I've been a bear on IoT*, but that's based on an old paradigm: machine-to-machine communication in a local area. IoT based on the mobile cloud is growing fast with compelling applications.
The IoT matters to entrepreneurs and investors because it promises a huge, fertile field of opportunity. Beginning in 1995 the wired internet created a boom in entrepreneurship by connecting most of the computers in the world, hundreds of millions, on a single network. The mobile web, which took off with the 2007 launch of the iPhone, connects a few billion devices. Its rise helped drive the tech boom of the last 5 years. The IoT aims to connect every device in the world that contains a basic microprocessor: tens of billions. Another major wave of internet-driven innovation is good news for tech entrepreneurs.
But not much has come of it, yet. In the last decade several start-ups brought network platforms for IoT to market: ZigBee, Z-wave, and Dust. None of these companies made their entrepreneurs and investors rich. The absence of a "killer app" (what spreadsheets were for the PC) stunted market growth. I lived this: I was a founding investor in Ember, the leading ZigBee company.
Recently a new wave of IoT companies have emerged, focusing on applications. Nest, Revolv, and SmartThings are examples; they have now been purchased by Google and Samsung. The market size is growing, but is still not huge, e.g., the biggest of these companies, Nest, was on track for $300 million of revenue when acquired in 2014.
Chris Penrose, in a recent conversation, showed me a different perspective. Chris is Senior Vice President for IoT Solutions at
• 26 million IoT devices using cellular networks are in service worldwide.
• Automotive applications have strong momentum: Parks Associates estimates that 25% of U.S. cars and light trucks (about 54 million vehicles) have some kind of network connectivity today, with about 14 million on the cellular network. Chris and other experts forecast that about 80% of vehicles will be connected by 2020.
• Healthcare also has strong use cases for mobile IoT: connecting emergency response to medical centers (e.g., collecting EKG data in an ambulance and transmitting it to an ER doctor), and monitoring vital signs of high-risk, recently discharged patients with a range of disease conditions to reduce relapse/readmission. Many of the connected healthcare products come from small and start-up companies.
The value drivers for automotive IoT are strong today and becoming stronger. The typical starting point was monitoring the vehicle's location and condition, including crash notification. Once the link was up and running, additional use cases emerged: software updates without a service appointment, calling for service or roadside assistance, point of interest search, concierge service, usage-based insurance, Wi-Fi hot-spot, and remote control of the car, ranging from ZipCar unlock (happens today) to auto-driving with traffic coordination. In the next few years, car makers want to build smartphone-like capabilities and Wi-Fi access points into cars. And a bit further down the road [ahem], we can see self-driving cars that will need to communicate with both the cloud (e.g., for traffic information) and with nearby vehicles. to synchronize movement and avoid collisions.
There is a mobile form of a "land and expand" strategy here. The first app creates the link from the mobile user to the cloud. Then other apps become attractive because they are easy implement.
Connected wheelchairs are another example of mobile land-and-expand. The first application was monitoring batteries of self-propelled wheelchairs: charge level, battery condition, need for service. Once the link was up, several other applications became attractive: monitoring and adjusting the pressure in inflatable seat cushions, a tip sensor that sends an alert if the wheelchair falls over, and monitoring usage patterns to identify wheelchair users who do not get out of the house.
"Mobile first" is a big lesson from the internet in the last ten years: today most successful internet businesses are built for mobile, with desktop (i.e., stationary) implementation coming later, or never in some cases. That seems to be true of IoT as well: local IoT has been challenged, but cloud-based mobile IoT has strong momentum. IoT entrepreneurs have faced frustration, but those days look to be ending.
Notes:
*IoT is an acronym for Internet of Things.
I am a partner in NAV.VC, which is a venture capital fund. Neither I nor NAV.VC have a financial interest in any of the companies mentioned in this post. We sold our Ember shares in 2012.
