In the competitive business landscape, many companies search for a profit in the most unlikely sectors. A market niche is rarely in a stagnant situation. It transforms as the situation undergoes a change. In this article, I will examine Verizon's (VZ) efforts in the Machine-to-Machine (M2M) sector and explain how it could translate into a future 2% gain for the company.
A report has surfaced that Verizon is certifying a new M2M solution on the company's wireline and wireless network. This initiative will enable the company's partners to provide better healthcare for their customers. Carematix is a member of the Verizon partnership initiative. Another is Sonicu. The program is acting as a catalyst leading to the adoption of the M2M wireless healthcare solution.
Verizon had been known to be interested in the sector when it announced the M2M alliance with Axeda Corporation and formed another partnership with Vodafone and nPhase. Verizon is primarily a leading wireline and wireless network provider and did not involve itself with the M2M sector. However, Verizon is not unaware that the sector is expected to grow at a compound annual growth rate of 32.4% from 2012 to 2017.
In the case of the alliance with Axeda, Verizon will allow Axeda to deploy its cloud application development platform to a scalable global M2M infrastructure. A similar case is observable in the alliance with Vodafone and nPhase. The agreements have the three companies agreeing to accelerate the adoption of the global M2M deployments.
Verizon has more to gain than just forming an alliance to ensure a better healthcare. First, Verizon would be able to get a voice in the emerging M2M market and have the clout to influence the sector. Verizon's partners remain committed to Verizon because it provides a very dependable wireless and wireline network for their customers.
In forming the M2M partnership group, we can be reasonably sure that it would not tamper with Verizon's wireline and wireless business. The business generates the core of Verizon's revenues. Verizon's operating revenue in the 2013 first quarter was $29.4 billion, a 4.2% increase compared to the first quarter of the year prior. Its revenues from its strategic enterprise service grew by 6.0%.
It is smart for Verizon to position itself strategically in the M2M sector. Its initiatives can be seen as a way to combat the rise of a rival such as Sprint (S). Sprint has taken to forming partnerships to beef up its portfolio in the expected boom of the M2M sector. It recently partnered some M2M companies to provide an end-to-end development support on the Sprint network.
But Sprint is not the only worry. Verizon still competes, too, with AT&T (T). And AT&T recently partnered Qualcomm (QCOM) and Cisco (CSCO) to connect millions of their devices to the AT&T network for a seamless M2M platform. Qualcomm will harness its Lobi modem technology to link to the AT&T network. AT&T is hoping to earn enough profit from the sector so it can diversify its revenue base in the next few quarters.
My opinion is that Verizon is going to be successful in the M2M business. It has started early enough. But it would face a competition from Sprint and AT&T. Verizon's partnership deals are important. They will prepare the company for the rivalry that will arise as a result of the growth in the M2M market. It remains to be seen the profit margin that could be derived. But Verizon's partnership deals seems like a good idea. The partners will become very useful when Sprint and AT&T become aggressive in the future war for a market share in the sector.