Can you hear me now?

Aug. 1, 2003
When machines start talking, will manufacturers listen to new revenue opportunities?

Less than nine months into a collaboration that combines standard remote monitoring equipment with existing wireless technology, Opto 22 and Nokia have emerged as industry leaders in a market segment expected to exceed $100 billion by 2010, according to McKinsey & Co.

That segment, known as M2M, has the potential to revolutionize both the operations and the business model of most manufacturers. And unlike previous generations’ technology upgrades, it packs a bottom-line punch that greatly alleviates return on investment fears.

As pioneers of a packaged M2M solution, however, the Nokia/Opto 22 team has considerable trail blazing to do, primarily in the form of customer education. In addition, they must overcome the inertia that is the natural result of a sluggish economy.

“This is an information story, not a technology story, and there is still much work to be done,” says Ian Barkin, managing director of The FocalPoint Group Ltd., a group of industry analysts focused on M2M.

Not the rock group

M2M stands for communications that is machine-to-machine, machine-to-mobile or mobile-to-machine. In general, it brings wireless technology to the process of networking a broad range of devices. In the specific case of Nokia and Opto 22’s collaboration, M2M connects the Opto 22 family of Snap-It remote monitors and data collection devices, already widely deployed within the manufacturing industry, with Nokia’s cellular technology, which is built on the Global System for Mobile communication (GSM) wireless standard, the technology most widely deployed on a global basis. The power of this combination is that it allows manufacturers to use existing wireless networks, already built globally and looking for additional traffic, to connect remote monitoring devices over considerable distance in a cost-effective manner.

In addition, Nokia and Opto 22 have partnered with nPhase LLC, a Chicago-based solutions provider focused on M2M, which was officially launched on May 3. nPhase provides the glue that creates an M2M package focused on ease of deployment and use by operating a remote Network Operations Center that analyzes the incoming data and triggers appropriate responses.

“There are more technically sophisticated platforms than what Nokia is offering,” says Ian McPherson, principal analyst with Wireless Data Research Group, and author of an extensive market study of M2M. “But they are facilitating a much easier, more tangible solution, rather than just saying, ‘Here are the tools.’ They are giving customers a complete solution that talks immediately to return on investment.”

The immediate return on investment and a packaged solution approach are intended to break down any barriers manufacturers would have to adopting new technology, particularly at a time when growth is slow or nonexistent, says Kimmo Savolainen, Nokia’s M2M Program Manager for the Americas. Nokia has been demonstrating the capabilities of networking devices for several years now, but over the last year has begun focusing on manufacturing automation.

“We have created a product offering that combines all the technologies needed to transfer data over cellular networks—GSM in this case—in one complete product that gives you everything you need,” says Savolainen. “The second main thing for us is to create this M2M community around this product offering. What that means is that we have established and we are establishing more relationships with a number of companies.”

In addition to Opto 22 and nPhase, Nokia works with AT&T Wireless Systems and with other technology companies, such as Hewlett-Packard and IBM, as needed, he adds. “If a company doesn’t want to separately establish a relationship with a cellular carrier, they can usually work through nPhase. They are a systems integrator but they also act as an interface toward the network carrier. The customer is then billed for all services, including systems integration and bandwidth through nPhase, which makes it very easy—a truly turnkey solution from application development through operating that application.”

The immediate attraction of M2M for the manufacturing community is the ability to cut costs, says Bob Sheffres, vice president of Opto 22.

Manufacturers have been using the company’s hardware and software for remote monitoring and process control for almost three decades. By integrating Nokia wireless transport into the Opto 22 equipment racks, a manufacturer can gather information into a central location and more proactively handle both routine and urgent maintenance over significant distance, making the best use of personnel while keeping facilities in top operating condition.

3G economics

In the past, cellular networks were available for this use but not cost-effective, says analyst McPherson, because services were billed on a per-minute basis. The frequent, short, bursty data messages needed to relay information about machine performance were prohibitively expensive using circuit-switched voice networks. The emergence of wireless networks focused on data transmission, known in the wireless industry as third generation or 3G networks—or sometimes 2.5G networks for an interim step—is changing the economic picture. At the same time, the wireless companies investing in these networks are anxiously looking for the applications that will generate real revenue for them, as competition has driven down prices for voice services and even emerging mobile Internet access.

In fact, says McPherson, M2M could be the killer application that drives down the unit cost of wireless modems and gateways.

Nokia’s Savolainen agrees. “There are six billion people in the world but there are 50 billion machines,” he says. Getting manufacturers to deploy M2M to monitor the performance of their internal operations “is the low-hanging fruit,” he adds.

