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THE EMERGENCE OF
                  SMART BUSINESS
RESEARCH REPORT




                  Machine-To-Machine (M2M) & Smart Systems Forecast
                  2010-2014

                  Harbor’s market analysis on how networks of companies, customers,
                  people and intelligent devices are driving the convergence of The
                  Internet of Things and The Internet of People




                         Harbor Research, Inc.
                         SAN FRANCISCO | BOSTON | ZURICH
The Emergence of Smart Business
Forecast Report Overview




T
            he Pervasive Internet and the new world of Smart Systems
            are ushering in an era where people, machines, devices,
            sensors, and businesses are all connected and able to interact
            with one another. As these previously disaggregated parties
            come together, new modes of collaboration and intelligence
will abound fostering a trend that we call “Smart Business.” Machine-
to-Machine communication (M2M) systems are merely the starting
point. The development of the Pervasive Internet and the evolution
toward Smart Business practices will enable a truly connected world.
Inputs from machines, people, video streams, maps, newsfeeds, and
sensors will be digitized and placed onto networks. This will lead to the
convergence of the physical & virtual worlds, thus enabling collective
awareness, creativity, and better decision making capabilities for societies
that increasingly rely on real-time information and interactions. Many
observers believe that this phenomenon will drive the largest growth
opportunity in the history of business.

Scope of Study
The Pervasive Internet is a global technological opportunity of unprecedented proportions.
The technology behind the Pervasive Internet will ignite an era of Smart Systems and Busi-
ness that radically transforms customer service, resources allocation, and productivity in gen-
eral. In this new era manufactured objects, general infrastructure, people, and businesses will
be connected and communicating constantly. As the world becomes connected, societies and
governments alike will be able to respond to the needs of both citizens and assets in real time.

The Internet is the primary driving force on the path to a truly connected world. First, the
Internet gave us e-mail and the Web. Then came e-commerce and the ability of consumers
and businesses to quickly purchase items, as well as the ability of retailers and businesses to
build close relationships based on customer preferences.

But the next phase will be much more profound. It includes shared and secure Internet ac-
cess for device interaction—in many cases with no human intervention at all—as well as
network-based services such as status monitoring, usage tracking, consumable replenishing,
and automated repair. These new services are based upon the convergence of networks, em-
bedded computing, control, content, and sensor feedback.

Our analysis and research is focused on understanding the strategic business implications of
growth within the emerging Smart Systems arena. The research addresses the following key
questions:



     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                              3
                                                                                                   2
The Emergence of Smart Business
Forecast Report Overview




•   What key forces are impacting adoption of Smart Systems, M2M and connected product
    solutions?

•   What devices and applications are driving intelligent device networking?

•   What are the business models manifesting in each major vertical market and venue?

•   What is the size and growth rate of the opportunity?

•   What managed services opportunities are developing by vertical market?

•   Which enabling technologies are gaining ground?

•   How will software architecture and tools evolve over the next several years?

•   What issues and hurdles are there in the market impacting adoption of Smart Services?

Smart Systems Opportunity Scale




                                                                        Source: Harbor Research, Inc.


PRONOUNCEMENTS ABOUT FUTURE SCALE OF OPPORTUNITY
Many IT equipment suppliers and wireless carriers have made recent pronouncements con-
cerning the scale of the Internet of Things. Our analysis points to the many significant chal-
lenges in realizing such growth:

•   Challenges in adopting new business models and making the business case to support
    investments.

•   Complex services and solution delivery eco-systems that require businesses to relate in
    new and different ways.




     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                                   3
The Emergence of Smart Business
Forecast Report Overview




•   Anticipation of new product, service and systems innovation modes that are not widely
    adopted today.

•   Fragmented M2M and Smart Systems vendor landscape that is not yet well aligned with
    the larger IT infrastructure and carrier players.

•   Requirement for vertically-focused solutions from a supply-side world that historically
    has been far more horizontally driven.

Though their business models are intermingling today, all of the major categories of solution
suppliers (or as we like to call them - “The IT and Network Arms Merchants”) have histori-
cally operated within well-established business models that reflected the distinctive compe-
tencies that each group believed to be at its core. The advent of Smart Systems is causing a
blurring between these legacy business models forcing all the major suppliers to re-think their
strategies.

We do strongly believe that the Pervasive Internet and Smart Systems market opportunity is
reaching a new level of maturity; there is now substantially greater recognition of the techno-
logical capabilities and the potential benefits of connecting devices to the Internet than there
was even 2 years ago. This represents a whole new generation of technology innovation and,
if history repeats itself because certain conditions repeat, we expect to see a significant wave
of growth in Smart Systems.

HARBOR’S COVERAGE IS EVOLVING
We have used the term “Pervasive Internet” and “Machine to Machine (M2M)” to describe
the technologies that drive integration of all forms of manufactured devices and machines
whether they be fixed, movable or fully mobile. Historically, Harbor’s coverage of the “con-
nected device” opportunity excluded mobile IT appliances and telephony devices. Back in
2002, we believed that while these device segments represented a market that would certainly
grow to use the Internet extensively for improved data collection and information sharing
between people (it represented, at that time, a world of “eyeballs and keyboards” where the
Web’s central value derived more from people than from machines), it was far from clear how
fast these two worlds would converge to create products such as the blood glucose monitoring
application for the iPhone. In 2001 the concept of a smartphone, such as the iPhone, was still
some years away from reality. Well that has all changed.

Over the past five to eight years a blurring of lines has occurred between human or IT-centric
and machine-centric technologies and systems. In this report, we are introducing a new
concept -- Smart Systems and Business -- In the Smart Systems world, device/machine con-
nectivity becomes significantly more universal and segments into two broad groups:




     Harbor Research
      © 2010 Harbor Research, Inc. All rights reserved                                             5
                                                                                                   4
The Emergence of Smart Business
Forecast Report Overview




•	 Information	Technology-Centric	(IT)	Devices: This group includes mobile IT de-
   vices such as phones, smartphones, tablets, as well as fixed IT devices and equipment
   such as desktop PCs, servers, switches, etc;

•	 Machine	[Non-IT]	-Centric	Devices: This group includes all other smart networked
   equipment -- any intelligent device (e.g. sensors, instruments, controllers, etc.) or intel-
   ligent machine (regardless of whether it is an electronic or electro-mechanical machine
   -- appliances, vehicles, HVAC systems, power equipment, diagnostic equipment, vending
   machine, etc.).

Smart Systems Scope
 Intelligent Device Hierarchy                                                                              2010
 Mobile Phones,
 Smart Phones,
 Notebooks
 Mobile Terminals
                                                                                                                                   Mobile IT Appliances,
 Tablets,                                                        Mobile                                 1.4 billion*               Telephony & Terminal
 Media Players                                                    Info                                                             Devices Will Become
                                                                 Devices
                                                                                                                                   Integrated Into
 Desktop PCs
 Servers/Storage                                                                                                                   Systems That Include
 Routers/Switches/Gateways                                                                              1.0 billion*               Signals & Data From
 Printers/Imaging                                              Static Info
 Game/Media Equipment & Players                                Appliances                                                          Sensors, Machines &
                                                                                                                                   Equipment
 Consumer/Commercial Vehicles
 Off-Highway Vehicles
 Air/Rail/Transit/Marine                                                                                .25 Billion**
 Navigation Systems                                                                                                                Approximately 130
 Mobile Healthcare Devices                                   Mobile Devices
                                                                                                                                   Million Machine-
 Building Equipment                                                                                                                Centric Devices
 Retail/Vending/POS/ATMs                                                                                                           Expected To Be
 Industrial Machinery
 Healthcare Equipment                                                                                     5 billion**              Integrated in 2010
 Power Distribution Equip                                    Static Devices
 Infrastructure Equipment

 Controllers
 Sensors,                                                                                                  20 billion
 Instruments
 Meters                                                                                                              To Avoid Double Counting,
 Microprocessors                                            Embedded Devices
                                                                                                                     Embedded Components Are A
 Microcontrollers                                                                                                    Sub-Set Of The Overall
                                                                                                                     Opportunity


              * 2010 IT-Centric Device Shipments               ** 2010 Machine-Centric Device Enablement Potential



                                                                                                                             Source: Harbor Research, Inc.

In this report, we are not attempting to cover the many IT terminal/appliance categories
individually -- there are just too many. What we are intending to do is cover those IT device
segments that are on the boundary of machine and IT infrastructure integration as well as
the impact IT devices are beginning to have on the user and the user experience (e.g. using
your smartphone to check on power/energy usage or to schedule a ZipCar rental).

