Beware the machine-to-machine hype

Industry analysts tout the number of things destined to be networked: cars, utility meters, vending machines and other devices. Estimates range from tens of billions to more than 1 trillion potential machine-to-machine nodes. Research firm E-principles even predicts the number of things connected to mobile phone networks will exceed the number of people connected to those networks by 2010.

Did these folks sleep through the Internet bubble?

There are many reasons to be optimistic about machine-to-machine market growth. More and more products include built-in intelligence. Mobile phone services are becoming ubiquitous, making it increasingly possible to connect remote and/or mobile sensors, switches, machines and displays to networks. Low-cost radio modems, wireless service rate plans scaled to bandwidth consumption and the emergence of powerful Internet-based tools also are driving growth.

But there are significant obstacles, too. The current wireless machine-to-machine market is quite modest: Only about 6 million radio modems were shipped for use in machine-to-machine applications during 2003. Contrast this to Nokia’s estimate that roughly 600 million mobile phones will be sold this year.

The wireless machine-to-machine market is highly fragmented. The applications – ranging from monitoring heart patients to tracking truck trailers – are much too diverse for generic products. Most products still require a great deal of customization. Growth varies widely from one market to the next.

For the number of machine-to-machine devices on mobile phone networks to surpass the number of handsets on mobile phone networks by 2010, the number of wireless machine-to-machine devices sold per year must exceed the number of handsets sold per year. But even assuming wireless machine-to-machine device sales grow geometrically while handset sales remain flat, the number of wireless machine-to-machine devices sold annually won’t even begin to exceed the number of handsets sold annually until 2010.

The problem with many forecasts is they place too much emphasis on the total available market and not enough on poorly understood growth inhibitors. It’s easy to assume people will spend an extra $5 per month to enjoy theoretical benefits, but much harder to get them to pull the money out of their wallets.

I have no doubt wireless machine-to-machine will succeed. But the machine-to-machine market is still in its infancy. Based on experience in emerging technology markets, we can expect machine-to-machine to grow nicely in select vertical segments, but fail to overcome inertia in others.

Eventually, the industry will develop machine-to-machine solutions that satisfy the needs of broad market segments. But counting 1 trillion things that could be connected to networks, and predicting that today’s tiny wireless machine-to-machine market will be tomorrow’s behemoth, won’t help us get there.