Internet of Things: forget wearables and all the hype, IoT means big business for the enterprise
Thoughts from Salil Pradhan (Draper Nexus), Mike Stubler and Jonathan Murray (Draper Triangle)
What is IoT?
Salil Pradhan: The name “Internet of Things”, or “IoT”, is applied liberally nowadays to companies in a wide variety of sectors, much like those named “internet” companies during the 1990s. In their case, core sub-sectors were eventually defined e-commerce, storage, gaming, SaaS, etc., and we’re likely to see a similar maturation in the IoT space.
IoT’s fundamental belief is that devices can be made smarter by connecting them to the internet. Early versions of smart phones were connected to the internet but weren’t really ‘smart’. Similarly, in this early phase of IoT, we’re seeing more embedded devices that are capable of making local decisions but are not connected to a larger IT system on the back-end to enable more intelligence. In the coming years I expect to see an evolution where piece-meal upgrades are possible, and intelligence can be pushed into the devices. That, I believe, will be the start of IoT 2.0.
What has fundamentally changed in the IoT landscape? Why is now a good time to invest?
Mike Stubler: Ultimately, it is an application of Moore’s law. Advancements in sensor technology and cost reductions have allowed data to be collected in new ways and in mass quantities. Ten years ago data scientists could not imagine fitting sensors into watches, or designing connected clothing.
Jonathan Murray: The ability to analyze these large collections of data has also played a significant role in advancing the sector. A lot of this has moved into the purview of the Chief Information Officer (CIO), whereas previously it was separated (and often lost) amongst other functions. After 9/11 many Facilities Management teams installed security systems like RFID badges, turnstiles and cameras and then realized that the ROI for these separate systems could be enhanced significantly if cross-correlated with data from each other and elsewhere. For example, companies could use data about employee movements to develop best practices for field staff deployment, or be able to implement real-time monitoring in hospitals, warehouses and other places that were previously closed systems. This awareness has driven our investment in Ann Arbor-based Pixel Velocity. They have developed asset monitoring products that correlate data from imaging sensors, industrial controls, and leak detection to enable better management of pipelines and refineries. As the ability to process disparate data grows, we will see even more applications of IoT.
What other opportunities are created as a result of IoT advancements?
SP: The big opportunity is business model innovation: If machine manufacturers can understand exactly how their equipment is being used — in real time — and feed that information back into the design cycle, they could make more fit-for purpose machines. They could also change the way they monetize, what I call service-isation or pay-per-use. For example, a company called iHear makes hearing aids that are provisioned for internet connectivity so that a user can control volumes and tones through their phone and receive updates remotely. They will charge a low monthly fee of $40 or $50, with the option to reduce or suspend service if the customer doesn’t pay. Why is this important? There are millions of people who don’t get hearing aids because their hearing is not terrible, but far from great. They won’t spend $2000 on hearing aids, but if the cost is $40/month, with the first three months free, then it’s a different proposition that expands the market. iHear may not see themselves as IoT, but they represent the potential that I believe to be at the core of an IoT revolution that affects industrial equipment, insurance provision, road tax and any area where sensors allow you to collect data and connect it to real-time data processing.
How have you decided what spaces to look at within IoT?
MS: We have actually been investing in this area for 15 years, well before the “IoT” moniker was made popular. Our goal is to leverage strong relationships with universities like Carnegie Mellon to identify both consumer and enterprise-facing startups. On the consumer side, one of our investments Body Media (acquired by Jawbone) develops wearable monitoring systems that collect physiological data to improve health. We are following another CMU company that is enabling personalized air quality monitoring. One of our enterprise bets, Pixel Velocity, which I mentioned earlier, has developed sensor and video technology enabling gas and oil pipeline monitoring for leak detection and intrusion.
SP: At Draper Nexus, in addition to consumer IoT we are also focusing on enterprise and industrial customers. There’s less buzz there, but we believe there is significantly more business opportunity. We want to place bets in areas where we believe technology will be the deciding factor on who wins (as opposed to superior branding), so we look at companies advancing IoT applications and infrastructure. We have made bets in smart buildings (enlighted) and the Internet of Flying Things, aka drones (CyPhy). On the consumer side we just led a seed round for Denver based home monitoring company, Notion.
What are the sector’s biggest constraints?
MS: Analytics. We have more data than ever, arriving in all forms and factors. Data science is becoming ever more important so we can access, sort, store and utilize the data in useful ways. Our portfolio company, Rhiza , has built a platform that enables enterprises to access massive amounts of data from multiple sources and create actionable visual output.
JM: I think cybersecurity is a major concern and may constrain the sector’s growth. Many installed devices have never been upgraded since they were manufactured and have no upgrade paths. Connecting them to the internet creates a potential risk for unintended access or misuse and these devices are also access points into the networks to which they are connected. I don’t think most of industry have a handle on that at the moment.
SP: Agreed, security is a significant issue. With IoT we are often dealing with systems that are always-on, and so the complexity of monitoring and maintaining secure environments increases tremendously.
Who are some of the trail blazers leading the way?
SP: It’s hard to say. Large corporations have been at this for a while: GE, CISCO, Oracle, IBM and now Splunk and others like Ayala Networks and OrientDB on the IoT platform side. But it is not yet clear point who are the leaders of the pack. As new companies enter the space I expect to see segmentation into different verticals like security for IoT, cloud for IoT, etc. It’s an exciting time, and in two years we’ll be able to point to some real winners, ideally from our portfolio!
We have just launched the Draper Nexus Network of things fund (NOThingsfund) — a seed stage investment vehicle focusing on early stage IoT companies that are raising at least $1M. We almost always syndicate and would love to have Draper Venture Network funds participate in the rounds.
Author: Sid Mofya, with thanks to Gabe Turner, Salil Pradhan, Mike Stubler, and Jonathan Murray