Today, we believe the true convergence of IT devices with machines and, more importantly,
the integration of these two worlds is now taking shape. Thus, we chose the concept of Smart
Systems to characterize the full measure of the evolving “connected” opportunity.




        Harbor Research
         © 2010 Harbor Research, Inc. All rights reserved                                                                                                    5
The Emergence of Smart Business
Forecast Report Overview




SMART SYSTEMS TRENDS & DYNAMICS
Harbor believes Smart Systems will drive a multi-year wave of growth based on the conver-
gence of innovations in software architectures; back-room data center operations; wireless
and broadband communications; and smaller, more powerful, and more numerous client
devices connected to personal, local and wide-area networks. We expect the rate of invest-
ment in Smart Systems to be measurably higher than in maturing IT systems and network
infrastructure and occur in four key areas:

•   Smart System Platform Technology To Integrate Systems and Applications

•   Purpose-Built Device & Hardware Innovation To Support New User Experiences

•   Business Process Integration
•   Value-Added Application Services	

Beyond mobile phones, laptops and other traditional IT devices connected to networks, the
scope of what is considered an “intelligent” device is expanding as more and different prod-
ucts get connected to the network. Health monitoring devices on the body, telematics in
vehicles for safety, automated service scheduling, and driver convenience as well as smart
grid equipment and meters that can monitor real-time electricity usage – all delivered via
the Internet. We are entering an age of enhanced asset awareness, where real-world assets
(e.g. HVAC systems, shipping containers, shop-floor machinery, pipelines, etc.) can monitor
events, execute rules, and automate business processes. Intelligent device communication is
converging with IT and network infrastructure to enable vast improvements in efficiency and
productivity.

The technology and market forces that are driving business and government interest in smart
machine to machine (M2M) solutions are many, including:

•   The cost of devices will continue to plummet with advances in silicon, packaging and
    integration technology making them network fluent and affordable to virtually everyone;

•   A ubiquitous broadband infrastructure (significantly ahead of most predictions) has been
    developed, which is enabling virtually everyone in the developed world to be connected
    to other users, to new types of sensors and instruments and to massive processing and
    storing infrastructure;

•   Carriers are dramatically reducing their monthly fees for cellular device links -- most
    network service providers worldwide have deployed IP networks on a broad scale and the
    wider availability of 3G wireless networks is fostering market adoption;

•   The storage capacity and processing power of computers will continue to grow expo-
    nentially and enable a whole new generation of infrastructure to perform an enormous



     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                          7
                                                                                               6
The Emergence of Smart Business
Forecast Report Overview




    variety of data management tasks - both carriers and IT infrastructure providers are
    working to develop software and data management platforms to support new man-
    aged services;

•   The miniaturization of components and the integration of a broad range of sensing
    capabilities into intelligent devices will continue to provide a variety of features that
    support the integration of digital information and sensory inputs from the physical
    world, thus broadening the range of possible applications available;

•   The continuing developments of IT systems, the Internet and of next generation tele-
    communication network architecture will enable movement and analysis of very large
    amounts of information (much beyond traditional communication and messaging)
    which will extend the value of managed services;
•   Finally, technology advances have improved and simplified system and user interfaces
    and interactions which, in turn, is driving adoption of new business models.

Tied to these market and technology forces are a number of regulatory and economic
stimulus efforts such as smart grid and healthcare initiatives that are also fostering in-
creased market adoption. End customers participation in the design, development and
management of Smart Systems will rise during this next period of market development:

•   End users will emerge as a force and place greater emphasis on vertical solutions that
    readily integrate with enterprise systems, innovative solution design and more effective
    service and support.

•   Demand for adaptability, agility and features will grow. Innovation in product and
    systems design will be heavily rewarded. Customers will creatively apply and integrate
    technology in their work and personal lives to unimaginable levels.

•   Customers will require a tailored experience from service providers. Not only do cus-
    tomers expect suppliers to anticipate their specific needs, they will want suppliers to
    project an experience for them -- Smart Systems are driving home the importance of
    user experience.

STUDY COVERAGE
Harbor segments the market into ten key venues as listed below. We analyze opportunities
within each venue and related customer segments. Our coverage includes over 300 specific
devices and machine types central to the M2M community.

•	 Buildings	/	Facilities	/	Homes: HVAC /Environmental Systems, Access Control
   Systems, Transport Systems, Lighting




     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                           7
The Emergence of Smart Business
Forecast Report Overview




•	 Energy	&	Power: Power Generation, Distributed Generators, Alternative Energy, LV
   Power Devices

•	 Industrial: Automation & Control Equipment, Capital Equipment

•	 Healthcare: Medical Devices

 Venue Map For Connected Intelligent Devices

                                                                                                                                                                                                                                                  Pervasive	
  Internet	
  &	
  Smart	
  Services
                                                                                                                                                                                                                                                                                                	
  



  	
  Resources	
  	
                                    	
  Energy	
                                    	
  Industrial
                                                                                                                      	
                                           	
  Buildings
                                                                                                                                                                               	
                              	
  	
  	
  Retail	
  	
  	
                       Healthcare	
                                  	
  IT	
  &	
  Networks	
                                           Transporta)on	
                                                                     Safety	
  &	
  Security	
                                               	
  Consumer/Professional	
  


                                                                                 Stores
                                                                                      	
                                    Hospitality	
                                    Services	
  
                                                                                                                                                                                     	
                               	
  	
  	
  Ins)tu)onal	
                            	
  Commercial	
                               Industrial
                                                                                                                                                                                                                                                                                                                                   	
                                 Home	
                                                     Care	
  	
  	
  	
  	
  	
  	
  	
              Personal
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        	
                                   Research	
  

                                                                         • 	
  Groceries	
                               • 	
  Hotels	
                               • 	
  Financial	
                              • 	
  EducaIon	
                                    • 	
  Office	
                            • 	
  Process	
  Plants	
               • 	
  ResidenIal	
                                        • 	
  Hospitals	
                                      • 	
  In-­‐Vivo	
                         • 	
  Drug	
  R&D	
  	
  
                                                                                                                                                                                                                     • 	
  Healthcare	
                                  • 	
  Retail	
                          • 	
  Factories	
                       • 	
  MulI-­‐Family	
  
                                                                         • 	
  Clothing	
                                • 	
  Restaurants	
                          • 	
  Fuel	
  StaIons	
                                                                                                                                                                                                                      • 	
  Nursing	
  Homes	
  	
   • 	
  TesIng	
  Devices	
   • 	
  Research	
  Labs	
  	
  
                                                                                                                                                                                                                                                                                                                                                         • 	
  Mobile	
  
                                                                         • 	
  Electronics	
                             • 	
  Bars/Clubs	
                           • 	
  Cinema	
                                 • 	
  Stadiums/Venues	
                             • 	
  Hospitality	
                     • 	
  Warehouse	
                                                                                 • 	
  Mobile	
  POC	
          • 	
  Monitoring	
  	
  	
   • 	
  DiagnosIc	
  Lab	
  
                                                                         • 	
  Furnishings	
                             • 	
  Cafes	
                                • 	
  Exercise	
                               • 	
  Airports	
  &	
  StaIons	
                    • 	
  Services	
                        • 	
  Laboratories	
                                                                              • 	
  Clinics	
  
                                                                         • 	
  Hardware	
                                                                             • 	
  Cleaning	
                               • 	
  Campuses	
                                                                                                                                                                              • 	
  Doctor	
  Office	
  
                                                                         • 	
  Convenience	
  


                                                                       Devices:	
  	
  	
  POS	
  Terminals,	
  Kiosks,	
  Cash	
  Registers,	
                                                                    Devices:	
  	
  	
  HVAC,	
  VerIcal	
  Transport,	
  Fire	
  &	
  Safety,	
  LighIng,	
  Security,	
  	
                                                                                        Devices:	
  Imaging,	
  DiagnosIcs,	
  Monitor,	
  Surgical	
  Eqp	
  
                                                                       	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Vending	
  Machines,	
  Signs,	
  Tags,	
  etc.	
                       	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Access	
  Control,	
  etc.	
                                                                                             	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Beds,	
  Pumps,	
  Implants,	
  Test	
  Sys,	
  etc.	
  	