“A lot of times, machinery is being maintained by personnel of the company that has leased the equipment or manufactured the equipment,” says Savolainen. “Those service and maintenance people need to be aware of when they have to go to the manufacturing floor and do the actual service.”

The M2M approach eliminates unnecessary service calls but enables the manufacturer to detect when problems are beginning to arise and respond proactively, says Opto’s Sheffres.

Speed the supply

Just as significantly, the M2M process can be very powerful in helping manage today’s more complex supply chains. Tying raw material suppliers with manufacturers, subcontractors and others in a seamless data network that also connects to wholesale and retail distributors, and even through to customers, opens up enormous possibilities for more efficiency in tracking supplies, managing just-in-time delivery of raw or finished goods and improving service.

“Bayer AG is a good example,” says Sheffres. The German pharmaceutical giant supplies chemicals and gasses to smaller drug manufacturers, who use on-site tanks to store the goods. Bayer deployed a combination of wireless M2M systems to remotely monitor its customers’ storage tanks, and tied this information into its corporate network. Not only does this network monitor details such as low tank levels, power failures and extraordinary temperatures, but it has also dramatically changed the product delivery and billing processes.

“Rather than have customers call up to order more supplies, and then go through a typical paper billing process, the system automatically delivers supplies as needed,” Sheffres says. All the information is entered into a corporate Oracle database and SAP supply chain management system. Bills are generated more quickly and unnecessary paperwork is eliminated.

The icing on the cake is that Bayer doesn’t require as much centralized storage of the chemicals and gasses because it can essentially use its customers’ tanks as needed for storage, says Sheffres. Customers benefit significantly since they no longer have to monitor their own supplies and can be assured of having goods on hand when needed at no extra cost.

Nokia, Opto 22 and other players in the M2M space have no intention of stopping at internal processes however. They envision a dramatic change in the manufacturing business model in which the extensive coverage provided by wireless networks today is used to track the endless array of commercial and consumer devices.

“When Whirlpool manufactures a washing machine today, once it rolls off the assembly line and is sold, they lose touch with it,” says analyst Barkin. “What if they could track its performance automatically and know when that machine was going to break or need service? The same thing could happen in an industrial setting. You now have the capability of designing solutions and services that are a significant upsale for the manufacturers.”

“Right now, we are still in a ‘create awareness’ type of mode,” says Nokia’s Savolainen. “A lot of companies have not even realized that they can use this technology to get the cost benefits from automation.”

The fine print

Getting manufacturers to think of themselves as service providers is the greatest challenge that any M2M provider will face, says McPherson.

“Field force automation and being able to send trucks out with the part or the components that are directly necessary—those types of operational efficiencies are very much welcome by the end user,” he says. “Taking it to the next level and saying we are going to create a service business is another step beyond that. I see it as a possibility and it makes for good marketing literature. But it’s more difficult than just knowing the technology is there.”

Barkin believes that many companies are beginning to understand the potential of what M2M can do, and what the impact could be on their current business. “Many companies will be tempted to roll their own,” he says. “Implementing this end-to-end on your own will be difficult and may be impossible.”

Nokia and Opto 22 are regarded as the M2M segment leaders because of the holistic approach they are taking to the market, McPherson says. Other major players include Wavecom and Sony/Ericsson, both companies with extensive wireless assets.

“Wavecom has taken the other approach —they have developed a really rich software development kit and the tools to allow new innovations for systems integrators,” he says. “Nokia’s approach is very modular, it can be easily coupled with this other stuff. The two companies have different visions about how you arrive at the same end point. Nokia’s strategy means it can get out there very quickly—whether in the long term that will lead to more overall growth as a result is yet to be seen.”

Sony/Ericsson is expected to be a big player in M2M, although to date it has been more consumer oriented, says McPherson.

One of the challenges facing any manufacturer will be sorting through the options.

Opto 22 continues to support both wired and wireless networking, says Sheffres, because the advantage to each is application-specific. Where there is a legacy network in place that is based on wired networks, it is still possible to link in remote systems via wireless technology that is less expensive to install.

That’s not to say there isn’t a significant upfront cost, because wireless modems will still run $100 to $200 each, and must be deployed on every device to be monitored. Those costs will drop as volume increases.

Who’s listening?

In addition, there are still security concerns about use of wireless technology to convey sensitive corporate information, because wireless systems based on standard technology are subject to eavesdropping.

While not dismissing security concerns, Sheffres says data traffic conveying machine performance is less interesting to would-be eavesdroppers than voice conversations, which in the past have proven vulnerable.

It is also possible, McPherson says, to step up data encryption schemes—yet another decision for any manufacturer considering the bold step in this direction.

See sidebar to this article: M2M adds competitive advantage

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