The Internet of Things is heating up to be a huge market for investors. Let's take a look at recent studies and trends in the field.
A recent global research study by Tata Consultancy Services, which included nearly 800 executives from multinational corporates throughout the world, concluded these business leaders view their IoT investments as directly responsible for revenue increases of between 15.6% and 64%.
Many of these companies also reported despite some roadblocks related to capitalizing on the true opportunity of IoT, seven percent of them plan to spend more than $500 million on IoT investments just in 2015.
Consumers are also catching on with Millennials driving the adoption of IoT across all segments, according to a 2014 State of the IoT Industry by Accenture.
At the International Data Corporation’s Futurescape Conference earlier this year, a number of IoT market trends indicate what might be shaping IoT investing for the rest of this year and into 2016:
- To support IoT devices and integration, there will be significant growth in the area of cloud-based service provider platforms.
- Security solutions will become more important as the reliance on and connection of IoT devices will create new security issues.
- Network constraints as IoT devices are added on will also require new solutions from startups.
- In 2015, over half of the IoT activity is focused on consumer applications, transportation, manufacturing, and smart city solutions.
- Since local governments are spending considerably more to transform their areas into smart cities, devices, and enterprise systems that serve this segment are another are growing fast.
- The wearables market has been pegged to become a mass-market segment set with the potential to overtake the smart phone.
In further defining the IoT trends this year and beyond, the aforementioned Accenture report concluded, “Currently, 7 percent of consumers own a wearable IoT device and 4 percent of consumers own an in-home IoT device. Nearly two-thirds of consumers plan to buy an in-home device in the next five years and wearable technology ownership will double by 2015—increasing from 7 percent in 2014 to 14 percent by 2015. By 2016, wearable technology is expected to double again and reach a total of 28 percent adoption rate.”
This report noted other consumer trends:
- 13% of consumers are planning to purchase wearable fitness applications within the next year and a total of 33 % looking to adopt in the next five years.
- 5% of consumers are planning to purchase a smart watch in the next year and a total of 23% planning to adopt in the next five years.
- 83% of consumers are willing to pay more for a smart smoke alarm versus 59% who are willing to pay for a smart refrigerator, showing a preference for safety and security from IoT devices over novelty.
Other data confirms that these areas of growth are also the segments that VCs and angels are favoring with funding rounds. A 2014 TechCrunch article noted that investors poured $300 million over 97 venture rounds into IoT startups with a larger amount set for 2015.
Here are the segments with the main focus:
- Home automation will continue to top the list as large companies, such as Google, Samsung, Microsoft and AT&T, look to dominate the space and may continue buying up home automation startups through 2015.
- Beyond existing markets like wearable devices and home automation, investors are already looking to those IoT startups that can develop new markets and verticals that are related to homes, offices, or vehicles.
- The other area where investors are starting to consider is IoT startups that can develop the central hubs to integrate and manage all the devices, providing control, communication, and security.
- Investors are also backing other interesting types of IoT products, such as personal mobility devices and wireless power transmitters.
- Other new IoT products of interest are in the health and wellness niche, including those offered by Vivalnk, which makes a Bluetooth enabled wearable thermometer that can be used by adults and children. With an IoT network of sensors in their thermometer patch, parents are notified through a phone app if their baby's fever spikes.
While there are a growing number of investors in IoT, the funding rounds are staying in the modest range because of the rapid advancements, some hesitancy on the part of consumers to adopt IoT device, partly due to privacy concerns and partly related to a lack of knowledge, and questions about the type of hubs that can bring all the devices together.
What that means for IoT startups is some incredible potential to attract investor attention and get funding to fuel their business. Investing will most likely tend to focus on these segments of IoT in order to address demand and solve some key barriers to future IoT growth.