  	
  



                                     Professional
                                                	
                                                   Consumer
                                                                                                            	
                                                     Agriculture	
                     	
  	
  	
  Mining	
  	
  	
  	
  	
  	
              Oil/Gas	
  
                                                                                                                                                                                                                                                                  	
                               Water	
  
                                                                                                                                                                                                                                                                                                        	
                                       Supply	
                                 	
  Alterna)ve	
  	
                                       	
  Demand	
  	
                                  Enterprise                                          Data Centers


                             • 	
  Office	
  Work	
                                     • 	
  Home	
  AutomaIon	
                                             • 	
  Farms	
                          • 	
  Surface	
  Mines	
                          • 	
  ExploraIon	
                   • 	
  Water	
  System	
                      • 	
  Power	
  Gen	
                           • Co-­‐Gen	
  Plants	
                              • 	
  Industrial	
                                     • 	
  Large	
  	
                                     • 	
  Data	
  Centers	
  
                                                                                                                                                                                                   • 	
  Underground	
                               • 	
  ExtracIon	
                    • 	
  Wastewater	
  &	
  
                             • 	
  Technical	
  Work	
                                • 	
  Mobile	
  Appl.	
                                               • 	
  Vineyards	
                                                                                                                                                          • 	
  Transmission	
                           • 	
  Wind	
  Farms	
                               	
  	
  FaciliIes	
                                    • 	
  Enterprises	
                                   • 	
  Carriers	
  
                                                                                                                                                                                                                                                     • 	
  Transport	
  /	
  	
           	
  	
  	
  	
  Sewage	
  
                             • 	
  Services	
                                                                                                               • 	
  Livestock	
  Mgt.	
              	
  	
  	
  Mines	
                                                                                                                 	
  	
  	
  Sys	
                                                                                  • 	
  Commercial	
  
                                                                                                                                                                                                                                                     	
  	
  	
  	
  Pipelines	
                                                                                                      • 	
  Solar/PV	
  	
                                                                                       • 	
  SMBs	
  	
                                      • 	
  ISPs	
  
                                                                                                                                                                                                   • 	
  Transport	
                                                                      • 	
  Reservoirs	
                           • 	
  DistribuIon	
  	
  	
  	
  	
                                                                	
  	
  FaciliIes	
  	
  
                                                                                                                                                            • 	
  IrrigaIon	
  
                                                                                                                                                                                                                                                                                          • 	
  Rivers	
                                                                                                                                  • 	
  ResidenIal	
  




                             Devices:	
  Cell	
  Phones,	
  Smart	
  Phones,	
  TV,	
  	
                                                                   Devices:	
  	
  	
  Agricultural	
  Equip,	
  Mining	
  Machinery,	
  Drilling	
  Equip,	
  Pipelines,	
                                                                  Devices:	
  Turbines,	
  Generators,	
  Sub-­‐StaIons,	
  UPS,	
                                                                                          Devices:	
  Servers,	
  Storage,	
  PCs,	
  Routers	
  
                             	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  PCs,	
  Netbooks,	
  Imaging,	
  etc.	
                        	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Tanks,	
  Watering	
  Equipment,	
  Tags,	
  etc.	
  	
  	
  	
                                       	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Meters,	
  Breakers,	
  Sockets,	
  Switches	
  	
  etc.	
                                	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Switches,	
  Telephony,	
  etc.	
  


          Process	
                                Forming	
                                               Discrete	
                                        Distribu)on	
  / 	
                                          On-­‐Road	
   	
                                Off-­‐Road	
                                 Non-­‐
                                                                                                                                                                                                                                                                                                                          	
                                       Transport	
  
                                                                                                                                                                                                                                                                                                                                                                             	
                                                                    Homeland	
    	
                                                 Emergency	
  	
                                              Na)onal	
  &	
  Regional	
  
     	
  Industries   	
                          Conver)ng    	
                                          Assembly     	
                                   Supply	
  Chain	
                                            Vehicles 	
                                     Vehicles 	
                               Vehicular  	
                                Infrastructure   	
                                                                Security	
                                                       Services
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            	
                                                        Defense      	
  


•	
  Petrochemical	
                      • 	
  Cement	
                                                                                              • 	
  Dist.	
  Centers	
                           • 	
  Consumer	
  	
                                    • 	
  ConstrucIon	
                         • Air	
                                    • 	
  Traffic	
  Mgmt	
  
                                                                                                 • 	
  Machinery	
                                                                                                                                                                                                                                                                                                                • 	
  Border	
  Mgmt	
                                           • 	
  Law	
  Enforcement	
  
                                                                                                                                                                                                                                                                                                                                                        • 	
  Fleet	
  Mgmt	
                                                                                                                                                                                                   • 	
  Ground	
  
• 	
  Hydrocarbons	
                      • 	
  Glass	
                                          • 	
  Transport	
  Equip	
                           • 	
  Warehouses	
                                 • 	
  Commercial	
                                      • 	
  Agricultural	
                        • Rail	
  
                                                                                                                                                                                                                                                                                                                                                                                                                                  • 	
  TransportaIon	
                                            • 	
  Emergency	
  Healthcare	
                                              • 	
  Sea	
  
• 	
  Food/Beverage	
                     • 	
  Metals	
  	
  	
                                                                                      • 	
  Mat’l	
  Handling	
                          • 	
  Specialty	
                                       • 	
  Industrial	
                          • Transit	
                                • 	
  Toll	
  Systems	
  
                                                                                                 • 	
  Electrical	
  Equip	
                                                                                                                                                                                                                                                                                                      • 	
  Infrastructure	
                                           • 	
  Fire	
  
                                                                                                                                                                                                                                                                                                                                                        • 	
  Insurance	
  Services	
                                                                                                                                                                                           • 	
  Air	
  
• 	
  Bio/Pharma	
                        • 	
  Paper	
                                          • 	
  Electronics	
                                  • 	
  Conveyance	
                                                                                                                                     • Marine	
  	
                                                                                                                                                                        • 	
  Pubic	
  Venues	
                                                      • 	
  Supply	
  Chain	
  
                                          • 	
  Rubber/PlasIcs	
                                 • 	
  Appliances	
  
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • 	
  Command-­‐Control	
  
                                          • 	
  Metalworking	
                                   • 	
  Instruments	
  



Devices:	
  	
  Pumps,	
  Valves,	
  Vats,	
  Conveyors,	
  Pipelines,	
  Motors,	
  Drives,	
  ConverIng,	
                                                                                            Devices:	
  Vehicles,	
  Trains,	
  Ships,	
  Planes,	
  Signage,	
  Tolls,	
  Tracking	
  Sensors	
                                                                                                                   Devices:	
  GPS	
  Systems,	
  Radar	
  Systems,	
  Vision/Cameras,	
  Environmental	
  
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  FabricaIon,	
  Assembly/Packaging,	
  Vessels/Tanks,	
  etc.	
                                                                      	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  RF	
  Tags,	
  Parking	
  Meters,	
  Cameras,	
  etc.	
                                                                                                	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Sensors,	
  Vehicles,	
  Weaponry,	
  Fencing,	
  NavigaIon/Guidance	
  Sys,	
  etc.	
  




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Source: Harbor Research, Inc.

•	 Retail: Scanners & Registers, Lighting & Refrigeration Systems

•	 Security	&	Infrastructure: Homeland Security, Emergency Services, National Infra-
   structure

•	 Transportation: Vehicles, Airplanes, & Transport Systems

•	 Information	Technology	&	Network	Infrastructure: Switches, Servers, Storage

•	 Resources: Mining Equipment, Drilling Equipment, Pipelines, Agricultural Equip-
   ment

•	 Consumer/Professional: Appliances/White Goods, Office Equipment, Home Elec-
   tronics

Device manufacturers and service companies have important roles to play, and will be the
major enablers of smart products, solutions, and systems. Virtually all markets will offer new


                         Harbor Research
                         © 2010 Harbor Research, Inc. All rights reserved                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       9
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                8
The Emergence of Smart Business
Forecast Report Overview




opportunities to manufacturers, as intelligence will be embedded in categories ranging
from machinery and building control systems on down to consumer goods.

This study examines the current state of intelligent device networking, a key element of
the Pervasive Internet and Smart Systems. It also provides a perspective on emerging op-
portunities and threats. More importantly, this research outlines how adopters are using
device networking solutions, and how device manufacturers and related service companies
should leverage networking technologies to gain advantages.

