TELEMETRIC COMMUNICATION
NEW OPPORTUNITIES FOR B2B
B2B OPPORTUNITIES
A FUNNEL APPROACH
Our goal was to identify opportunities in the telecommunications sector. We first examined the vertical nature of the telemetric communication industry and discovered that the applications were wide-ranging. We focused on three sectors: security, medical, and metering to illustrate how this technology improves business processes and provides new opportunities for dis-intermediation and re-intermediation around telemetric solutions. In searching for an opportunity for B2B we discovered the complexity and range of solutions available. The number of players involved and the types of service required for a well-planned telemetric solution limit the opportunities for traditional B2B exchanges, i.e., bringing multiple buyers and sellers together. Although opportunities for exchanges, hubs or other aggregation-type portals are premature, we do see an opportunity for B2B e-commerce.
Specifically, our team, in consultation with a leading telemetric communication provider, has located an opportunity for B2B activity in the personnel telemetry sector. Personnel telemetry in this context means the ability to locate an individual's geographic position at any moment using telemetric equipment, service providers, GPS technology, and multiple communication channels including the Internet. A key player in this market has urged our team to explore how electronic-monitoring programs in the corrections industry can benefit from telemetry. It is their view that no serious effort has been made to develop a cost-effective telemetric solution in this sector.
THE NEED
In recent years, courts have pressured municipalities to relieve prison overcrowding. Eventually, opposition to building new prisons will make it nearly impossible to comply without more alternatives to incarceration. Nearly two million Americans are now incarcerated and it is estimated that a large portion of the inmate population may be eligible under state laws for various home arrest programs. According to a former Director of Education for the New Mexico prison system, education and counseling are the only means of rehabilitation known to reduce recidivism. Prisons are ill-equiped to provide effective programs. Increasingly, society must recognize the limitations of building more prisons and a lock 'em-up-and-throw-away-the-key mentality. The US incarcerates more of its population than any other industrialized nation.
THE OBSTACLES
Previously, the only option for home monitoring was a device known as an electronic leash, which attached to a convict's ankle and notified police whenever he left home. However, this technology is crude, expensive and ineffective. According to a US News report, California's corrections system, the nation's largest, uses bracelets sparingly, while the state of New York prison system rejected them flat-out. Other states, like Utah and Wisconsin, are in the process of deciding whether to continue their electronic-monitoring programs. These crude devices total roughly 75,000 in use nationwide. A company called BI, Inc. has virtual monopoly control over the $65 million home-arrest market, having acquired a dozen of its rivals over the years. However, high research and development outlays (7 percent of revenues) and costs associated with digesting acquisitions have made it difficult for the company to translate growing revenues into consistent profits. BI's electronic bracelets cost $25 a day, and most programs require a minimum one-year participation (still, electronic home arrest is much less than half the cost of prison).
Another obstacle to the spread of electronic monitoring has been the public's perception that house arrest means that the felon is confined to his home 24 hours a day or the device only notifies authorities when the wearer is home, when he leaves, and when he returns. When the felon is more than 150 feet from the receiver - at work or school, for example - it does not track him.
THE SOLUTION
As stated above, a key player in the telemetric communication market is looking for an opportunity to partner with a company or in some way assist in developing a solution that will allow better and more cost-effective monitoring of individuals. Our research has suggested that no companies have developed a solution using control channel telemetry technology. As an exercise, our team has created an fictitious enterprise herein referred to as Panopticon (referring to the 18th Century philosopher Jeremy Bentham's idea that prisoners could be conditioned to believe that they were always under surveillance, thus making physical incarceration redundant) to explore this B2B opportunity.
Below is a detailed discussion. A quick overview of the analysis is provided at the bottom of the page:
Panopticon would serve as an intermediary between four stakeholders - a local home monitoring company (such as Southwest Behavior Systems) or municipality; the regional corrections department and state government; an equipment manufacturer; and the telemetric communication service provider. Panopticon would contract with regional home monitoring companies and revenue would be recieved from this source, thus making this endeavor a B2B enterprise. Panopticon would contract with equipment manufactures (identified) for two devices. One would be a plastic watch, very similar to man's wristwatch, although the band would be of one piece and contain a thin wire to form a circuit. The monitored man/woman would be required to wear the bracelet continuously (it is waterproof). The watch would contain a chip to link the device to an identified nation-wide telemetric network. The second device is a scaled-down cell phone, having only the ability to call the owner's parole officer, the police, the individual's residence and work, etc. This scaled-down phone would contain a small GPS transceiver (a manufacturer of such a device has been identified in Canada).
