I spent a day at the IotTechExpo in London recently, trying to understand more about IoT technology, IoT vendors and the business opportunity that IoT presents.
Like Tom Cruise said in Jerry Maguire, I wanted the expo to “show me the money”.
IoT is the hottest thing in town at the moment, but I am not alone in wondering who is and will make money in this arena. So, as I write this article, I am thinking more along the lines of an investor, wondering where I would make an investment in IoT (if I had the cash to invest, which I don’t).
There is no doubt about it, IoT is happening. Hardware is getting smarter. We are seeing this in smart products around the home. We are seeing smart technologies in cars, industrial internet, healthcare, enterprise, cities and nations. And this is all made possible by the convergence of technologies such as sensors, improved battery life, cloud computing, mobile communications and more.
I wonder however, whether the IoT revolution will be more of an IoT evolution, as manufacturers choose to put IoT intelligence into their existing products, rather than inventing new products.
The Smart TV is a classic example of that. The TV is nothing new, but has certainly got a lot smarter in recent years.
Knowing who will win in the IoT (or industrial internet) space is a bit like predicting the weather on Valentine’s Day 10 years from now, but as I enjoy musing about such matters, and I want to capture my thoughts about the IotTechExpo in London, here are a few of my expo takeaways.
1. IoT is a Hot Market. It could be argued that IoT is a new term for an old industry. Many of the companies exhibiting at the IoT Expo are existing hardware and software vendors who have either rebranded themselves as IoT providers, or created a new IoT specific offering. Either way, IoT is hot right now. To illustrate how hot the IoT market is, I spoke with a publisher who has created a new magazine called IoT Now. They told me they wanted to get 10,000 subscribers in 1 year, but in just 3 weeks, have signed up 12,000 names. IoT is hot, hot, hot! At least it is today. A successful entrepreneur who amassed a £50m fortune by the age of 35 once told me that it is better to be poor in a great market, than great in a poor market. IoT seems like a great market to be in right now.
2. Disruption. The word of the moment is ‘disruption’ and I wonder if I saw truly disruptive innovation at the expo. If IoT is making hardware smart through sensors, cloud, analytics and actions, then I saw lots of companies offering the same or similar products. They are all very clever technologies, but are they truly disruptive? Perhaps the disruption will come from the application of these technologies, rather than the technologies themselves. That said, one company which stood out to me as highly innovative and clearly different was Freevolt, a battery company which recharges batteries using radio waves to harvest energy from mobile phones, wifi signals and 3G masts. I have no idea how this works, but it seems like a different idea, especially as more and more sensors will be standalone and battery powered.
3. Me Too Companies. The main problem I saw at the IotTechExpo was ‘me too’ companies. I take my hat off to anybody who starts a company and makes it successful. I know how hard and difficult that journey can be. I have tried and failed to achieve the goals I wanted as an entrepreneur. I don’t want to be disparaging of anybody or any company who is still on that journey. I only have admiration for you. But I also know how hard and expensive it can be to sell products and services. To stand the greatest chance of success (especially in a crowded market), you have to have a strong point of difference. I worry that there are too many ‘me too’ companies in the IoT space and vendors do not have a clear point of difference. The cloud platform vendors could be the most vulnerable here as there are hundreds of them in the market (so I have been told). The chip makers seem vulnerable too, as China and Taiwan are renowned for driving down the cost of ‘clone’ chips (think Alibaba). Without a clear point of difference in the IoT space, companies may end up competing on price, which is never a good idea.
4. A Moat Around Your Company. Sir Tom Hunter, the billionaire entrepreneur once explained to me the importance of putting a ‘moat around your company’. A moat is a metaphorical defensive wall which stops other companies from getting your customers or market share. But to have a moat, you have to offer something so different, unique, and valuable that customers will choose you over your competitors. I read somewhere recently that proprietary software needs to offer 10x more value that open source software. Obviously that is just one person’s opinion, but the sentiment is clear. To have a moat around your company you need something so demonstrably different and valuable that competitors cannot get near your customers. That is easier said than done and I’m not sure I saw these moats at the IoT Expo. Possibly the easiest area to build a moat is in specialization or verticalization, which I will talk about next.
5. Verticalization. I think the companies who are more likely to be successful will be those who specializes in vertical markets (especially in the software side). These companies will have deep vertical domain knowledge and really understand how to add value to customers. For example, if you are a cloud provider, you could become the No.1 or No.2 cloud provider for the hotel industry. Own that niche before expanding out to other niches.
6. Analytics and insights. As I ponder where the real money in IoT is, I cannot help but feel that sensors, communication protocols and even cloud platforms could become commodity businesses. They can of course still be successful, profitable and scalable businesses, but that is about capturing data. I believe the real value will be in what you do with the data and how you make a business better (my thinking is more B2B focused here than B2C). I cannot help thinking of Dunnhumby here, an analytics company which initially helped Tesco with its Clubcard loyalty scheme, which was later acquired by Tesco. Dunnhumby have become successful by helping businesses become smarter through data analytics and insights. There are many components included in the Tesco Rewards value chain (POS machines, plastic cards, database, hardware, software layers), but the company the Tesco board appears to have valued the most was the one who provided the insights and analytics about their customers. It is the company’s technology which allows them to make more money, by retaining customers and selling more to them. At the Expo, an analytics company called Anodot stood out to me in this space.