Harbor’s forecast provides comprehensive coverage of the intelligent device networking
market. We have interviewed technology suppliers, product OEMs, service providers, ex-
perts and users to obtain a complete perspective on the marketplace. This report provides
an analysis and forecast that includes all intelligently networked devices, covering both
Fixed (Wireline) and Wireless technologies, including :

•	 Wireline	: Ethernet; Industrial Ethernet

•	 Wireless	WAN	/	Cellular : GSM/GPRS/EDGE, CDMA/EV-DO, 3G/4G, Satellite,
   etc.

•	 Wireless	LAN : IEEE 802.11, WiMax

•	 Wireless	PAN : Bluetooth, 802.15.4 (including Zigbee), Z-Wave, RFID, etc.

We believe that this holistic approach is now essential both for suppliers looking to maxi-
mize their returns in this market and for adopters/users to take account of the different
options available to them.

FORECAST METHODOLOGY
Harbor combines a comprehensive top-down and bottom-up approach to ensure the
most accurate forecast possible. The figure below outlines our methodology:
Device populations have been determined from government and industry statistics on
output and installed base across the wide range of devices monitored. Data for over 300
device categories in Harbor’s eight ten Venues have been researched in this way in order
to cover all areas where Harbor sees potential Pervasive Internet and Smart Services op-
portunities.
Networking penetration of these device populations has been assessed from Harbor’s
own estimates, based on input received from device suppliers and industry comparisons
across device segments. At the same time, device categories have also been assessed for
the alternative technologies that might be used to connect and integrate them. This ap-
proach seeks to minimize the potential for double counting of devices using different
connection technologies. The results of these assessments have then been cross-checked



     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                         9
The Emergence of Smart Business
Forecast Report Overview




against actual connection module shipment data received from module suppliers, device
suppliers and some distributors.
•   Enablement revenue is derived from a combination of the connection module ship-
    ments, their average selling price and the costs for Hardware, Software and Engineering.
•   Network and Carrier Services Revenue is derived from the installed base of modules
    actually connected rather than those shipped and the Average Revenue Per Device
    (ARPD). In turn, ARPD has been determined for each application as a percentage of
    Managed Services revenue applicable for each application.
•   Managed Services revenue is derived by applying an average monthly service charge
    factor to device populations, based on individual venue and customer segment consider-
    ations derived from industry interviews.

M2M & Smart Systems Forecast Model & Methodology




                                                                        Source: Harbor Research, Inc.



Ultimately, we integrate our forecast and findings into our analysis of business models, chan-
nels to market and customer buying behavior - both at the OEM stage of the value and
delivery chain as well as in the context of end customer segments.




     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                                   10
                                                                                                        11
The Emergence of Smart Business
Forecast Report Overview




About Harbor Research
Harbor Research has more than twenty years of experience providing strategic
consulting and research services to product manufacturers, services organizations
and core technology clients. Harbor’s strategy and business development work is
organized around emergent and disruptive opportunities, with a unique focus on
the impact of the Pervasive Internet—the use of the Internet to accomplish global
device networking that will revolutionize business by unleashing entirely new modes
of system optimization, customer relationships, and service delivery - what we call
“Smart Systems & Business.”

Contacts:
Mark Ritorto
Senior Analyst
415.615.9400 X21

Harbor Research, Inc.
US: 800.595.9368 415.615.9400
Europe - Zurich +41 435 000 15
Email: info@harborresearch.com
Website: www.harborresearch.com




      Harbor Research
      © 2010 Harbor Research, Inc. All rights reserved                                11
The Emergence of Smart Business
Forecast Report Overview




Table of Contents                                        3.2 DEVICE SHIPMENTS & REVENUES

Report Overview                                          3.3 OVERALL MARKET POTENTIAL
                                                         - INTERNET ENABLEMENT
Executive Summary                                        - NETWORK & CARRIER SERVICES
                                                         - SYSTEM APPLICATIONS REVENUE STREAMS
Chapter 1: Introduction & Market Trends                  - VALUE-ADDED SERVICES REVENUE STREAMS

1.1 SMART BUSINESS                                       3.4 VENUE BASED VALUE-ADDED SERVICES
 - THE ADVENT OF SMART SYSTEMS AND BUSINESS              - INDUSTRIAL
- INTERNET OF THINGS MEETS THE INTERNET OF PEOPLE        - ENERGY & POWER
- NEW VALUE AT THE INTERSECTION                          - BUILDINGS & HOMES
                                                         - RETAIL
1.2 TECHNOLOGY TRENDS & FORCES                           - TRANSPORTATION
- SMART SYSTEMS DRIVES NEW WAVE OF GROWTH                - IT & NETWORK EQUIPMENT
- SMART SYSTEMS OPPORTUNITIES                            - HEALTHCARE & MEDICAL
- NETWORK DRIVERS FOR SMART SYSTEMS                      - SAFETY & SECURITY
- ANALYTICS DRIVES REAL-TIME VALUE                       - RESOURCES & INFRASTRUCTURE
- VALUE-ADDED APPLICATION [MANAGED] SERVICES             - CONSUMER/PROFESSIONAL

1.3 SUPPLIER TRENDS & FORCES                             Chapter 4: Business Models
- SUPPLIER TRENDS, FORCES & MARKET DEVELOPMENT
- WINNERS & LOSERS                                       4.1 EVOLUTION OF CONNECTED BUSINESS MODELS
- CONSUMER ARENA DRIVING NEW SUCCESS MODEL               - PROGRESS TOWARDS SMART BUSINESS
                                                         - THREE FAMILIES OF OPPORTUNITIES
1.4 ADOPTER TRENDS & FORCES
- ADOPTION BEGINS TO SHIFT TO END SEGMENTS               4.2 SMART BUSINESS MODELS
                                                         - SOLO OPPORTUNITY MODELS
1.5 SOCIO-ECONOMIC TRENDS & FORCES                       - TEAM OPPORTUNITY MODELS
1.6 SUMMARY                                              - BENEFITS OF SMART SYSTEMS
Chapter 2: Venue and Application Analysis
                                                         4.3 SMART BUSINESS CASE EXAMPLES
2.1 VENUE SEGMENTATION                                   - NIKE
                                                         - AMAZON KINDLE & E-READERS
2.2 VENUE ANALYSIS                                       - ZIPCAR
- ENERGY VENUE                                           - GOOGLE POWER METER
- BUILDINGS VENUE                                        - PALANTIRI SYSTEMS
- INDUSTRIAL VENUE                                       - PACHUBE
- HEALTHCARE VENUE                                       - CISCO SMART CONNECTED COMMUNITIES
- RETAIL VENUE
- SAFETY & SECURITY VENUE                                4.4 IMPACT OF COLLABORATION ON SMART BUSINESS
- TRANSPORTATION VENUE
- IT & NETWORKS VENUE                                    Chapter 5 - Conclusions
 - RESOURCE VENUE
- CONSUMER AND PROFESSIONAL VENUE                        5.1 TECHNOLOGY CHALLENGES
                                                         - TECHNOLOGY HURDLES
2.2 VENUE ANALYSIS CONCLUSIONS
                                                         5.2 BUSINESS CHALLENGES
Chapter 3: Worldwide Device Networking                   - BUSINESS INHIBITORS
Market Forecast 2010 - 2014
                                                         5.3 SMART SYSTEMS INNOVATION POTENTIAL
3.1 FORECAST MODEL                                       - INNOVATION ACCELERATORS




     Harbor Research
      © 2010 Harbor Research, Inc. All rights reserved                                                   13
                                                                                                         12
The Emergence of Smart Business
Forecast Report Overview



Appendix A Networking Technology Perspective
Appendix B: Supplier Profiles
Appendix C: Forecast Charts & Tables

