The IoT Market – 2015 laid down the direction for 2016 Massive numbers of well-financed IoT startups are attacking current market leaders
Vice President and Principal Analyst, Constellation Research
Constellation Research
Andy Mulholland is Vice President and Principal Analyst focusing on cloud business models. Formerly the Global Chief Technology Officer for the Capgemini Group from 2001 to 2011, Mulholland successfully led the organization through a period of mass disruption. Mulholland brings this experience to Constellation’s clients seeking to understand how Digital Business models will be built and deployed in conjunction with existing IT systems.
Coverage Areas
Consumerization of IT & The New C-Suite: BYOD,
Internet of Things, IoT, technology and business use
Previous experience:
Mulholland co authored four major books that chronicled the change and its impact on Enterprises starting in 2006 with the well-recognised book ‘Mashup Corporations’ with Chris Thomas of Intel. This was followed in…...
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Back in January it seemed as though 2015 would be the year of Hype for the Internet of Things, as industry pundits competed to claim how many billions of IoT devices there would be in the coming years. At the end of 2015 many people in IT can state that for them there was no sign of IoT happening, and if you work in the IT department that’s arguably true. IoT is happening, and just like the Internet after the 2002 bust, it’s changing some sectors slowly but surely.
If IoT is happening then why do many people in the IT industry see no sign of it, making Industry analysts’ predictions look like so much hype? The simple answer is just like Social Marketing its not led by, or even happening very much within, the IT industry.
The most obviously visible IoT markets are consumer, but that doesn’t mean IoT isn’t happening elsewhere. Smart Homes top the list as in 2015 consumers drove this market into furious growth deploying a wide range of IoT Devices delivered via Smart Phone or Tablet based Apps that made their lives easier or more fun. A very conservative estimate, based on multiple Venture Capital Investment tracking reports indicates more than $1 billion has been invested in over 250 startups in the Smart Home, or Buildings sector.
Current consumer market leaders are well aware of this new market factor and have joined together in different consortiums each seeking to maintain their members market dominance through a new standard. Sadly ambitious consortium goals coupled to a membership more normally in competition with each other take time, and investment to achieve.
A closer examination of this market suggests that 2016 might be remember for being the year when the startups dismembered and disrupted the market leaders status faster than they could adapt. Its not only speed that is on the startups side, its also the amount invested. IoT Startups have more to spend on product development than market leaders are able to allocate for their IoT initiatives.
Smart homes are a well-researched sector able to provide some interesting feedback to other sectors and markets concerning key principles as to the disruptive progression of IoT based Smart Services. Whether a Consumer or Business markets the following characteristics can be seen;
- A wholly new set of ‘values’ over turns traditional grounds for choice of product
- There are many startup players creating a wave of interest within the market
- Smart Apps delivered on Smart Phones and Tablets are the user interface
- Considerable Venture Capital Investments are supporting these disruptive players.
It’s the stunning amount of investment creating a massive number of startups covering any, and all, aspects of IoT that is the most striking feature of 2015. Venture Capitalists clearly believe not only in IoT, but that it will be a disruption to existing markets and create much new business value. The total across all aspects of the IoT provides more than enough investment to attack the current market and sector leaders across their entire product ranges, as well as introduce innovative new capabilities.
A recent Venture Capital investment report analyzed Honeywell’s product range in the building controls industry to name 31 startups specifically targeting one or more Honeywell products or changing their functions to Smart Services. In the Automotive sector another report named more than 600 startups vying for parts of the market, and overall there is a claimed $8.3 billion of investment in IoT.
The obvious question is why should the startups succeed against the established market leaders who have experience, resources and a customer base on their side? Some would argue that their very legacy positioning and experience makes it difficult to tackle such a level of disruption. This is not true as the example of John Deere detailed later shows. More pragmatically levels of investment in IoT startups is running several orders of magnitude ahead of the investments the existing players can afford to make. Added to this is the speed with which the startups can react and seize opportunities constantly innovatively and optimizing their products. The startups have skills, fast decision making, and most important of all, the democracy of the Internet on their side.
Time and again within a few quarters a new innovative Smart Service from an unknown startup has been catapulted into a scale of market awareness that conventional Brand based marketers can only dream about. The democracy of the Internet allows the meritocracy of a product, usually an innovative Digital Service, in outperforming the previous alternatives to be recognized, and promoted globally, fast!
Even those Enterprises born out of the Internet and Digital Business era such as Google, Facebook, and others, now risk being out classed in some important aspect of their business by a well-focused startup. Fortunately their corporate culture of fast reactive leadership, coupled with a buoyant share price, allows acquisitions as a strategy to aggregate their leadership. Intel and Cisco standout for their early stage investment programs that encourage promising startups that can add value to their business in one way or anther, but can traditional Enterprises manage the same, or is there another route?
The obvious question for 2016 in respect of current sector, and market, leaders is their ability to acquire the key IoT startups diminishing the most successful attackers, and accelerating their own market disruptive transformations? If not the alternative suggests that the startups will succeed in breaking the traditional competitive market pattern of two or three leaders holding 80% plus of the total market to create a new Internet meritocracy market place in its place.
In support of this argument remember that the number of Black Swans, or Unicorns, defined as companies that rise above a $1 billion valuation has never been higher as Digital Business introduces new market opportunities. A point that is clearly driving Venture Capitalists willingness to invest!
That’s not the only way and there are examples of sector, and market, leaders who have realized how to use the IoT startup market to reinforce their own value rather than allow an alternative platform, or a clutch of startups to triumph. In these cases there is an understandable progression in their use of each wave of new technology to create business value. In the last five years the route has been through Mobility into Smart Phone Apps and recognizable innovative Services, as part of this journey the adoption of IoT sensors has seemed a natural inclusion. These three stages of development characterize a three, or even five, year journey of growing experience; today at the start of 2016 this has to be an eighteen-month fast follower transformation to remain competitive.
