What is the Right Question to Ask — Should We Invest, or Where Should We Invest in IoT?

Internet of things

Declining costs and better functionality are the outcomes of successive evolution in technology. The wave of mobile devices is still paying out the investors. However, entrepreneurs and investors are still asking what is next. It seems there are no second thoughts about the Internet of Things (IoT) being the next big wave.

Worth Read: Sphinx Report: The Horizon of IoT Startup Funding is in Full Bloom

The Internet of Things

The concept of Internet of Things is not at all new. Kevin Ashton was the pioneer who coined this term in 1999. Getting inspired with the concept, South Korean electronics giant LG produced first internet-connected refrigerator in 2000. Nevertheless, in the previous few years, there were certain elements and limitations that halted the advancement of Internet of Things. Leaving behind those limitations and tearing apart those constraints, new enabling factors in IoT are rising; let us embrace it with open arms.

IoT is about connecting different physical objects such as cars, buildings, and machines to the internet. The motive behind such connectivity is to transform these objects into smarter and intellectual assets that can seamlessly communicate with people, apps and with each other. It does not matter whether it is a wearable device, consumer device, large automobiles or industrial installations; IoT has the ability to connect all these objects making them smarter and intellectual assets.

The rapid proliferation of smartphones is the single most inspiring example of Internet of Things. Ordinarily, modern smartphones and its connectivity with the internet go hand in hand. The fact is these internet-connected mobiles are more efficient and smarter than what desktops used to be a decade ago. Another example that sweeps us is storing a large amount of data remotely on the cloud. The outcome — prices of hardware have decreased significantly.

Investing in Internet of Things

Internet of Things (IoT) is definitely the next big investment destination. Big Blue Chip companies as if IBM, Intel, and Cisco already started to revamp their IT infrastructure and invest in IoT with an aim to get a leading edge in it. Recently, IBM announced an investment of about $3 Billion in a special department concentrating on developing IoT solutions. With more investment and Amazon still outpacing its cloud competitors, it is but obvious that a fierce competition to grab Lion’s share of the coveted IoT revenues has started.

The interesting thing is IBM is not the first to invest in IoT. Few companies have already invested in IoT, the only difference being their projects or do not have direct terminology associated with the IoT. For an instance, the Apple watch — although it is a wearable device, it definitely is the Apple’s investment in IoT.

Undoubtedly, IoT is the top priority for modern businesses; companies succumbing to IoT technology have assigned about 24% of their budget to IoT including mobility, analytics, and cloud. Moreover, those businesses are supposed to earn stronger ROI in future if they invest in IoT at present. No wonder, 76% of businesses feel IoT will play a dominating role in the future success of the business, whereas 63% companies will host their live IoT projects in the coming year.

TIP#1: The investment in IoT started back in 2012 wherein 112 deals across the globe investing $752 Million were targeted towards Internet of Things. Almost 28% of companies already have live projects related to IoT and more than 35% companies are less than a year from launching their IoT-related projects.
Percentage of Budget IT Companies are Spending on Different Technology

The Potential of Investing in Internet of Things

The investment in IoT sector is broadly classified into two major categories, first-order or “Horizontal” and the second-order or “Vertical” sector. The first-order or a Horizontal sector of IoT means investment in a company that produces different key physical components making the Internet of Things possible. The second-order or vertical sector of IoT means investment in a company creating applications specific to a particular industry with a motive to boost efficiency and service quality.

Undoubtedly, both the sectors have immense potential of the investment. Nevertheless, compared to the vertical sector, horizontal sector might offer few investment opportunities. As the first-order or horizontal sector deals with hardware, which is susceptible to being commoditized. In addition to that, the hardware is easy to replicate, eroding the possibility of earning enhanced profit margins. Consequently, the focus of interest shifts to the sector that is hard to replicate, the second-order of investment or the vertical sector.