7. Next billion dollar company. Did I see the next billion dollar company at IotTechExpo? I’m not sure I did for the reasons I mentioned above (unless Freevolt and Anotod hit it big). That said, Jasper is an IoT company which has just been sold to Cisco for $1.4B. However, Jasper had a customer base of 3,500 customers on a recurring revenue model and had an already strong relationship with Cisco, which helped lead to that valuation. It took Jasper 10 years to get to that position (and lots of investor cash too). It was also a strategic acquisition by Cisco to help them leverage their IoT offering. Watch out other cloud vendors, Cisco (and their deep pockets) are now a competitor. So who will be the next billion dollar company? I have no idea. I suspect it will be a software company (rather than hardware). In my opinion, it will be B2B rather than B2C, and it will help customers save lots of money or make lots of money (through their service). I could also be wrong as well, especially given that WhatsApp sold for $19B. If somebody creates a must have consumer based IoT device (with recurring revenue), then $1B will seem like peanuts.
8. Triple Triple, Double Double, Double. A friend of mine is trying to raise money for his software company. He has a solid IP and a clearly addressable market, but the investors he is speaking to are not interested as he cannot demonstrate ‘triple triple, double double double growth’. That is revenue growth which is (starting from $2m/yr ARR):
Y1 3x – $2m x 3 = $6m
Y2 3x – $6m x 3 = $18m
Y3 2x – $18m x 2 = $36m
Y4 2x – $36m x 2 = $72m
Y5 2x – $72m x 2 = $144m
I wonder who in the IoT space can demonstrate this? Any suggestions? Is this even relevant? If it is, I’d suggest sales, marketing and business development are just as important as the technology. Read more here and here.
9. Security, I didn’t see much at the expo about security (I may have missed those vendors) but security is a major concern for IoT with so many connected devices. Perhaps this is where the next billion dollar company is.
10. Solve a problem. To my mind, IoT works best when it solves a problem. In industry, business and the enterprise, there are lots of problems that IoT can solve — mostly around saving time (including downtime), money, energy, wastage, (lives in healthcare) etc. I am sure there are endless businesses cases for IoT (or IIoT), but these business cases need to come to the forefront. In itself, IoT is a cost, but to companies, it could be a worthwhile cost if it can help them save money or make money (and I’m sure it can). But if IoT vendors are to thrive in this hot market, they need to become excellent at solving business problems and demonstrating the tangible business outcomes which IoT can offer. This ‘problem solving/outcome’ focus is the same for smart cities, smart nation’s, smart buildings, healthcare, and etc. On the consumer side, IoT can still help consumers save time and money (utilities and HVAC are the obvious ones), but some of the benefits of IoT in the home may take a little longer to filter through. I do not plan to rush out and replace my fridge with a smart fridge, but next time I am due to replace my white goods, I would sooner choose a smart appliance over a traditional one. I think electrical manufacturers will have to add smart intelligence to their products to stay relevant and competitive, but will customers throw away a perfectly good washing machine just to buy one with some smart functionality? I wouldn’t. Would you?
11. Changing business models. I heard a reasonable amount of talk at the IoT Expo about the new business models IoT offers. More specifically, by adding sensors to hardware, IoT allows manufacturers and resellers to sell their products based on usage (product-as-a-service) rather than usual CapEx, lease or rent models. For example, I could pay for an industrial water cooler based on flow, rather than time used. I suspect IoT could be quite transformational in this regard.
12. Customer acquisition costs. I know firsthand from running my own company how expensive customer acquisition can be. Getting your product offering right is one thing, but then you have to go and market it and find your customers. Even having a stand at the IoT expo can cost thousands of pounds and that does not include the hotel and travel costs that will be added on top of the direct expo costs. Being well funded as an IoT startup is essential, and/or having paying customers (possibly from a non-IoT product line) could also be important as IoT vendors find their way through these expensive and choppy IoT waters. You could have the best IoT offering in the world, but without the cash to market and sell it and the paying customers, your IoT story could be a short one as you run out of cash before the finish line.
13. Marketing. I was interviewed at the end of the show and was asked what IoT will look like in the next 2 years. I gave some mumbled answer of how products will be smarter, but I wasn’t sure that IoT (especially in the consumer market) will be as revolutionary or transformational in 2 years as some people are suggesting. I believe the transformation in the Industrial internet will be huge though. But I do think that the marketing industry might take a lead in IoT — as marketers use IoT to get closer to consumers. Keep an eye on what Sir Martin Sorrell has to say about IoT.
14. Relevant products/ Market Need. I wanted to add this section at the end, simply because I saw this graphic in the week which showed the reasons companies fail. There are lots of these charts around, so you can take this with a pinch of salt — but it looks reasonable to me. The main reason cited for ‘start up’ failure is lack of customer demand / no market need (which in turn has an impact on revenue, cash and going concern). I wonder how many IoT vendors will fail because of lack of poor customer demand / market need.
So there you have it, my observations, musings and ramblings from a few hours spent at the IotTechExpo in London last week. IoT is a very exciting space right now. I am sure IoT technologies will find their way into our lives and businesses over the next few years as hardware becomes much smarter.
Where is the money though? As the Beatles said, it is ‘Here, there and Everywhere’. Good luck finding it.