By Austin Goltz, Analyst at Volition Capital

CES 2020

Last week, a projected 4,400 exhibiting companies and 175,000 professionals participated in the 2020 Consumer Electronics Show (CES). Sprawled out over 2.9 million square feet, (1) the show practically leaked into the desert surrounding Las Vegas. Two members of the Volition Capital team attended the conference, giving them a front-row seat to the latest tech innovations. Sean Cantwell, Managing Partner, and Austin Goltz, Growth Equity Analyst, attended multiple sessions, exhibits, and meetings.

So, what was Volition Capital’s largest takeaway? The Internet of Things (IoT).

IoT at CES

With 5G technology rapidly progressing – said to be at least 10 times faster than 4G and capable of supporting 100 times more connected devices (2) – this year more than any other, there is a ravenous appetite for IoT. For example, multiple tech giants from Samsung to Toyota (3) rolled out ambitious plans at CES 2020 to create entire smart cities, “with people, buildings, and vehicles all connected and communicating with each other through data and sensors,” according to CEO of Toyota, Akio Toyoda. (4)

Beyond these dramatic IoT examples, third parties are enabling companies interested in IoT to adopt the software and hardware required to build complete IoT platforms. At CES, companies like Avnet are launching new Partner Programs designed to provide developers with a place to build complete IoT solutions. (5) The Volition Capital team even met with a company that specializes in hardware that helps connect devices to cellular networks, significantly reducing costs and time-to-market. Using these solutions, it is easier now than ever to enter the IoT market.

The popularity of such exhibits and presentations feeds into the increasingly frenetic hype behind IoT. As such, our analysts have taken a deep look at the IoT market, including where it is now an important vertical to watch throughout the next decade.

What is IoT?

Section by Zac Goldman

At its core, the Internet of Things is a means of giving companies access to data from more sources than ever before and enabling enterprises to cost-effectively store, analyze, and, ultimately, use this data to make more informed business decisions. Data collected from sensors embedded in IoT devices such as smart speakers communicate through networks to platforms where data is aggregated and managed. Applications sit on top of platforms, analyzing the data and providing insights.

The amount of IoT connected devices has increased by 84% since 2015, with manufacturing representing the largest amount of spend. Meanwhile, executives are focused on IoT solutions that drive impact to their bottom line. The number of IoT connected devices increased by 1.1 billion from 2017 to 2018 and is projected to increase at a 19% CAGR through 2025 as businesses and consumers continue to adopt IoT. (6)

This year signals a continued shift in the role of IoT toward AI powered analytics. A new idea surrounding IoT emerged from this year’s CES conference – according to Consumer Technology Association’s (CTA) vice president of research Steve Koenig, instead of standing for the Internet of Things, the acronym should stand for the “intelligence of things,” due to the increased reliance on AI technology to power IoT’s smart connections. (7)

Business Challenges and Use Cases

With this shift towards AI in mind, IoT devices have the potential to solve four major classes of business challenge:

Asset Tracking: Employees spending too much time tracking down and mishandling equipment leads to lower productivity and production quality. Track and trace for company assets provides valuable information about who is using what, where, and when allowing businesses to maximize asset utilization rates, ultimately saving time and money. Major verticals in this class include Healthcare, Construction, and Automotive.
Predictive Maintenance: Aging machinery and a shortage of maintenance personnel are causing businesses to incur large downtime costs. The continuous monitoring of connected devices allow for the comparison of real-time data vs. historical data to detect anomalies and suggest preventative action before machines go down. The core verticals include Aerospace, Automotive, and Energy & Utilities, estimated to represent $6.3 billion globally by 2022. (8)
Process Control Automation: The inability to effectively manage production conditions leads to production inefficiency, deviations, and damaged products. IoT pairs connected production devices with AI, allowing for the monitoring of process parameters at a granular level and more rapid identification of issues. The result is faster remediation, maximizing efficiency while minimizing costs. The core verticals range from Food & Beverage to Medical Devices, and even Aerospace.
Inventory Management: Businesses struggle to maintain proper inventory levels and to deliver orders on time and in good condition, costing companies in lost revenue opportunities and damaged goods. The connected devices of IoT allow for real-time tracking of inventory, status alerts when inventory conditions change outside an acceptable set of parameters, and data aggregation. These draw insights and improve processes, ultimately reduces waste and lowering costs over time. The core verticals include Food & Beverage, Retail, and Electronics.

What’s Next?

While still early, IoT adoption is happening at a fast pace as businesses are looking for ways to gather more data and make better business decisions. Investment volume in IoT startups has stabilized over the last few years, signaling that IoT is past hype. (9) However, as the Volition Capital team saw at CES 2020, there are still gimmicks around every corner.

Many IoT startups are creating a product or platform and then looking for a problem to solve. A hammer in search of a nail. Volition Capital is interested in companies that take a different approach. The companies we invest in start with the problem, understand the potential ROI, then create a solution.

Businesses that are adopting IoT are doing so with an interest in improving efficiency and creating ROI. Volition predicts the majority of value creation amongst IoT vendors will come from software that offers AI-powered insights that ultimately enable businesses to cut costs and/or increase revenue.

CES 2020 was certainly an eye-opening experience. But, hype or no, Volition Capital will keep doing what it has been doing for the last ten years: focusing on companies that are solving specific pain points and generating real value.