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Sometime around 2017, there were talks of IoT connected devices outnumbering the world population. By the end of 2018, that number was well over 3x the world population with over 23 billion IoT connected devices installed globally. In 2030, this number is projected to cross 125 billion, placing almost 15 connected devices into the hands of every user. It is therefore imperative for the industry to meet the demands of a growing market and ensure the user interface is friendlier for the end customer.
Emerging technologies like robotic process automation, artificial intelligence, machine learning, cognitive computing, analytics and IoT have matured over the last few years. The convergence of these emerging technologies with real time data transmission, and the advancement of sensors and actuators is making IoT a valuable enabler for businesses.
The IoT Phenomenon
There’s been a significant upsurge in the consumer facing technology companies over last decade. The idea of IoT is simple – high-speed, reliable and always-on connectivity and interactivity of electronic and mechanical devices.
For consumers, this means having something as desirable as a fully connected entertainment ecosystem that allows them seamless access to content across platforms and devices e.g. Netflix usage across personal computer, home entertainment system, vehicle display and a mobile device. A friend in the US tells us how he finds the IoT/AI technologies used in an Amazon Alexa and Google Home mind blowing. While he gets ready for work every morning, in parallel, he uses Alexa to give him a news briefing, apprise him of his calendar, provide snippets of the weather in the city and order an Uber. Such interactions with the smart speaker, allows him to dress appropriately; carry an umbrella (when required), and most importantly use his time productively. In a nutshell, IoT for a consumer enables ‘going beyond yourself’; in some cases, imbibing self-monitoring which can also mean bringing about behavioral changes.
The IoT Market
The global IoT market was estimated to be USD 674 billion as of 2017. Furthermore, during CY2017-22, the expenditure on IoT by Top 500 companies is expected to grow at ~19%.
One of the major reasons behind the rapid rise of IoT usage is a huge leap witnessed in the areas of microprocessor speeds, smaller sizes of sensors, lower data storage costs, access to cloud computing, improvements in AI and data analytics, and various successful proof of concepts. The IoT market is at the heart of technology advancements in aligned industries such as the cost reductions in data analytics and public cloud services, increase in enterprise AI adoption, and lower storage and sensor costs. All these categories of technology are further supported by the rollout of new 5G networks and the expansion of existing 4G networks by about 500% by 2020.
Deal Activity
Positive industry tailwinds are encouraging massive investment opportunities for IoT companies. Meaningful partnerships amongst large technology players clubbed with significant investments by corporate venture / tech VCs seems to be the flavor of the segment for some time now. Active VCs in this segment include Cisco Investments, Intel Capital, Google Ventures, amongst others. For the Corporate VCs, such investment decisions help meet two key objectives: (a) it enables them to contribute towards tech R&D investments (b) it kills competition from smaller start-ups. Even if 3 out of 1000 ideas were to fructify, they would benefit from the massive scale such organizations can bring to the differentiated solution/use-case created by a smaller investee company.
On the M&A side, the industry that is majorly driven by IoT and wireless communication, i.e. the Semiconductor industry, is going through massive consolidation. The ubiquitous requirement for massive R&D investments is leading to continuous M&A activity in this segment. Some of the larger transactions would be (a) Broadcom’s Wireless IoT business acquisition by Cypress in June 2016 (b) Infineon’s acquisition of Cypress in June 2019 (c) Intel’s acquisition of Barefoot networks (d) Marvell acquiring Cavium in July 2018 and selling its Wi-Fi connectivity business to NXP.
Avendus Insight
With digital transformation as a cornerstone of every businesses’ growth strategy, organizations need to operate their IT infrastructures and systems using the best combination of platforms, products, and services. However, in most cases the source of these enabling solutions remains fragmented across multiple vendors.
The IoT market lies at the heart of the global technological shift currently being undertaken by companies, governments, and organizations of all sizes, with the objective of ‘converting multiple into one; complex systems into a simple system; data dumps into insights'. As the IoT industry matures with a more demanding client base, the existing vacuum of a meaningful niche pure play IoT player is likely to be filled. With emergence of such niche IoT players, and the compelling industry tailwinds, the sector is ripe for large PE investments to back IoT platforms and larger M&A deals amongst technology players.
To know more about the state of the global IoT industry read the Avendus report “Internet of Things: Surreal Becomes Real” here.