Update on the Cost of M2M Applications

As with any other implementation of technology, M2M applications only make sense when the benefits of implementing them sufficiently exceed the costs to achieve an attractive return on investment. While the potential benefits of implementing M2M differ with each application, the structure of implementation costs are similar. There are three major costs to implement an M2M application:

1.       Development Costs
The costs to develop an M2M application include the costs to design the overall system solution, to develop an application-specific device (or to adapt an off-the-shelf product), and to develop or integrate the back-end system that manages and pulls information from the M2M devices.

2.       Deployment Costs
Deployment costs include the cost of manufacturing or buying the M2M device itself, as well as the cost of installing it.

3.       Operating Costs
For cellular-based M2M applications, the on-going cost of operating the M2M application is dominated by the cost of cellular service. The costs of operating the back-end application, providing on-going support and powering the remote device is usually small by comparison. For certain applications, the cost of replacing batteries over the life of the device can also add up.

Over the past two years, some of the important costs of M2M applications have continued to decline considerably. Specifically, the costs of cellular communications for M2M applications has declined. This has enabled even more potential M2M applications to become cost effective, and is fueling the accelerating growth of the M2M industry.

For most cellular-based M2M applications, the total life cycle cost of the application is dominated by on-going operating costs, which are driven by cellular communications charges. The costs of cellular service for M2M applications has fallen significantly over the past two years. In 2011 a typical M2M application may have been designed to use 100 KB of data traffic monthly for a charge of $1.50 to $2.00. An application requiring 1 MB of data traffic could easily have incurred monthly charges of $5.00 or more.

In the ensuing years, carriers have expanded their network capacity by upgrading their networks using 3G and 4G technologies. In addition, carriers are starting to behave more competitively in the M2M market. The M2M market is larger and more attractive to carriers, while traditional consumer subscriber growth within their national market boundaries has largely stopped. Carriers looking for new sources of subscription growth have become more competitive in pursuing M2M business, partly by reducing the premium that M2M applications have paid for data services.

So cellular charges for M2M services have dropped. Today, in the first half of 2014, monthly cellular costs of $1.50 to $2.00 for 1 MB of data traffic are common. Costs can obviously be even lower for applications with lower data requirements and a large number of devices, and monthly communications costs for these applications can be under $1.00 per device.

These rates not only significantly reduce the life cycle costs for an M2M application, but they loosen the design constraints that used to force developers to minimize the data that their application sends and receives. M2M applications are evolving from using SMS, or even UDP, data transports to using the more familiar TCP protocol that is common on the Internet. Lower costs for data communications also enable less experienced application developers to create viable applications since communications efficiency is not as important as it had been.

Cellular M2M costs still have plenty of room for improvement, though. Even at $2 per MB monthly, M2M data costs are still a couple of orders of magnitude higher than the effective $0.01 to $0.06 per MB charged with consumer smartphones and tablets. M2M cellular costs will continue to drop, particularly after LTE radio module costs become cost effective for M2M applications.

Another development that has reduced the costs of M2M applications is the continuing decline in the cost of cellular radio modules. In most M2M devices, the cellular radio module is the single most expensive component. In 2011, GSM 2G cellular radio modules could be obtained in moderate volumes for $26 to $30 apiece, and CDMA 1xRTT modules could be had for $30 to $36. At that time, 3G radio modules were just starting to appear, but they were two to three times the cost of 2G modules.

Since then, 3G cellular radio modules have grown to dominate the designs of new M2M devices as their costs have come down with volume. Chinese manufacturers of cellular modules have entered the US market with aggressive pricing. In addition, some carriers have announced that they will not allow new 2G radio-based devices onto their network any longer, which probably presages future restrictions by the remaining carriers. With the resulting growth in volume, 3G radio module prices have dropped to the former level of 2G modules – and beyond. Today GSM 3G radio modules are available for $22 to $28. CDMA 1xRTT modules are a little less expensive, at $21 to $24. Prices can be even lower with very high volume purchases.

The costs of deploying and operating an M2M application are generally the largest components of an overall M2M solution. The decline in the costs of cellular radio modules over the last three years, especially for CDMA, has reduced the costs of deploying M2M devices. More importantly, the significant reduction in cellular data costs have lowered the costs of operating an M2M application. Together, these developments have improved the total life cycle cost of using M2M technology, thereby enabling more potential M2M applications to become economically attractive. These developments will drive accelerating growth of M2M deployments as part of the Internet of Things, and will lead to even further reductions in M2M technology costs.