N M O R E
R e l a t e d R e s e a r c h
IDC's Worldwide Machine-to-Machine (M2M) Taxonomy, 2012 (IDC #236136,
August 2012)
Verizon Enterprise Solutions Industry Analyst Meeting 2012: Creative Disruption
(IDC #234838, May 2012)
Mobility in the Enterprise: Key Initiatives for 2012(IDC #233970, March 2012)
M2M Market Evolution (IDC #233989, March 2012)
IDC MWC Mobile Industry Dynamics, 2012: Multiple Perspectives on a Shifting
Industry Landscape (IDC #I52U, March 2012)
Sprint Takes Its M2M Solutions Global with Orange Business Services (IDC
#lcUS23317712, February 2012)
Tablets in the Enterprise: Opportunities and Challenges for Businesses and
Mobile Operators (IDC #231153, December 2011)
Mobile Operators Help Enterprises Embrace Consumerization with Dual-Persona
Device Solutions (IDC #231336, November 2011)
C o p y r i g h t N o t i c e
This IDC research document was published as part of an IDC continuous intelligence
service, providing written research, analyst interactions, telebriefings, and
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Copyright 2012 IDC. Reproduction is forbidden unless authorized. All rights reserved.