Nokia buys SpaceTime Insights: VC and M&A implications

Last week, Nokia acquired SpaceTime Insight, a predictive analytics company based in California. I had the opportunity to take a close look at SpaceTime last year, while assessing over 150 analytics firms. The company stood out then not only for its evolved offering but equally because it had a significant customer base in a range of industries.

This acquisition is interesting for several reasons.

First, it highlights how IoT is transforming the roles companies assume in value chains and which industries they can play in. Nokia, traditionally a provider of networking solutions, clearly has ambitions to offer business intelligence and analytics, including in industries where it did not have a foothold. Even as Microsoft and other enterprise IT providers look to move downstack, Nokia and other hardware manufacturers are looking to move upstack.

For Nokia, this is potentially a way to diversify flat or declining revenues in its traditional carrier networking business. IoT is the next big thing which continues to see adoption and spending. Much of that spending will be in either hardware or services — and with this acquisition, Nokia has strong capabilities in both.

The other critical aspect of this acquisition is that it is not just about technology. There used to be a time not long ago when acquisitions in IoT startups were being made purely for the technology, as companies looked to plug gaps in internal capability. While that still happens, this transaction is significant because Nokia chose not to simply buy an AI or analytics company. Instead, SpaceTime Insight brings with it a substantial pool of entrenched customers. As pointed out by Ingrid Lunden at TechCrunch:

SpaceTime is coming to Nokia with an established set of customers, including Entergy, FedEx, NextEra Energy and Singapore Power, and Gorti said that these will continue to be customers and become an opportunity for further business.

Our investment thesis has always been that industrial startups will be acquired and the pool of potential acquirers shall be quite wide as companies look to build new capabilities, enter new markets, and build new business lines. However, with time, the focus of acquisitions will and continues to shift — where once IoT platforms were the focus, more interest will either be in applications and services or in specific capabilities to extend platforms.

As Bhaskar Gorti, President of Nokia Software, pointed out:

More generally, Gorti said that there is an interesting period of consolidation underway in the IoT world. As in other areas of tech, a big infusion of cash from the world of VC has led to a large crop of IoT startups sprouting up. But inevitably, we’re now seeing a shift where smaller but promising businesses are looking to come together around bigger platforms.

Consolidation in the IoT (or for that matter blockchain or AI) space is inevitable. Despite growth, customer traction remains slow and established players continue to play catchup, putting pressure on startups to either raise more capital or exit. There are also many more startups than potential acquirers. In this environment, having strong technology is no longer enough — startups must have customers that can demonstrate value created and those customers must now be embedded and not simply pilot projects.