THE ADVANTAGE
A geographical boundary is selected for the monitored individual. That boundary would include the institutions needed for effective rehabilitation and integration into society: school; work; drug and alcohol counseling centers, etc. When a parole officer or a contracted monitor wishes to identify where an individual is, he places a call, email, or similar request to Panopticon's 24-hour service center. Panopticon then automatically routes the request to the telemetric network. The network, in turn, bursts a request to the watch device using the cellular control channel, making the communication extremely cost effective (pennies). The watch device then signals the GPS device in the phone to activate. If the man/woman can be seen by three GPS satellites for triangulation, the GPS device will automatically relay a position without them knowing it to the telemetric service provider who then forwards that information to both Panopticon and/or the monitoring official by page, fax, email, Internet or call. This process could be automated so that the monitor only is notified if the individual is found to be out of the predetermined boundary.
If it is found that the individual is not where he/she is supposed to be at that time (work, school, home, etc.) the officer can act on that information (calling the client's cell phone, etc.) If the individual is out of GPS signaling range, the GPS service provider will notify the telemetric provider that it is unable to triangulate. They, in turn, burst a message to the individual's watch device, which notifies him/her that he needs to approach a window where GPS can fix their position. If they do not do so, again, an officer can be notified.
THE VALUE PROPOSITION
Parole officers or home monitoring officials, by the nature of their position, have an incentive to see a system work that is efficient, convenient, cost-effective and reduces the number of repeat offenders. A telemetric solution facilitates the reintegration of convicts into society better than existing means. In this model, Panopticon becomes an intermediary between four stakeholders (mentioned above), adding value to processes that have until now been inefficient and expensive. Revenue is generated from selling a service, rather than a product, to local and regional home-monitoring companies. The equipment cost is a pass through to the monitored individual. Presently, home arrestees are charged $25 per day for their electronic leashes. As mentioned earlier, this technology does not provide a suitable level of assuredness to the monitoring officials and is losing favor across the country. Panaopticon imagines charging the equivalent of between $15 - $20 per day to the monitoring company with a fixed-price, renewable contract, with incentives going to both the state and monitoring officials. They may, in turn, raise the price to the monitored individual. One benefit of this market is that states require a minimum one-year contract and most last several years. Other options for generating revenue include providing detailed reports to corrections officials; scaling the type of service provided (for example, setting the system to notify an official only if the individual is out-of-bounds at a given time may be more valuable than having an officer trigger the communication himself); expanding the service to other markets including Alzheimer's patients and their families or other areas where real-time personnel tracking could be of value. Some numbers:
Current Cost For Monitoring Device $1,000
Panopticon Device Cost $600
Current Daily Rate $25
Panopticon Rate $15
Total Devices Currently in Use 75,000
Penopticon Market Year 1 6%
Total Revenue Year 1 $ 27,375,000
CONCERNS
1) Will real-time notification and tracking prove valuable enough to attract current electronic leash users away from that service? 2) Will patents protect the technology from copycats? 3) We must find personnel able to communicate effectively with corrections officials. 4) There are also device limitations: it must be recharged at night, and be within 25ft of each other. 5) Monitored individuals must not forget the cell phone. 6) How reliable is the technology? What percentage down-time will the users tolerate?
OVERVIEW
Market Structure: Vertical
Sourcing: Spot Sourcing
Product/Service: Customized hardware integrated with proven telemetric processors and service.
Value Chain: The equipment providers, cell phones and GPS, operate in an oligopolistic market. However, one Canadian manufacture can produce a device the integrates a cell phone and GPS transceiver for roughly US$600. One company dominates the current home-monitoring industry. However, the current crude, expensive and ineffective solution provided has weakened their position and the time may be right for a new entrant. Panopticon contracts with regional home-monitoring companies. We use a fixed price contract with monthly fees for Panopticon service (acting as the intermediary between the monitoring company and the telemetric service provider and the corrections departments).
Market Size: 75,000 - 250,000 users in the US with global opportunities in the near future.
Market Dollar Volume: At 75,000 users, a projected volume of $400,000,000.
Aggregation Model: One-to-many, or one-to-one depending on future alliances.
Market Mechanism: A fixed price contract.
Benefits and Marketing: Offers buyers a unique, efficient and novel product in combination with a 24-hour service accessible through numerous communication channels; Offers sellers another long-term revenue source and new market.
Marketplace Problems: Asset specificity - patent protection is an option.
Partners: A potential list would include an identified equipment manufacturer in Canada; an identified service provider, and state-level corrections departments.
INDUSTRY OVERVIEW
TRADITIONAL INTERMEDIARIES
ELECTRONIC INTERMEDIARIES
B2B OPPORTUNITIES
REFERENCES
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This report was completed October 2000 for the class B2B Electronic Commerce given by Professor Erran Carmel in the program of Management of Global Information Technology at the Kogod School of Business at American University in Washington DC.
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