Internet of Things,IoT Ecosystem,PE/VC,Trends,

Industrial Vs Consumer IoT: Investments Vs Innovation Conundrum

With over $20 Billion in M&A deals and over $2 Billion in funding, 2015 was the year in which Internet of Things (IoT) domain witnessed significant traction.

With over $20 Billion in M&A deals and over $2 Billion in funding, 2015 was the year in which Internet of Things (IoT) domain witnessed significant traction.

Between 2010 and 2015, over $7.5 Billion have been invested in IoT companies in over 900 deals. While up until 2014, Consumer focused IoT solutions (primarily in Wearables and Quantified Self) garnered slightly higher share of total IoT investments, in 2015, Industrial and Enterprise IoT solutions attracted over 75% funding as compared to Consumer IoT companies. And, in 2016, this trend is expected to continue, by a larger order of magnitude two-to-three times more than Consumer IoT.

Industrial and Enterprise IoT solutions are primarily in the verticals of Smart Manufacturing, Industry 4.0, Smart Grids, Oil Rigs & Refineries, Wind Farms, Retail, Logistics, etc. Most of these industries have had sensors and been experimenting with sensor-enabled automation for a long time. Now with IoT, the focus is on Artificial Intelligence & Machine Learning, Security and Sensor Computing.Consumer IoT solutions are being developed in Home Automation, Healthcare, Quantified Self, Sports, Automotive, Entertainment, etc. And, the focus of Consumer IoT extends much beyond the three areas of Industrial IoT, to include Miniaturization, Power Management, Mesh Networks, Better Connectivity Protocols, Interoperability and Convergence Platforms.Be it Charging pods mounted on street light poles wirelessly charging the electric cars on the move; Transparent, non-intrusive Heads-Up Display (HUD) for cars that could handle voice calls, text and e-mail messages, music, radio, and map-based navigation; Network-enabled, cloud-powered, AI-driven dolls that could converse with kids and double up as security devices; Miniaturized and portable Ambulatory/Holter and stress analysis ECG machines that one can carry on person avoiding a visit to the big hospital; Smart pots that allow users to remotely monitor soil and light conditions and even water their plants through a mobile application; Smart insoles that measure impact stress on runners feet and knee and provide intelligent analysis and guidance to improve ones body dynamics and performance; we are witnessing disruptive innovation in the Consumer IoT space across verticals. Comparatively, in Industrial IoT, innovation is incremental.Many large technology companies are cautiously participating in the Consumer IoT innovation through Corporate Venture Funds and Accelerator programs. But, this is not a true, open support to the innovation ecosystem when technology and platform alignments are added as riders in term sheets.From professional venture capital investors point of view, Industrial IoT has short-term adoption and business potential, and they view most of Consumer IoT products as point solutions. And, this sentiment is currently driving the investment decisions of professional VCs in the IoT space.However, one key trend that we are observing in the Consumer IoT funding is the rise of Crowd-funding. Many Consumer IoT companies, in their early stages are using crowd-funding platforms to raise seed funds, and once the idea is validated, product developed and early adopters garnered, the solution and the company ready to scale, professional VC funding is being sought. This model of democratizing the VC through crowd-funding (in the early stages) is the most sustainable and scalable framework for Consumer IoT ecosystem growth, and is expected to continue for the next few years. The recent regulatory breather - JOBS Act (in US)  that allows investors to buy securities through crowd-funding is also a welcome for the young IoT companies.Currently, in the IoT evolution timeline, we are at a stage where we were during the early 90s of the Internet Era The Google(s) and Facebook(s) of the IoT are yet to be born and/or yet to come into limelight. For IoT to evolve as a Web of Platforms for Connected Smart Objects the biggest challenge will be to overcome the fragmentation of vertically-oriented closed systems and architectures and application areas towards open systems and integrated environments and platforms. For IoT to go mainstream, the industry needs to Solve remaining technological barriers (interoperability, security, etc), Explore integration model, Validate user acceptability, Promote innovation on sensor/object platforms and Demonstrate cross use-case issues, and both Industrial and Consumer IoT solutions need to be duly supported and evolve together. This Analyst Note was published inMint on 18th September, 2016.