It’s well-known that big companies struggle to innovate. One of the main reasons for this, is that the big companies have more to lose.
A company which has spent many years developing a particular brand may hesitate to take a risk – a new product or service could damage the brand if it goes wrong.
There are many other well documented reasons for why big companies struggle to innovate, including;
big companies number one goal is to satisfy shareholders
big companies profit drives their structure which is set in the day- to-day tight running of the ship
big company culture is not originally designed to support innovation
big companies want to see an immediate return on their investment in new products/services
Put simply, ‘big companies generally don’t like to experiment and develop new products or services’.
Ok, so let’s imagine for a moment that you are a big company. If your mindset is as described above, how would you feel if we suddenly asked you to develop a new product/service that must have a new, complicated and unproven technology in it?
And how would you feel if that new technology is completely out of your control – that is the new technology is managed, controlled and owned by a third-party company?
And how would you feel if that new technology also relied upon a global presence, or a global roll-out for the new product/service to work?
Welcome to the Internet of Things! The Internet of Things (IoT) is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data.
Many large research firms estimate that by 2020 the IoT market will be more than double the size of the smartphone, PC, tablet, connected car, and the wearable market combined with over 20 billion devices to be connected. This compares to approximately 3.2 billion people using the internet today.
In the last few months there has been a lot of talk that IoT revenue growth is fast, but may not be fast enough to meet all the anticipated targets.
For example IoT technology developer and network operator Sigfox, who have raised a total of about $300 million, including €150 million ($179 million) from some high-profile investors over a year ago, has recently seen revenue growth falling below expectations. Sigfox was said to be aiming for about €60 million (USD$72 million) in revenues this year but will probably end up with just half that amount, putting sales at roughly the same level as in 2016.
So how do we get IoT growth back on the speedy track? Tech start-ups can take advantage of the aforementioned big company ‘risk averse’ culture, and develop IoT products and services.
But as IoT involves mostly physical devices, that is hardware, they are money hungry and require a lot more investment upfront as compared to software startups.
In today’s day and age, with so many free tools such as WordPress and Dropbox, software startups can cost as little as $100 to build, where-as a hardware start-up requires capital in order to finance development and prototyping, initial production, certification costs, and manufacturing of the initial batch of products. These costs can easily add up to $500K – $1M.
So who is going to pay for the IoT start-up to develop their hardware? Investors? Investment in hardware is generally less than a quarter of the amount invested in software.
In addition, investors tend to fund hardware start-ups in a growth stage and not in a development stage. So here is the summary;
IoT is projected to be the biggest market opportunity in history
Big companies don’t want to develop IoT products
Start-ups want to develop IoT products but they cost alot
Investors don’t want to invest into IoT start-ups developing IoT products
IoT growth is slowing, because of all the above
So what is the solution?
Governments must step in to support the growth of IoT and start-ups. Governments and cities stand to benefit the most from IoT in terms of jobs and growth, increased living standards, and cost savings. One City Government in China is leading the way with the recent announcement of a $16 Billion AI Investment Fund. Its time for other Governments to follow