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Service providers in Latin America that focus on five strategic initiatives will find success in machine-to-machine technology and the “Internet of things.” Service providers that prioritize industry sector opportunities, organize their teams properly, participate knowledgeably in the extensive M2M supply chain, form partnerships effectively and establish credible M2M brands are bound for M2M success. All service providers in Latin America should already be engaged in these activities as M2M is growing substantially in the region.
The Latin American market for M2M device connections will grow from 12 million devices in 2012 to 212 million devices in 2021 (See Fig. 1) at a 37% compound annual growth rate over the forecast period. The largest sectors by number of connections will be utilities, automotive and transport, and security with 102 million, 65 million and 35 million connections by 2021, respectively. The vast majority of M2M connections in Latin America will be over mobile networks (2G, 3G and “4G”) rather than fixed-line networks.
Figure 1: M2M device connections by industry sector, Latin America, 2012–2021 [Source: Analysys Mason, 2013]
Connectivity-related average revenue per user for the region will vary based on geography and the type of M2M application provided. While connectivity-related ARPUs for various M2M solutions will vary between 50 cents and $11.30, the total average monthly ARPU for the region for all M2M solutions will decrease from $3.05 in 2012 to $2.08 in 2021 at a CAGR of -4.2% over the forecast period.
Drivers of M2M in Latin America: security/theft prevention and operational efficiencies
In Latin America, there are two predominant drivers for the adoption of M2M solutions: security/fraud prevention and operational efficiency enhancement. Many M2M solutions serve very basic security and fraud prevention functions in Latin America, such as the use of connectivity to enhance in-building surveillance systems and security devices on vehicles to discourage theft or locate stolen property.
In Costa Rica, a country with a tremendous agricultural product export business, some enterprises make novel use of M2M solutions. Agriculture accounts for 14% of the labor force in Costa Rica and 6.2% of the gross domestic product. Compare this to the United States where .7% of the labor force and 1.2% of GDP is in agriculture, respectively.
We spoke with a sugar cane producer in the cantón of Cartago, Costa Rica. One might think the producer would use M2M to prevent sugar cane theft. However, this was not the case. We found that the producer used M2M solutions to prevent theft of gasoline from the company’s fleet of 30 trucks — 20 trucks in the sugar cane fields and 10 trucks used for shipping the cane to processing plants. In addition, these M2M devices help prevent the theft of very expensive, heavy metal chains used to strap sugar cane onto flatbed trucks. This M2M solution — the module, application, Web portal and related systems — was supplied by a fleet management provider in Costa Rica and outfitted with a SIM from Grupo ICE/kölbi.
Service provider success with M2M in Latin America
Service providers in Latin America that focus on these five strategic initiatives will find success in M2M:
Prioritization of opportunities. Service providers have many opportunities in M2M, but only careful prioritization of these opportunities will yield healthy, profitable businesses. Analysys Mason has found that some of the M2M applications generating the highest revenue can be relatively unprofitable for service providers.
Organization of the M2M team inside the service provider. The decision whether or not to centralize M2M human resources is a critical driver of M2M success. In general, we believe that service providers need to treat M2M as a start-up business unit. It should have a dedicated leadership team and functional heads. It should have dedicated resources — sales and marketing, technical support, product marketing, R&D, OSS/BSS/platform — each with financial incentives for growing the M2M business unit.
Service provider participation in the M2M supply chain. There are three distinct routes to market for service providers offering M2M solutions: co-selling partners’ solutions, selling or reselling their own solutions and acquiring solutions. We believe that service providers should form partnerships to provide M2M hardware and that they should sell or resell their own connectivity, platform and integration services. In addition, successful service providers will conduct a thorough analysis of their application capabilities before determining their best route to market for offering M2M applications. Some service providers have partnerships with application vendors; others have engaged in acquisitions.
Creation of partnerships. No service provider has a toolset sufficient to offer an end-to-end M2M solution for the countless number of opportunities in the market. Furthermore, no service provider has enough direct sales staff to meet all the M2M opportunities. To create a profitable M2M service provider business, it is of paramount importance to pick the best technology partners that can also provide viable, robust sales channels.
Creation of a viable M2M brand. Service providers must establish an identity or image in the M2M market that must be credible in light of their existing brands. A service provider can use its existing brand — sometimes a consumer brand but often an enterprise brand — to build its M2M marketing image. It is important that service providers understand existing marketing perceptions of their strengths and weaknesses when attempting to offer M2M solutions because M2M is one of those technology solutions in which connectivity meets IT. Enterprise IT departments play a very strong role in M2M solution decision-making and implementation.
Service providers that address these five M2M strategies will better align their growing M2M business units with the demands of the market and be more likely to find success in a market that is growing rapidly in Latin America.
All this information is included in Analysys Mason’s Enterprise Research Program that covers the high-growth M2M and IoT sectors.
Steve Hilton is the lead analyst for Analysys Mason’s Enterprise and SME Strategies research programs. His primary areas of specialization include M2M, the Internet of Things, fixed and mobile communications services, cloud services and sales channels.