Total Devices Shipped by Technology: Worldwide          WPAN Device Revenue by Venue: Europe
Total Devices Shipped by Technology: Worldwide          WPAN Devices Shipped by Venue: AsiaPac
Total Device Revenue by Technology: Worldwide           WPAN Device Revenue by Venue: AsiaPac
Total Device Revenue by Region: Worldwide               WPAN Devices Shipped by Venue: ROW
Total Devices Shipped by Venue: Worldwide               WPAN Device Revenue by Venue: ROW
Total Device Revenue by Venue: Worldwide                Network Services Revenue by Venue: Worldwide
Wireline Devices Shipped by Venue: Worldwide            Network Services Revenue by Venue: North America
Wireline Device Revenue by Venue: Worldwide             Network Services Revenue by Venue: Europe
Wireline Devices Shipped by Venue: North America        Network Services Revenue by Venue: AsiaPac
Wireline Device Revenue by Venue: North America         Network Services Revenue by Venue: ROW
Wireline Devices Shipped by Venue: Europe               System Applications Revenue by Venue: Worldwide
Wireline Device Revenue by Venue: Europe                System Applications Revenue by Venue: North America
Wireline Devices Shipped by Venue: AsiaPac              System Applications Revenue by Venue: Europe
Wireline Device Revenue by Venue: AsiaPac               System Applications Revenue by Venue: AsiaPac
Wireline Devices Shipped by Venue: ROW                  System Applications Revenue by Venue: ROW
Wireline Device Revenue by Venue: ROW                   Value-Added Services Revenue by Venue: Worldwide
WWAN Devices Shipped by Type: Worldwide                 Value-Added Services Revenue by Venue: North America
WWAN Device Revenue by Type: Worldwide                  Value-Added Services Revenue by Venue: Europe
WWAN Devices Shipped by Venue: Worldwide                Value-Added Services Revenue by Venue: AsiaPac
WWAN Device Revenue by Venue: Worldwide                 Value-Added Services Revenue by Venue: ROW
WWAN Devices Shipped by Venue: North America            Pervasive Internet Revenue Streams: Worldwide
WWAN Device Revenue by Venue: North America             Pervasive Internet Revenue Comparison: Worldwide
WWAN Devices Shipped by Venue: Europe                   Internet Enablement Revenue Streams: Worldwide
WWAN Device Revenue by Venue: Europe                    Network Services Revenue Streams: Worldwide
WWAN Devices Shipped by Venue: AsiaPac                  System Applications Revenue Streams: Worldwide
WWAN Device Revenue by Venue: AsiaPac                   Value-Added Services Revenue Streams: Worldwide
WWAN Devices Shipped by Venue: ROW                      Industrial Venue Revenue Streams: Worldwide
WWAN Device Revenue by Venue: ROW Exhibit               Value-Added Service Revenues for Industrial: Worldwide
WLAN Devices Shipped by Venue: Worldwide                Energy Venue Revenue Streams: Worldwide
WLAN Device Revenue by Venue: Worldwide                 Value-Added Service Revenues for Energy: Worldwide
WLAN Devices Shipped by Venue: North America            Buildings Venue Revenue Streams: Worldwide
WLAN Device Revenue by Venue: North America             Value-Added Service Revenues for Retail: Worldwide
WLAN Devices Shipped by Venue: Europe                   Transportation Venue Revenue Streams: Worldwide
WLAN Device Revenue by Venue: Europe                    Value-Added Service Revenues for Transportation: Worldwide
WLAN Devices Shipped by Venue: AsiaPac                  IT & Networks Venue Revenue Streams: Worldwide
WLAN Device Revenue by Venue: AsiaPac                   Value-Added Service Revenues for IT & Networks: Worldwide
WLAN Devices Shipped by Venue: ROW                      Healthcare Venue Revenue Streams: Worldwide
WLAN Device Revenue by Venue: ROW                       Value-Added Service Revenues for Healthcare: Worldwide
WPAN Devices Shipped by Type: Worldwide                 Security/Safety Venue Revenue Streams: Worldwide
WPAN Device Revenue by Type: Worldwide                  Value-Added Service Revenues for Security/Safety: Worldwide
WPAN Devices Shipped by Venue: Worldwide                Resources Venue Revenue Streams: Worldwide
WPA Device Revenue by Venue: Worldwide                  Value-Added Service Revenues for Resources: Worldwide
WPAN Devices Shipped by Venue: North America            Consumer/Professional Venue Revenue Streams: Worldwide
WPAN Device Revenue by Venue: North America             Value-Added Service Revenues for Consumer/Prof: Worldwide
WPAN Devices Shipped by Venue: Europe




     Harbor Research
     © 2010 Harbor Research, Inc. All rights reserved                                                            13

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Harbor Research - Machine-to-Machine (M2M) & Smart Systems Market Forecast

