San Diego sits at a technological crossroads.
London-based business intelligence firm ABI Research sees strong growth ahead in a space where wireless communications meets cybersecurity. San Diego businesses specialize in both.
Over the next five years, the security market for machine-to-machine applications is expected to expand, hitting $198 million by 2018, ABI said, earlier this month.
That assessment, however, describes just part of a bigger market opportunity.
Several other facets of machine-to-machine communications promise to be moneymakers for San Diego companies, too. The markets will be worth billions of dollars.
Some analysts peg the compound annual growth rate of cellular machine-to-machine communications at 22 or 23 percent, said Dean Fledderjohn, a former wireless industry executive who is now principal of Connected Machine Communications LLC. Different vertical markets will have different growth rates, Fledderjohn said.
Machine to machine — often shortened to M2M — is a term for a specialized kind of wireless communication. It takes in “smart” electric meters. It takes in telematics, where automobiles or trucks communicate wirelessly to an external computer. But it also takes in more.
“We think M2M is really going to take off as part of what we call the Internet of Everything,” said Qualcomm Inc. executive Nakul Duggal.
The Internet of Everything, dubbed IoE for short, “represents a new era in computing and networking where tens of billions of objects beyond the cellphone will be intelligently connected,” said Duggal, who is vice president for product management for the Qualcomm Technologies Inc. business unit.
“The same technologies that drive the evolution of smartphones and mobile computing will enable the emergence and growth of IoE verticals such as connected cars and smart cities — where we include both smart energy and connected homes — and increasingly pervade all aspects of life in the modern world,” he said.
Indeed, M2M is hitting home.
Every January, it seems, the big consumer electronics show called CES produces more news about Internet-connected household objects. The 2012 show included LG’s refrigerator that keeps track of its inventory, and can display it on an owner’s smartphone. The 2013 show featured a Wi-Fi connected doggie door.
In addition to the household, M2M is taking center stage in industrial settings, and in health care. San Diego has “a fair amount of medical companies that are participating in this space,” Fledderjohn said.
M2M uses a variety of technologies to communicate. They include Wi-Fi, ZigBee, household power lines and cellular.
M2M connectivity in the cellular communications space alone is expected to generate worldwide revenue of $38 billion to $45 billion by 2018, according to Dan Shey with ABI Research.
One manufacturer, Sierra Wireless, predicts that the number of connected devices will grow from a current 1.4 billion to more than 12 billion in 2020, to more than 100 billion in 2050. By mid-century there will be 10 times the number of connected devices as there are people on Earth, the company said in a recent investor presentation.
Sierra is based in Vancouver, British Columbia, Canada and it has a presence in Carlsbad. It makes embedded wireless modules for M2M communication. The publicly traded company reported $644 million (in U.S. dollars) in revenue last year.
Sierra Wireless was the leading producer of M2M modules in 2011, boasting 34 percent of the market, according to ABI.
San Diego-based Novatel Wireless Inc. also makes machine-to-machine modules.
To keep up with wireless infrastructure improvements in North America, Novatel recently rolled out two new products that communicate using the two disparate versions of 3G (third-generation) wireless technology. Verizon Wireless has certified one of these products, the Enabler HS 3001, and Novatel has begun shipping it, said company spokeswoman Charlotte Rubin.
The manufacturer is waiting for wireless carriers to approve its other offering.
Novatel also has M2M products using second-generation technology, which is still selling in Europe, Rubin reported. Some customers prefer 2G because of cost, she added.
Novatel also writes software for M2M. The company reported revenue of $273.6 million in the first three quarters of 2012 — though only $25 million of that came from M2M products and solutions.
Novatel, Sierra Wireless and other companies build M2M modules with Qualcomm chips inside.
Qualcomm declined to say how many M2M chips it produces, but its offerings are diverse. The company does not limit itself to cellular M2M, either. Its Atheros business produces Wi-Fi chips as well as chips that communicate via home plug power lines. Services and software are just as much a part of Qualcomm’s M2M strategy as semiconductors, Duggal added.
On the Road
Automobiles seem to be a once and future market.
The automotive industry is quickly moving toward “next-generation connected car initiatives,” Duggal said. “Qualcomm-enabled technologies like LTE, WLAN and DSRC are opening up opportunities and helping to drive further innovation that will add to the millions of cars currently on the road with embedded Qualcomm chips,” the executive said.
Qualcomm recently made a foray into another market with Tagg, its dog-collar pet tracker, which uses M2M communication. Tagg gets a fix on a pet’s location using GPS technology, then sends that information to a database via a 3G cellular connection (Tagg uses the Verizon Wireless network). Pet parents can get updates on the pet’s location via smartphone. Software also collects information on pet activity.
Qualcomm reported revenue of $19.1 billion in fiscal 2012; revenue for the recently ended first quarter was $6.0 billion.
Though wireless carriers are hopeful that M2M technology will boost sales, there is that security problem that ABI Research identified.
“Porous security is exposing vulnerabilities in a large number of use-case scenarios, including SCADA systems, telemedicine and telemetry,” ABI said in its recent statement, when it sized up the market for M2M application security.
SCADA refers to the systems that remotely control industrial equipment such as factory machinery, pipeline systems, water and wastewater systems. (The initials stand for supervisory control and data acquisition.)
But businesses are rushing to catch up with the security challenge.
The recent ABI report noted that both Novatel and Sierra Wireless have put more emphasis on M2M application security as they seek more market opportunities.
Who knows? M2M security could be the focus of a business that no one’s heard of yet.
Mark Kohlheim, interim executive director of the CyberHive San Diego technology incubator, acknowledged recently that M2M security might be a focus of a young company that strikes a partnership with the downtown cybersecurity incubator.