Emphatically, the vertical sector seems to have an upper edge. Accordingly, it is a broader approach, offering immense ascendance over industry applications, some of which might turn out to become the game changers. Early adopters or the companies with significant investment in IoT at the initial stage are blessed by their wise decisions. Such companies are destined to earn increased ROI. Businesses committed to IoT will always see opportunities to use it rightly across the organization.

Global Revenue Opportunity for IoT until 2018
TIP#2: 86% of companies working on IoT I industrial sector have agreed to witness significant ROI from their investment. About, 13% of all early IoT adopters confess to having many IoT projects and about 37% of adopters commit to running their entire business on IoT. Organizations with multiple IoT projects have seen better ROI. On the contrary, organizations running only on IoT report the greatest benefits of all.

Early IoT Investment: Bigger Commitment is Offering Bigger Results

Wherever there is an opportunity, General Electrical is there to encash it. Having invested more than US$ 1.5 billion to carry out R&D in IoT from 2012 to 2016, GE is playing a leading role in what it calls as Industrial internet. GE is committed to bringing about enhanced interactions between the internet of things and industrial components. According to GE, the industrial internet will help companies in achieving ‘zero unplanned downtime’. This will facilitate the undertaking of preventive maintenance work depending on the actual condition of industrial assets rather than the estimated condition.

SAMSUNG is a Korea-based leading smartphone manufacturer, very well positioned in Asia is taking every advantage of the upcoming IoT era. Samsung has introduced a range of sheer innovative and technologically advanced products ranging from fridge to television and from washing machines to safety vaults. Definitely, Samsung is trying hard to get that bigger bite of IoT revenue by creating consumer devices that are internet-connected with an ability to communicate with each other. The wide range of products at its disposal for research purposes, offer Samsung the necessary, advantageous edge to achieve its goal.

Missouri-based Monsanto is the world’s leading agricultural biotechnology company. The company has earned a reputation due to some of the groundbreaking innovations. Monsanto is now at the forefront of creating integrated data systems with a motive to boost farm productivity. The initial IoT investment of the company was to find a solution that could help them in reducing the inefficiencies in its supply chain; for example, preventing seed loss. It started with fitting sensors on semi-trucks, transporting seeds from fields to processing facilities. These sensors measured temperature and geolocation, allowing its IT department to build a virtual window. Taking their efforts a bit further, Monsanto developed IoT-based FieldScripts Farming System, which is now helping farmers in enhancing their farm productivity.

IoT Projects Launched by Early adopters

Where Startups Stand in IoT investment

IoT the startup ecosystem is booming and there are no second thoughts about it. We are witnessing a strategic breach by new companies and very now and then, young companies are scaling across the IoT ecosystem. Incubators are cranking out a large number of startups. Ever than before, crowdfunding has become an inevitable source of early financing for IoT startups. Already, some of the contract manufacturers in China have displayed their interest to work with startups and if necessary finance them.

Silicon Valley is a hub that produces smarter companies, but IoT entrepreneurship is a global phenomenon. The interesting fact is more than 150 early IoT adopters do not have a base in America. Consequently, startups based out of America have shifted their focus towards IoT in a broader perspective. The CES event held this year witnessed about 160 French startups; mesmerizingly, the majority of them had already invested or were planning to invest in IoT — the next big thing.

According to CB Insights, venture capital dollars in IoT sector already noticed a surge. The VC investment that was $1.8 Billion in 2013 increased to $3.44 Billion in 2015. Ordinarily, VCs have different notions when it comes to investment in IoT related hardware ventures. By launching its IPO in2015, Fitbit — an IoT hardware startup tried to breach these notions. Fitbit with its IPO launch demonstrated how an IoT startup could be, overwhelmingly successful, offering sound financial metrics. Even so, many VCs seem reluctant to invest in hardware startups and those who do usually have an experimental approach.