  • 1. THE EMERGENCE OF SMART BUSINESS RESEARCH REPORT Machine-To-Machine (M2M) & Smart Systems Forecast 2010-2014 Harbor’s market analysis on how networks of companies, customers, people and intelligent devices are driving the convergence of The Internet of Things and The Internet of People Harbor Research, Inc. SAN FRANCISCO | BOSTON | ZURICH
  • 2. The Emergence of Smart Business Forecast Report Overview T he Pervasive Internet and the new world of Smart Systems are ushering in an era where people, machines, devices, sensors, and businesses are all connected and able to interact with one another. As these previously disaggregated parties come together, new modes of collaboration and intelligence will abound fostering a trend that we call “Smart Business.” Machine- to-Machine communication (M2M) systems are merely the starting point. The development of the Pervasive Internet and the evolution toward Smart Business practices will enable a truly connected world. Inputs from machines, people, video streams, maps, newsfeeds, and sensors will be digitized and placed onto networks. This will lead to the convergence of the physical & virtual worlds, thus enabling collective awareness, creativity, and better decision making capabilities for societies that increasingly rely on real-time information and interactions. Many observers believe that this phenomenon will drive the largest growth opportunity in the history of business. Scope of Study The Pervasive Internet is a global technological opportunity of unprecedented proportions. The technology behind the Pervasive Internet will ignite an era of Smart Systems and Busi- ness that radically transforms customer service, resources allocation, and productivity in gen- eral. In this new era manufactured objects, general infrastructure, people, and businesses will be connected and communicating constantly. As the world becomes connected, societies and governments alike will be able to respond to the needs of both citizens and assets in real time. The Internet is the primary driving force on the path to a truly connected world. First, the Internet gave us e-mail and the Web. Then came e-commerce and the ability of consumers and businesses to quickly purchase items, as well as the ability of retailers and businesses to build close relationships based on customer preferences. But the next phase will be much more profound. It includes shared and secure Internet ac- cess for device interaction—in many cases with no human intervention at all—as well as network-based services such as status monitoring, usage tracking, consumable replenishing, and automated repair. These new services are based upon the convergence of networks, em- bedded computing, control, content, and sensor feedback. Our analysis and research is focused on understanding the strategic business implications of growth within the emerging Smart Systems arena. The research addresses the following key questions: Harbor Research © 2010 Harbor Research, Inc. All rights reserved 3 2
  • 3. The Emergence of Smart Business Forecast Report Overview • What key forces are impacting adoption of Smart Systems, M2M and connected product solutions? • What devices and applications are driving intelligent device networking? • What are the business models manifesting in each major vertical market and venue? • What is the size and growth rate of the opportunity? • What managed services opportunities are developing by vertical market? • Which enabling technologies are gaining ground? • How will software architecture and tools evolve over the next several years? • What issues and hurdles are there in the market impacting adoption of Smart Services? Smart Systems Opportunity Scale Source: Harbor Research, Inc. PRONOUNCEMENTS ABOUT FUTURE SCALE OF OPPORTUNITY Many IT equipment suppliers and wireless carriers have made recent pronouncements con- cerning the scale of the Internet of Things. Our analysis points to the many significant chal- lenges in realizing such growth: • Challenges in adopting new business models and making the business case to support investments. • Complex services and solution delivery eco-systems that require businesses to relate in new and different ways. Harbor Research © 2010 Harbor Research, Inc. All rights reserved 3
  • 4. The Emergence of Smart Business Forecast Report Overview • Anticipation of new product, service and systems innovation modes that are not widely adopted today. • Fragmented M2M and Smart Systems vendor landscape that is not yet well aligned with the larger IT infrastructure and carrier players. • Requirement for vertically-focused solutions from a supply-side world that historically has been far more horizontally driven. Though their business models are intermingling today, all of the major categories of solution suppliers (or as we like to call them - “The IT and Network Arms Merchants”) have histori- cally operated within well-established business models that reflected the distinctive compe- tencies that each group believed to be at its core. The advent of Smart Systems is causing a blurring between these legacy business models forcing all the major suppliers to re-think their strategies. We do strongly believe that the Pervasive Internet and Smart Systems market opportunity is reaching a new level of maturity; there is now substantially greater recognition of the techno- logical capabilities and the potential benefits of connecting devices to the Internet than there was even 2 years ago. This represents a whole new generation of technology innovation and, if history repeats itself because certain conditions repeat, we expect to see a significant wave of growth in Smart Systems. HARBOR’S COVERAGE IS EVOLVING We have used the term “Pervasive Internet” and “Machine to Machine (M2M)” to describe the technologies that drive integration of all forms of manufactured devices and machines whether they be fixed, movable or fully mobile. Historically, Harbor’s coverage of the “con- nected device” opportunity excluded mobile IT appliances and telephony devices. Back in 2002, we believed that while these device segments represented a market that would certainly grow to use the Internet extensively for improved data collection and information sharing between people (it represented, at that time, a world of “eyeballs and keyboards” where the Web’s central value derived more from people than from machines), it was far from clear how fast these two worlds would converge to create products such as the blood glucose monitoring application for the iPhone. In 2001 the concept of a smartphone, such as the iPhone, was still some years away from reality. Well that has all changed. Over the past five to eight years a blurring of lines has occurred between human or IT-centric and machine-centric technologies and systems. In this report, we are introducing a new concept -- Smart Systems and Business -- In the Smart Systems world, device/machine con- nectivity becomes significantly more universal and segments into two broad groups: Harbor Research © 2010 Harbor Research, Inc. All rights reserved 5 4
  • 5. The Emergence of Smart Business Forecast Report Overview • Information Technology-Centric (IT) Devices: This group includes mobile IT de- vices such as phones, smartphones, tablets, as well as fixed IT devices and equipment such as desktop PCs, servers, switches, etc; • Machine [Non-IT] -Centric Devices: This group includes all other smart networked equipment -- any intelligent device (e.g. sensors, instruments, controllers, etc.) or intel- ligent machine (regardless of whether it is an electronic or electro-mechanical machine -- appliances, vehicles, HVAC systems, power equipment, diagnostic equipment, vending machine, etc.). Smart Systems Scope Intelligent Device Hierarchy 2010 Mobile Phones, Smart Phones, Notebooks Mobile Terminals Mobile IT Appliances, Tablets, Mobile 1.4 billion* Telephony & Terminal Media Players Info Devices Will Become Devices Integrated Into Desktop PCs Servers/Storage Systems That Include Routers/Switches/Gateways 1.0 billion* Signals & Data From Printers/Imaging Static Info Game/Media Equipment & Players Appliances Sensors, Machines & Equipment Consumer/Commercial Vehicles Off-Highway Vehicles Air/Rail/Transit/Marine .25 Billion** Navigation Systems Approximately 130 Mobile Healthcare Devices Mobile Devices Million Machine- Building Equipment Centric Devices Retail/Vending/POS/ATMs Expected To Be Industrial Machinery Healthcare Equipment 5 billion** Integrated in 2010 Power Distribution Equip Static Devices Infrastructure Equipment Controllers Sensors, 20 billion Instruments Meters To Avoid Double Counting, Microprocessors Embedded Devices Embedded Components Are A Microcontrollers Sub-Set Of The Overall Opportunity * 2010 IT-Centric Device Shipments ** 2010 Machine-Centric Device Enablement Potential Source: Harbor Research, Inc. In this report, we are not attempting to cover the many IT terminal/appliance categories individually -- there are just too many. What we are intending to do is cover those IT device segments that are on the boundary of machine and IT infrastructure integration as well as the impact IT devices are beginning to have on the user and the user experience (e.g. using your smartphone to check on power/energy usage or to schedule a ZipCar rental). Today, we believe the true convergence of IT devices with machines and, more importantly, the integration of these two worlds is now taking shape. Thus, we chose the concept of Smart Systems to characterize the full measure of the evolving “connected” opportunity. Harbor Research © 2010 Harbor Research, Inc. All rights reserved 5