Market place transformation is often initiated by customers, this certainly true in respect of the uptake of Apps, and App Shop distribution following the uptake of Smart Phones and Tablets. In parallel Mobility projects may have been more Enterprise focused providing useful experience, and often even more valuable data, in a wide range of sectors. A strategy to rapidly move into IoT Smart Services can successfully build on these foundations as the following example in the Farming Agri Business sector proves.
Farmers were quick to move into Mobility and Smart Phone, or Tablet Apps, with examples such as mobilefarmer.com described as ‘written by farmers for farmers’, or mobilefarmapps.com. As in other markets the arrival of these Apps stimulated the interest in, and acceptance of ‘Digital’ capabilities. Over time new Apps got smarter, more comprehensive and better integrated. The use of sensor and sensing technology added new functionality and became a feature of a new generation such as efarmer.mobi. Starting with the multi sensing functionality of a Smart Phone for location, (as with so many Smart Services, i.e. Uber taxi cabs), efarmer.mobi and others built a range of more sophisticated real time services.
Venture Capitalists have been quick to see the opportunities in using IoT to transform farming with $269 million invested in 41 startups in Q3 2015 alone. As is the case in other sectors existing IoT Technology startups such as ThingsWorx have been quick to extend their core IoT Platform capabilities to include a focus on farming ecosystems. The terminology Smart Farming, or Precision farming, is now the generic recognized term. As in other sectors a host of startups are now competing with various forms of IoT sensor based Smart Services placing market leaders under attack.
It’s not only Farmers and Startups driving the market, other Agri-Business such as Farm Supplies have seen a competitive advantage in helping their customers to gain more yield at lower cost by precision control of seeds, fertilizers, and sprays. To discover exactly what form this takes read the story of Wilbur Ellis' Agribusiness division developing it’s own Smart Service platform complete with labor task management and worker collaboration tools. The platform was built by Aditi a new breed of IoT technology integrator whose case study provides the story.
In might be a very different set of markets to the Smart Home/Buildings sector, but it’s a similar story with large numbers of well-funded startups surrounding and attacking established market leaders. (The common story that will become visible through 2016). In this case a market leader, John Deere farm machinery, has turned the presence of IoT Startups to their advantage in creating their own market place disruption against their new and traditional competitors as well.
John Deere executed a classic Mobility to Smart App to IoT Platform progression strategy through a series of tactically beneficial business moves. The third stage, creating an IoT Market Sector Platform is crucial to both maintaining market leadership and creating a new innovative competitive IoT ecosystem that provides unique value to the whole industry market from end customer to other market suppliers.
There is urgency to introducing Smart Services as experience shows users are reluctant to delete and load a latter competitive App even if it has new features. Late entrants, even as fast followers, will find it very difficult to persuade users to change to their Smart Services, and even more so their new IoT Ecosystems platform.
There is true first mover advantage in establishing an Industry Sector, or local Market, IoT Ecosystem Platform and attracting as many as possible IoT Smart Services Startups to use your Platform. Early winners see numbers of connections, data points and complex event processing capabilities multiplied ever faster leaving later followers, unable to create the necessary volume.
IoT Smart Services are totally dependent on an adequate volume of events and data flows to be able to provide the basis to calculate Smart actionable insights. Startups and Smart Service developers will flock to an IoT Ecosystem Platform that can provide them with the best quality volumes. The John Deere IoT Ecosystem Platform has succeeded by aggregating the data, connection and Apps together with earlier Telematics and Mobility activities to create the necessary volume.
John Deere started in 2011 with the introduction of the John Deere Strategy around using sensors and data to increase the value that that ‘JDLink telematics’, as it was referred to at the time could add to John Deere customers. The valuable experience gained led smoothly into improved delivery and user interactions with the launch in 2012 of John Deere Mobile Farm Manager. Farmers showed themselves to be more than willing to adopt the advantages of Smart Phones and Tablets to run a new generation of Sensor based Mobility capabilities and associated Apps all of which were able to directly contribute to more profit per acre/hectare. By 2013 John Deere was realizing the power of connecting up its own ecosystem of John Deere dealerships into a range of Smart Services for reliable operational maintenance branded as John Deere Farm Sight.
By the end of 2013 John Deere was ready to go ahead with opening its myjohndeere platform to the agri-business industry as a whole creating a data and connection rich IoT Ecosystem platform that would attract Startups and established Agri-Businesses to make use of its unique positioning and capabilities.
It would be nice to end this journey with John Deere recording record revenues and profits, but Farming is a tough business with the last couple of years seeing farm prices for a wide range of commodities falling, as have sales of farm equipment. Against this background John Deere have performed as well as could be expected and are the 70th most valuable brand in the global brands survey. The question is what would have happened if John Deere had not taken action to transform themselves, their sector and value offered to their customers? The best answer lies in the story published by Data Science which charts the change from “Farming to big data; the amazing story of John Deere” in reading this article reflect on how many other market sectors the story applies to as well!
2015 looks to have been the year for IoT startups to build their products with 2016 becoming the year that a series of market visible disruptions will occur. Collectively well-financed startups will certainly be present in many sectors and localized markets in 2016, the extent that this will impact Market leaders is the big question. How many global sector leaders will seize the initiative to become IoT Ecosystem disruptors is the second question.
As ever predictions are hard, but as its the customers who are driving the market disruptions as they see new business values change is certain to occur, it’s the extent that is the real question.
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