With over $20 billion in merger and acquisition (M&A) deals and close to $2 billion in funding, the Internet of Things (IoT) witnessed significant traction in 2015.
Between 2010 and 2015, over $7.5 billion has been invested in IoT companies globally in over 900 deals. While until 2014, consumer-focused IoT solutions (primarily in Wearables and Quantified Self) garnered a slightly higher share of total IoT investments, industrial and enterprise IoT solutions attracted over 75% of funding in 2015 as compared to consumer IoT companies.
This trend is expected to continue in 2016 by a larger order of magnitude—2-3 times more than consumer IoT.
IoT is defined as a worldwide network of “things" that include identifiable devices, appliances, equipment, machinery of all forms and sizes with the intelligence to seamlessly connect, communicate and control or manage each other to perform a set of tasks with minimum intervention. The goal of IoT is to enable things to be connected anytime, anyplace, and with anything or anyone.
Industrial and enterprise IoT solutions are primarily in the verticals of smart manufacturing, Industry 4.0, smart grids, oil rigs and refineries, wind farms, retail and logistics. Most of these industries have had sensors and been experimenting with sensor-enabled automation for a long time. Now with IoT, the focus is on artificial intelligence and machine learning, security and sensor computing.
Consumer IoT solutions are being developed in segments like home automation, health care, quantified self (gaining self-knowledge by using technology such as sensors on your smartphones or wearables to track your own data such as heart rate, stress levels, etc.), sports, automotives, and entertainment. And, the focus of consumer IoT extends much beyond the three areas of industrial IoT, to include miniaturization, power management, mesh networks, better connectivity protocols, interoperability and convergence platforms.
We are witnessing disruptive innovation in the consumer IoT space across verticals. These include charging pods mounted on street-light poles wirelessly charging electric cars on the move; transparent, non-intrusive heads-up display (HUD) for cars that can handle voice calls, text and e-mail messages, music, radio, and map-based navigation; network-enabled, cloud-powered, AI-driven dolls that can converse with kids and double up as security devices; miniaturized and portable ambulatory/holter and stress analysis ECG (electro cardiogram) machines that one can carry on person, avoiding a visit to the big hospital; smart pots that allow users to remotely monitor soil and light conditions and even water their plants through a mobile application; and smart insoles that measure impact stress on a runner’s feet and knees and provide intelligent analysis and guidance to improve one’s body dynamics and performance.
Comparatively, in industrial IoT, innovation is incremental. Many large technology companies are cautiously participating in the consumer IoT innovation through corporate venture funds and accelerator programmes. But this does not amount to a true open support of the innovation ecosystem.
From a professional venture capital investor’s point of view, industrial IoT has short-term adoption and business potential, hence most consumer IoT products are perceived as point solutions. And, this sentiment is currently driving the investment decisions of professional venture capitalists in the IoT space.
However, one key trend that we are observing in the consumer IoT funding space is the rise of crowd-funding. Many consumer IoT companies, in their early stages are using crowd-funding platforms to raise seed funds.
These companies seek professional venture capital funding only once their idea is validated, the product developed and early adopters garnered, and the solution and the company are ready to scale. This model of democratizing the venture capital through crowd-funding (in the early stages) is the most sustainable and scalable framework for consumer IoT ecosystem growth, and is expected to continue for the next few years.
The recent regulatory breather—JOBS Act (in the US)—that allows investors to buy securities through crowd-funding is effectively a welcome step for the young IoT companies.
Currently, in the IoT evolution timeline, we are at a stage where we were during the early 1990s of the internet era. The Google(s) and Facebook(s) of the IoT are yet to be born and/or yet to come to the fore.
For IoT to evolve as a web of platforms for connected smart objects, the biggest challenge will be to overcome the fragmentation of vertically oriented closed systems and architectures and application areas towards open systems and integrated environments and platforms.
For IoT to go mainstream, the industry needs to solve remaining technological barriers (interoperability, security, etc.), explore integration models, validate user acceptability, promote innovation on sensor/object platforms, and demonstrate cross use-case issues. Moreover, industrial and consumer IoT solutions need to be duly supported and evolve together.
Jayanth Kolla is partner, Convergence Catalyst.