  • 6. The Emergence of Smart Business Forecast Report Overview SMART SYSTEMS TRENDS & DYNAMICS Harbor believes Smart Systems will drive a multi-year wave of growth based on the conver- gence of innovations in software architectures; back-room data center operations; wireless and broadband communications; and smaller, more powerful, and more numerous client devices connected to personal, local and wide-area networks. We expect the rate of invest- ment in Smart Systems to be measurably higher than in maturing IT systems and network infrastructure and occur in four key areas: • Smart System Platform Technology To Integrate Systems and Applications • Purpose-Built Device & Hardware Innovation To Support New User Experiences • Business Process Integration • Value-Added Application Services Beyond mobile phones, laptops and other traditional IT devices connected to networks, the scope of what is considered an “intelligent” device is expanding as more and different prod- ucts get connected to the network. Health monitoring devices on the body, telematics in vehicles for safety, automated service scheduling, and driver convenience as well as smart grid equipment and meters that can monitor real-time electricity usage – all delivered via the Internet. We are entering an age of enhanced asset awareness, where real-world assets (e.g. HVAC systems, shipping containers, shop-floor machinery, pipelines, etc.) can monitor events, execute rules, and automate business processes. Intelligent device communication is converging with IT and network infrastructure to enable vast improvements in efficiency and productivity. The technology and market forces that are driving business and government interest in smart machine to machine (M2M) solutions are many, including: • The cost of devices will continue to plummet with advances in silicon, packaging and integration technology making them network fluent and affordable to virtually everyone; • A ubiquitous broadband infrastructure (significantly ahead of most predictions) has been developed, which is enabling virtually everyone in the developed world to be connected to other users, to new types of sensors and instruments and to massive processing and storing infrastructure; • Carriers are dramatically reducing their monthly fees for cellular device links -- most network service providers worldwide have deployed IP networks on a broad scale and the wider availability of 3G wireless networks is fostering market adoption; • The storage capacity and processing power of computers will continue to grow expo- nentially and enable a whole new generation of infrastructure to perform an enormous Harbor Research © 2010 Harbor Research, Inc. All rights reserved 7 6
  • 7. The Emergence of Smart Business Forecast Report Overview variety of data management tasks - both carriers and IT infrastructure providers are working to develop software and data management platforms to support new man- aged services; • The miniaturization of components and the integration of a broad range of sensing capabilities into intelligent devices will continue to provide a variety of features that support the integration of digital information and sensory inputs from the physical world, thus broadening the range of possible applications available; • The continuing developments of IT systems, the Internet and of next generation tele- communication network architecture will enable movement and analysis of very large amounts of information (much beyond traditional communication and messaging) which will extend the value of managed services; • Finally, technology advances have improved and simplified system and user interfaces and interactions which, in turn, is driving adoption of new business models. Tied to these market and technology forces are a number of regulatory and economic stimulus efforts such as smart grid and healthcare initiatives that are also fostering in- creased market adoption. End customers participation in the design, development and management of Smart Systems will rise during this next period of market development: • End users will emerge as a force and place greater emphasis on vertical solutions that readily integrate with enterprise systems, innovative solution design and more effective service and support. • Demand for adaptability, agility and features will grow. Innovation in product and systems design will be heavily rewarded. Customers will creatively apply and integrate technology in their work and personal lives to unimaginable levels. • Customers will require a tailored experience from service providers. Not only do cus- tomers expect suppliers to anticipate their specific needs, they will want suppliers to project an experience for them -- Smart Systems are driving home the importance of user experience. STUDY COVERAGE Harbor segments the market into ten key venues as listed below. We analyze opportunities within each venue and related customer segments. Our coverage includes over 300 specific devices and machine types central to the M2M community. • Buildings / Facilities / Homes: HVAC /Environmental Systems, Access Control Systems, Transport Systems, Lighting Harbor Research © 2010 Harbor Research, Inc. All rights reserved 7
  • 8. The Emergence of Smart Business Forecast Report Overview • Energy & Power: Power Generation, Distributed Generators, Alternative Energy, LV Power Devices • Industrial: Automation & Control Equipment, Capital Equipment • Healthcare: Medical Devices Venue Map For Connected Intelligent Devices Pervasive  Internet  &  Smart  Services    Resources      Energy    Industrial    Buildings        Retail       Healthcare    IT  &  Networks   Transporta)on   Safety  &  Security    Consumer/Professional   Stores   Hospitality   Services          Ins)tu)onal    Commercial   Industrial   Home   Care                 Personal   Research   •   Groceries   •   Hotels   •   Financial   •   EducaIon   •   Office   •   Process  Plants   •   ResidenIal   •   Hospitals   •   In-­‐Vivo   •   Drug  R&D     •   Healthcare   •   Retail   •   Factories   •   MulI-­‐Family   •   Clothing   •   Restaurants   •   Fuel  StaIons   •   Nursing  Homes     •   TesIng  Devices   •   Research  Labs     •   Mobile   •   Electronics   •   Bars/Clubs   •   Cinema   •   Stadiums/Venues   •   Hospitality   •   Warehouse   •   Mobile  POC   •   Monitoring       •   DiagnosIc  Lab   •   Furnishings   •   Cafes   •   Exercise   •   Airports  &  StaIons   •   Services   •   Laboratories   •   Clinics   •   Hardware   •   Cleaning   •   Campuses   •   Doctor  Office   •   Convenience   Devices:      POS  Terminals,  Kiosks,  Cash  Registers,   Devices:      HVAC,  VerIcal  Transport,  Fire  &  Safety,  LighIng,  Security,     Devices:  Imaging,  DiagnosIcs,  Monitor,  Surgical  Eqp                                    Vending  Machines,  Signs,  Tags,  etc.                                      Access  Control,  etc.                                  Beds,  Pumps,  Implants,  Test  Sys,  etc.       Professional   Consumer   Agriculture        Mining             Oil/Gas     Water     Supply    Alterna)ve      Demand     Enterprise Data Centers •   Office  Work   •   Home  AutomaIon   •   Farms   •   Surface  Mines   •   ExploraIon   •   Water  System   •   Power  Gen   • Co-­‐Gen  Plants   •   Industrial   •   Large     •   Data  Centers   •   Underground   •   ExtracIon   •   Wastewater  &   •   Technical  Work   •   Mobile  Appl.   •   Vineyards   •   Transmission   •   Wind  Farms      FaciliIes   •   Enterprises   •   Carriers   •   Transport  /            Sewage   •   Services   •   Livestock  Mgt.        Mines        Sys   •   Commercial          Pipelines   •   Solar/PV     •   SMBs     •   ISPs   •   Transport   •   Reservoirs   •   DistribuIon              FaciliIes     •   IrrigaIon   •   Rivers   •   ResidenIal   Devices:  Cell  Phones,  Smart  Phones,  TV,     Devices:      Agricultural  Equip,  Mining  Machinery,  Drilling  Equip,  Pipelines,   Devices:  Turbines,  Generators,  Sub-­‐StaIons,  UPS,   Devices:  Servers,  Storage,  PCs,  Routers                                  PCs,  Netbooks,  Imaging,  etc.                                    Tanks,  Watering  Equipment,  Tags,  etc.                                        Meters,  Breakers,  Sockets,  Switches    etc.                                  Switches,  Telephony,  etc.   Process   Forming   Discrete   Distribu)on  /   On-­‐Road     Off-­‐Road   Non-­‐   Transport     Homeland     Emergency     Na)onal  &  Regional    Industries   Conver)ng   Assembly   Supply  Chain   Vehicles   Vehicles   Vehicular   Infrastructure   Security   Services   Defense   •  Petrochemical   •   Cement   •   Dist.  Centers   •   Consumer     •   ConstrucIon   • Air   •   Traffic  Mgmt   •   Machinery   •   Border  Mgmt   •   Law  Enforcement   •   Fleet  Mgmt   •   Ground   •   Hydrocarbons   •   Glass   •   Transport  Equip   •   Warehouses   •   Commercial   •   Agricultural   • Rail   •   TransportaIon   •   Emergency  Healthcare   •   Sea   •   Food/Beverage   •   Metals       •   Mat’l  Handling   •   Specialty   •   Industrial   • Transit   •   Toll  Systems   •   Electrical  Equip   •   Infrastructure   •   Fire   •   Insurance  Services   •   Air   •   Bio/Pharma   •   Paper   •   Electronics   •   Conveyance   • Marine     •   Pubic  Venues   •   Supply  Chain   •   Rubber/PlasIcs   •   Appliances   •   Command-­‐Control   •   Metalworking   •   Instruments   Devices:    Pumps,  Valves,  Vats,  Conveyors,  Pipelines,  Motors,  Drives,  ConverIng,   Devices:  Vehicles,  Trains,  Ships,  Planes,  Signage,  Tolls,  Tracking  Sensors   Devices:  GPS  Systems,  Radar  Systems,  Vision/Cameras,  Environmental                                    FabricaIon,  Assembly/Packaging,  Vessels/Tanks,  etc.                                  RF  Tags,  Parking  Meters,  Cameras,  etc.                                  Sensors,  Vehicles,  Weaponry,  Fencing,  NavigaIon/Guidance  Sys,  etc.   Source: Harbor Research, Inc. • Retail: Scanners & Registers, Lighting & Refrigeration Systems • Security & Infrastructure: Homeland Security, Emergency Services, National Infra- structure • Transportation: Vehicles, Airplanes, & Transport Systems • Information Technology & Network Infrastructure: Switches, Servers, Storage • Resources: Mining Equipment, Drilling Equipment, Pipelines, Agricultural Equip- ment • Consumer/Professional: Appliances/White Goods, Office Equipment, Home Elec- tronics Device manufacturers and service companies have important roles to play, and will be the major enablers of smart products, solutions, and systems. Virtually all markets will offer new Harbor Research © 2010 Harbor Research, Inc. All rights reserved 9 8
