I just returned from the Mobile World Congress in Barcelona. The main thing I noticed this year was that what used to be the largest mobility conference in the world has somewhat transformed into an Internet of Things (IoT) show. It seems like all the vendors are trying to position themselves as IoT players: starting from hundreds of small startups that want to become the new winners in this emerging space to some of the largest companies in the world including Google, IBM, Cisco, and every major carrier out there.
So what is this IoT revolution and why is everyone so excited about it? The bottom line is that Cisco estimates that by 2020 there will be 50 billion devices connected to the internet (much more than the number of people on earth)! In essence, the internet is expanding from a network of computers to a network of “things”. Or put it the other way around, almost every “thing” in the world is transitioning to be a computer that can be connected to the rest of the world. These “things” include home appliances (TVs, Refrigerators, thermostats etc.), industrial assets (machinery, sensors), vehicles, agriculture equipment, wearables and any other asset you can think of.
Source: Morgan Stanley
The idea behind IoT is not new, and I have to admit I was a bit skeptical at first. But after looking at the space for almost two years I truly believe the time has finally come. Some of the reasons include the ability to connect machines into the cloud, collect large amounts of data and later to analyze this data using big data methodologies. Doing this at the required scale was almost impossible just a few years ago. Another driver is our smartphone which is becoming the remote control for the home and helps create compelling uses case for connected appliance which didn’t exist a few years ago. But probably the most significant driver is the fact that an entire ecosystem of IoT is emerging: all the big companies are devoting many resources to the space, smart entrepreneurs are launching IoT startups and VC investors are pouring money into them, and even governments are emphasizing IoT as top priority for tomorrow’s world. In the past, when so much of the world’s attention and resources were focused on a new technology we either ended up with a transformative wave (internet, mobile) or a huge bust (CleanTech). I think IoT is for real.
And the space does seem to be hitting up very quickly with a surge in M&A activity in 2014: Google set up a home automation group and rushed to acquire the smart thermostat maker Nest Labs ($3.2B) and remote camera startup Dropcam ($500M), Qualcomm acquired Bluetooth technology provider CSR ($2.5B), Samsung acquired connected home platform SmartThings ($200M), and even Under Armour, a clothing company, acquired fitness trackers MapMyFitness ($150M) and Endomondo ($89M). With such a surge in M&A there is no wonder that VC money is getting poured into the space right now with companies like Simplisafe (smart security), Peel (smart remote) and Jasper (IoT connectivity) raising $50M+ each.
Even though IoT seems to be getting a lot of good momentum, it is still facing several large challenges including security (think about an attacker unlocking a connected lock, hacking into a connected car, or even worse- attacking the city’s smart grid), connectivity (the existing wireless networks are simply not built to cope with so many devices and the unlicensed spectrum is not reliable), chipset cost (while rapidly declining it still needs to get an order of magnitude cheaper), battery life (huge inhibitor), device management (how do I easily manage thousands of devices deployed out there), data management and analysis (not a trivial question when dealing with massive amount of data) and most importantly – building useful applications on top (which is my #1 concern for the connected home).
What gets me really excited about this space is that each of these challenges is an opportunity for new startups to solve and I truly believe that there are going to be a few very large companies that will emerge out of the upcoming IoT wave. These new companies will help transform the world as we know it today.