Fortunately, strategic or corporate investors are filling the gap. As per the CB Insights report, Intel Capital and Qualcomm are the two major active investors in IoT ecosystem. Cisco on the other side has won the race to appear in the top ten alongside VC funds. Apart from these players, Verizon, GE, Samsung, Comcast ventures also actively invests in the IoT startups. By all odds, the IoT startup financing market is evolving to overcome future obstacles.

TIP#3: Progress study says 58% of developers expect within the next 2 years IoT will expand beyond tablets and smartphones, predicting mass adoption of IoT applications in next 5 years. According to Gartner, 50% of global IoT applications will originate from startups that have adopted IoT for more than three years. In addition to that, until 2020 the number of startups adopting IoT will increase with great pace.

Pertinent Industries IoT Startups Must Focus

Manufacturing: Although, IoT startups narrowly focused on the manufacturing industry in 2015, the response, given by manufacturing firms to IoT is enough to boost IoT investment in manufacturing industry. Thailand, Vietnam, and Indonesia, although have easy access to low labor costs, the locally run vendors, and OEMs are very much proactive when it comes to technology implementation. The double-digit growth versus the low growth environment plays a key role in technology implementation. Predictions confirm that 2016 will be huge in manufacturing and industrial automation front with expectations to overcome productivity inefficiencies.

Healthcare: Aging demographics in many developed countries has made healthcare an unprecedented participant of technological evolution. Remote monitoring or remote diagnostics is not only revolutionizing elderly care, but is also playing a key role in underdeveloped and developing countries to overcome barriers in healthcare service provisions. Government agencies and young startups are really disrupting the IoT health care scene with their breakthrough solutions. Healthcare ATMs in Singapore, a pilot program implemented by Medifi in the Philippines are the two major examples of how startups are at the forefront of healthcare related IoT projects.

Transportation, Logistics, and Freight: Countries like Indonesia and Philippines are already using M2M technology for years to control and manage distribution, transportation, logistics and freight segments. Trucks traveling on interstate highways are laced with inbuilt sensors that collect, send and receive data using cloud-based fleet management system. In the next decade, it is expected that the IoT in Logistics and fleet management will generate more than $1.9 Trillion revenue. When trucks are becoming mobile nodes in IoT, enough scope persists for startups to invest in IoT related to transportation, logistics and fleet management.

Retail: Compared to other industries, retail is the only sector wherein business owners are increasingly in direct contact with their customers. Therefore, they are the first to embrace any new technology, including IoT related innovations that would enhance their business practices. Online retailers have already planned the strategic deployment of IoT technology to enhance efficiency and to reduce losses. As per the IDC, digital signage in the retail industry will reach $27.5 Billion in 2018 compared to $6 Billion in 2013. Cognitive computing and IoT data harvested from smartphones, wearables, sensors and other devices will offer subsequent new opportunities and insights to the retailers. Consequently, empowered retailers expect to deliver the right experience at the right time for consumers to improve their brand loyalty.

Conclusion

The Internet of Things has arrived. Obstacles abound, but immense activities are happening globally in IoT making it an inevitable technology to focus on. Startups and large companies alike are adopting IoT as the next frontier in technology to invest, commit, and earn better ROI. Erstwhile, what seemed like an illusion has become a reality. Soon connected objects will surround us in a connected or smart city.

Company size is irrelevant; today any company small or big can harness IoT for delivering innovative services and unlocking new revenue streams. It is easier to elevate customer relationships as the synergies between domain experts and IoT experts dealing with hardware, software, cloud, apps, security and many others combine for a better future.

IoT ecosystem is still young. Startups are still on the initial leg of the journey waiting to realize the promise of IoT, and newer capabilities that businesses and individuals might gain by the connected devices. Indeed, IoT is the next big thing moving forwards with a faster pace to create bigger market opportunities. Startups should not miss this opportunity and invest their heart and soul in it to rip actual benefits by focusing on the right sector and in the right direction.

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