  • 9. The Emergence of Smart Business Forecast Report Overview opportunities to manufacturers, as intelligence will be embedded in categories ranging from machinery and building control systems on down to consumer goods. This study examines the current state of intelligent device networking, a key element of the Pervasive Internet and Smart Systems. It also provides a perspective on emerging op- portunities and threats. More importantly, this research outlines how adopters are using device networking solutions, and how device manufacturers and related service companies should leverage networking technologies to gain advantages. Harbor’s forecast provides comprehensive coverage of the intelligent device networking market. We have interviewed technology suppliers, product OEMs, service providers, ex- perts and users to obtain a complete perspective on the marketplace. This report provides an analysis and forecast that includes all intelligently networked devices, covering both Fixed (Wireline) and Wireless technologies, including : • Wireline : Ethernet; Industrial Ethernet • Wireless WAN / Cellular : GSM/GPRS/EDGE, CDMA/EV-DO, 3G/4G, Satellite, etc. • Wireless LAN : IEEE 802.11, WiMax • Wireless PAN : Bluetooth, 802.15.4 (including Zigbee), Z-Wave, RFID, etc. We believe that this holistic approach is now essential both for suppliers looking to maxi- mize their returns in this market and for adopters/users to take account of the different options available to them. FORECAST METHODOLOGY Harbor combines a comprehensive top-down and bottom-up approach to ensure the most accurate forecast possible. The figure below outlines our methodology: Device populations have been determined from government and industry statistics on output and installed base across the wide range of devices monitored. Data for over 300 device categories in Harbor’s eight ten Venues have been researched in this way in order to cover all areas where Harbor sees potential Pervasive Internet and Smart Services op- portunities. Networking penetration of these device populations has been assessed from Harbor’s own estimates, based on input received from device suppliers and industry comparisons across device segments. At the same time, device categories have also been assessed for the alternative technologies that might be used to connect and integrate them. This ap- proach seeks to minimize the potential for double counting of devices using different connection technologies. The results of these assessments have then been cross-checked Harbor Research © 2010 Harbor Research, Inc. All rights reserved 9
  • 10. The Emergence of Smart Business Forecast Report Overview against actual connection module shipment data received from module suppliers, device suppliers and some distributors. • Enablement revenue is derived from a combination of the connection module ship- ments, their average selling price and the costs for Hardware, Software and Engineering. • Network and Carrier Services Revenue is derived from the installed base of modules actually connected rather than those shipped and the Average Revenue Per Device (ARPD). In turn, ARPD has been determined for each application as a percentage of Managed Services revenue applicable for each application. • Managed Services revenue is derived by applying an average monthly service charge factor to device populations, based on individual venue and customer segment consider- ations derived from industry interviews. M2M & Smart Systems Forecast Model & Methodology Source: Harbor Research, Inc. Ultimately, we integrate our forecast and findings into our analysis of business models, chan- nels to market and customer buying behavior - both at the OEM stage of the value and delivery chain as well as in the context of end customer segments. Harbor Research © 2010 Harbor Research, Inc. All rights reserved 10 11
  • 11. The Emergence of Smart Business Forecast Report Overview About Harbor Research Harbor Research has more than twenty years of experience providing strategic consulting and research services to product manufacturers, services organizations and core technology clients. Harbor’s strategy and business development work is organized around emergent and disruptive opportunities, with a unique focus on the impact of the Pervasive Internet—the use of the Internet to accomplish global device networking that will revolutionize business by unleashing entirely new modes of system optimization, customer relationships, and service delivery - what we call “Smart Systems & Business.” Contacts: Mark Ritorto Senior Analyst 415.615.9400 X21 Harbor Research, Inc. US: 800.595.9368 415.615.9400 Europe - Zurich +41 435 000 15 Email: info@harborresearch.com Website: www.harborresearch.com Harbor Research © 2010 Harbor Research, Inc. All rights reserved 11
  • 12. The Emergence of Smart Business Forecast Report Overview Table of Contents 3.2 DEVICE SHIPMENTS & REVENUES Report Overview 3.3 OVERALL MARKET POTENTIAL - INTERNET ENABLEMENT Executive Summary - NETWORK & CARRIER SERVICES - SYSTEM APPLICATIONS REVENUE STREAMS Chapter 1: Introduction & Market Trends - VALUE-ADDED SERVICES REVENUE STREAMS 1.1 SMART BUSINESS 3.4 VENUE BASED VALUE-ADDED SERVICES - THE ADVENT OF SMART SYSTEMS AND BUSINESS - INDUSTRIAL - INTERNET OF THINGS MEETS THE INTERNET OF PEOPLE - ENERGY & POWER - NEW VALUE AT THE INTERSECTION - BUILDINGS & HOMES - RETAIL 1.2 TECHNOLOGY TRENDS & FORCES - TRANSPORTATION - SMART SYSTEMS DRIVES NEW WAVE OF GROWTH - IT & NETWORK EQUIPMENT - SMART SYSTEMS OPPORTUNITIES - HEALTHCARE & MEDICAL - NETWORK DRIVERS FOR SMART SYSTEMS - SAFETY & SECURITY - ANALYTICS DRIVES REAL-TIME VALUE - RESOURCES & INFRASTRUCTURE - VALUE-ADDED APPLICATION [MANAGED] SERVICES - CONSUMER/PROFESSIONAL 1.3 SUPPLIER TRENDS & FORCES Chapter 4: Business Models - SUPPLIER TRENDS, FORCES & MARKET DEVELOPMENT - WINNERS & LOSERS 4.1 EVOLUTION OF CONNECTED BUSINESS MODELS - CONSUMER ARENA DRIVING NEW SUCCESS MODEL - PROGRESS TOWARDS SMART BUSINESS - THREE FAMILIES OF OPPORTUNITIES 1.4 ADOPTER TRENDS & FORCES - ADOPTION BEGINS TO SHIFT TO END SEGMENTS 4.2 SMART BUSINESS MODELS - SOLO OPPORTUNITY MODELS 1.5 SOCIO-ECONOMIC TRENDS & FORCES - TEAM OPPORTUNITY MODELS 1.6 SUMMARY - BENEFITS OF SMART SYSTEMS Chapter 2: Venue and Application Analysis 4.3 SMART BUSINESS CASE EXAMPLES 2.1 VENUE SEGMENTATION - NIKE - AMAZON KINDLE & E-READERS 2.2 VENUE ANALYSIS - ZIPCAR - ENERGY VENUE - GOOGLE POWER METER - BUILDINGS VENUE - PALANTIRI SYSTEMS - INDUSTRIAL VENUE - PACHUBE - HEALTHCARE VENUE - CISCO SMART CONNECTED COMMUNITIES - RETAIL VENUE - SAFETY & SECURITY VENUE 4.4 IMPACT OF COLLABORATION ON SMART BUSINESS - TRANSPORTATION VENUE - IT & NETWORKS VENUE Chapter 5 - Conclusions - RESOURCE VENUE - CONSUMER AND PROFESSIONAL VENUE 5.1 TECHNOLOGY CHALLENGES - TECHNOLOGY HURDLES 2.2 VENUE ANALYSIS CONCLUSIONS 5.2 BUSINESS CHALLENGES Chapter 3: Worldwide Device Networking - BUSINESS INHIBITORS Market Forecast 2010 - 2014 5.3 SMART SYSTEMS INNOVATION POTENTIAL 3.1 FORECAST MODEL - INNOVATION ACCELERATORS Harbor Research © 2010 Harbor Research, Inc. All rights reserved 13 12
  • 13. The Emergence of Smart Business Forecast Report Overview Appendix A Networking Technology Perspective Appendix B: Supplier Profiles Appendix C: Forecast Charts & Tables Total Devices Shipped by Technology: Worldwide WPAN Device Revenue by Venue: Europe Total Devices Shipped by Technology: Worldwide WPAN Devices Shipped by Venue: AsiaPac Total Device Revenue by Technology: Worldwide WPAN Device Revenue by Venue: AsiaPac Total Device Revenue by Region: Worldwide WPAN Devices Shipped by Venue: ROW Total Devices Shipped by Venue: Worldwide WPAN Device Revenue by Venue: ROW Total Device Revenue by Venue: Worldwide Network Services Revenue by Venue: Worldwide Wireline Devices Shipped by Venue: Worldwide Network Services Revenue by Venue: North America Wireline Device Revenue by Venue: Worldwide Network Services Revenue by Venue: Europe Wireline Devices Shipped by Venue: North America Network Services Revenue by Venue: AsiaPac Wireline Device Revenue by Venue: North America Network Services Revenue by Venue: ROW Wireline Devices Shipped by Venue: Europe System Applications Revenue by Venue: Worldwide Wireline Device Revenue by Venue: Europe System Applications Revenue by Venue: North America Wireline Devices Shipped by Venue: AsiaPac System Applications Revenue by Venue: Europe Wireline Device Revenue by Venue: AsiaPac System Applications Revenue by Venue: AsiaPac Wireline Devices Shipped by Venue: ROW System Applications Revenue by Venue: ROW Wireline Device Revenue by Venue: ROW Value-Added Services Revenue by Venue: Worldwide WWAN Devices Shipped by Type: Worldwide Value-Added Services Revenue by Venue: North America WWAN Device Revenue by Type: Worldwide Value-Added Services Revenue by Venue: Europe WWAN Devices Shipped by Venue: Worldwide Value-Added Services Revenue by Venue: AsiaPac WWAN Device Revenue by Venue: Worldwide Value-Added Services Revenue by Venue: ROW WWAN Devices Shipped by Venue: North America Pervasive Internet Revenue Streams: Worldwide WWAN Device Revenue by Venue: North America Pervasive Internet Revenue Comparison: Worldwide WWAN Devices Shipped by Venue: Europe Internet Enablement Revenue Streams: Worldwide WWAN Device Revenue by Venue: Europe Network Services Revenue Streams: Worldwide WWAN Devices Shipped by Venue: AsiaPac System Applications Revenue Streams: Worldwide WWAN Device Revenue by Venue: AsiaPac Value-Added Services Revenue Streams: Worldwide WWAN Devices Shipped by Venue: ROW Industrial Venue Revenue Streams: Worldwide WWAN Device Revenue by Venue: ROW Exhibit Value-Added Service Revenues for Industrial: Worldwide WLAN Devices Shipped by Venue: Worldwide Energy Venue Revenue Streams: Worldwide WLAN Device Revenue by Venue: Worldwide Value-Added Service Revenues for Energy: Worldwide WLAN Devices Shipped by Venue: North America Buildings Venue Revenue Streams: Worldwide WLAN Device Revenue by Venue: North America Value-Added Service Revenues for Retail: Worldwide WLAN Devices Shipped by Venue: Europe Transportation Venue Revenue Streams: Worldwide WLAN Device Revenue by Venue: Europe Value-Added Service Revenues for Transportation: Worldwide WLAN Devices Shipped by Venue: AsiaPac IT & Networks Venue Revenue Streams: Worldwide WLAN Device Revenue by Venue: AsiaPac Value-Added Service Revenues for IT & Networks: Worldwide WLAN Devices Shipped by Venue: ROW Healthcare Venue Revenue Streams: Worldwide WLAN Device Revenue by Venue: ROW Value-Added Service Revenues for Healthcare: Worldwide WPAN Devices Shipped by Type: Worldwide Security/Safety Venue Revenue Streams: Worldwide WPAN Device Revenue by Type: Worldwide Value-Added Service Revenues for Security/Safety: Worldwide WPAN Devices Shipped by Venue: Worldwide Resources Venue Revenue Streams: Worldwide WPA Device Revenue by Venue: Worldwide Value-Added Service Revenues for Resources: Worldwide WPAN Devices Shipped by Venue: North America Consumer/Professional Venue Revenue Streams: Worldwide WPAN Device Revenue by Venue: North America Value-Added Service Revenues for Consumer/Prof: Worldwide WPAN Devices Shipped by Venue: Europe Harbor Research © 2010 Harbor Research, Inc. All rights reserved 13