Everybody is talking about the Internet of Things phenomenon, where “interconnected embedded computing devices” are literally flooding the market and the Internet. Certainly, the IoT industry will be one of the key contributors to the uprising economy and will eventually account for $1.7 trillion globally in 2019, according to data by BI Intelligence Estimates. In addition to these impressive figures, it is forecasted that device shipments will reach 6.7 billion in 2019, which represents a CAGR of 61% for the next 5 years.
Everyone is very well familiar with these promising forecasts, yet many fail to see the bigger picture and acknowledge that revenues from hardware sales will be “only” $50 billion or a negligible 8% of the total revenues from the total IoT market, where software vendors and infrastructure companies will dominate. Namely, many entrepreneurs decide to assemble the next (big) “thing” and contribute to the further fragmentation of the connected devices market, while neglecting the opportunities of a horizontal approach.
An initial indication of this notion is the wearables market, where startup funding sizes and exit valuations are skewed to their lower values. So, while Fitbit scored more than $500 million worth of funding, and GoPro and Oculus exited at valuations of correspondingly around $3.1 billion and $2 billion, your chances of becoming a unicorn by producing hardware are close to nil. In addition, I can’t even count how many thermostats or other environmental sensor monitoring solutions I have seen recently doing crowdfunding campaigns. Finally, if you add to this the long lead times startups need in order to provide a finished product that can be shipped to the market, then your job seems to become even harder. Indeed, instead of focusing on a particular vertical, you should focus on a horizontal solution where you can serve the billion devices that will become available soon.
Task automation, advanced speech recognition, voice/language learning, infrastructure provision, big data analytics are just instances of the areas where I expect a number of startups to emerge and attract a significant amount of venture financing. Lets just hope that European startups, lacking experience and expertise in connected devices compared to their US counterparts, will focus on the aforementioned value-added services. For this reason we also need venture capitalists who can envision this opportunity and invest correspondingly.