The Internet of Things - 2014 Update

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This is an update to an in-depth analysis of the Internet of Things (IoT) published by SVB Analytics in 2013. IoT refers to everyday objects — like cars, food, pets and toys — that are connected to the Internet via smart chips which sense and share information about themselves and their surroundings. The report was developed as part of our strategic advisory service, which provides investors and entrepreneurs with an assessment of a company's value in support of acquisitions, mergers, investments, and other strategic financing activities.

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The Internet of Things - 2014 Update

  1. 1. The Internet of Things: An Update Market Overview and Proprietary Financial Intelligence Note: this is an adopted presentation of one delivered on April 14, 2014
  2. 2. Introduction Internet of Things | April 14, 2014 SVB Analytics provides strategic advisory, research, and valuation services to the venture capital ecosystem. In early-2013 we published a report on the Internet of Things. The following serves as a brief update a year later. Original Report: http://www.svb.com/internet-of-things-2013- infographic/
  3. 3. Internet of Things | April 14, 2014 12,500,000,000 Connected Devices 201020031998 2008 MIT coins “Internet of Things” IoT v1.0 500,000,000 Connected Devices Apple launches iPhone IoT v2.0 12,500,000,000 Connected Devices (mostly smartphones) “Decade of Slow Progress” Internet of (Some) Things v1.0 Internet of (More) Things v2.0 Rooted in the late-1990s, the Internet of Things is not new, however the latest iteration has been powered by the explosive growth of connectivity
  4. 4. Internet of Things | April 14, 2014 What’s Driving the Internet of Things? Internet of Things MOORE’S LAW METCALFE’S LAW BIG DATA ANALYTICS Rapid decline in price & size of wireless sensors and compute resources Proliferation of connected devices & adoption of wireless standards Exploding volume of data creating need for actionable insights Hardware advances and network effects have been key accelerators, but big data analytics capabilities have really propelled IoT version 2.0 forward
  5. 5. Internet of Things | April 14, 2014 The “Series A Crunch” There are more angel/seed funded companies than institutional dollars available to continue to fund them. Declining Venture Capital Investment Venture Dollars Raised Fall 27% Below 15-Year Trailing Median Tomasz Tunguz July 22nd, 2012 “ ” The “Series A Crunch” Last year we predicted a Series A crunch as the number of seed-funded Internet of Things companies far exceeded the amount of funding that was available—there were too many companies chasing too few dollars.
  6. 6. Internet of Things | April 14, 2014 The “Series A B Crunch?” Declining Venture Capital Investment Venture Dollars Raised Fall 27% Below 15-Year Trailing Median Tomasz Tunguz July 22nd, 2012 Rising Crowdfunding Investment* Instead, an explosion of crowdfunding filled the gap. It’s still unclear if this has fully filled the funding gap or just pushed things out to a Series B crunch. More importantly, crowdfunding now demonstrates a form of “crowdfiltering”, where consumers provide vetting of ideas early on. There are more angel/seed funded companies than institutional dollars available to continue to fund them. “ ”
  7. 7. Internet of Things | April 14, 2014 Fragmentation of Wireless Standards Industrial Internet Consortium (IIC) Launched by Cisco, AT&T, Intel, GE, & IBM – 3/27/2014 Challenges (Still) Facing IoT v 2.0 Though many challenges from a year ago still remain, industry is addressing these directly and progress has been made. One area that didn’t materialize was consumer retrofitting, where adoption has been slow as consumers appear to be willing to wait for full replacement cycles before upgrading to “smart” devices. Challenge Update Power source limitations Costs to retro-fit current generation ‘things’ and slow rate of replacement Ultra-low-power circuits, Apple iBeacon & Bluetooth Low Energy (BLE) Retrofitting consumer technologies will be transitional as horizontal is slow Retrofitting industrial may accelerate through innovation due to higher replacement cost.
  8. 8. Internet of Things | April 14, 2014 Energy & Home Healthcare Enablement Opportunities – Then and Today Fastest-moving: proliferation has occurred in the connected home Up-and-coming: healthcare has seen acceleration by reducing costs Didn’t materialize: consumers slow to trade dumb devices for smart ones
  9. 9. Internet of Things | April 14, 2014 Clear Use Cases Crowd-filtered Consumable Analytics Smart Cities Energy Agriculture Retail Buildings Banking Waste Parking Healthcare The Next Perspective – Predictions Compelling use cases will continue to languish without clear business cases Crowdfunding as “crowdfiltering” will revolutionize the way products are brought to market Consumable analytics allows individuals to improve behavior  Internet of Everything
  10. 10. Internet of Things | April 14, 2014 Summary • Despite its enormous potential, there remain significant business and technical hurdles to overcome for adoption of the “Internet of (Every)thing.” Until compelling use cases are translated into directly viable business cases, IoT adoption will proceed slowly. • We predicted a Series A crunch that never came—instead a torrent of crowdfunding filled the gap, pushing many IoT companies into later stages. More importantly, this has served as a “pre-vetting” process, allowing market feedback before a product launch. • Encouragingly, industry has responded to some of the biggest challenges—fragmented networks, power sources, and retro-fitting—in the last year, and progress has been made (though at times uneven– ie. consumer retro-fitting v. industrial adoption). • In spite of these headwinds, significant opportunity exists. We continue to see the greatest opportunity in energy and home management, health care, and enablement technologies. The former two witnessed a strong year since our first report was published, though enablement on the consumer side has progressed more slowly. • Looking ahead, we continue to see slower adoption of IoT until clearer business cases can be made. We also believe that crowdfunding will play an increasingly important role in IoT validation and vetting—representing an accelerant in the market. Finally, we expect to see a rise in consumable analytics that will drive IoT adoption by impacting real-time behavior.
  11. 11. SVB Analytics 555 Mission Street, Suite 900 San Francisco, California 94105 800.760.9644 svb.com This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by SVB Financial Group and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer to acquire or dispose of any investment or transaction. ©2013 SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Analytics is a member of SVB Financial Group and a non-bank affiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or other obligations of Silicon Valley Bank. SVB Analytics does not provide tax or legal advice. Please consult your tax or legal advisors for such guidance. Rev. 06-17-13

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