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Extracting value from the Internet of Things

The Internet of Things may be that rare example of a technology theme that proves to be even more valuable than the hype suggests. So how do investors and businesses alike position themselves to take advantage?

Fifteen billion and counting. For once, the hype around an emerging technology looks to be justified: the Internet of Things (IoT) already encompasses a staggering number of devices and today’s total of 15 billion worldwide is expected to reach 50 billion by 2020.

Moreover, despite some technical jargon, the IoT is a simple concept. It is simply a network of devices containing technology that enables each of them to send and receive information via the internet. That might be anything from your exercise-monitoring watch to the components of a factory floor assembly line. The power of the IoT lies in the data it generates, which provides constant feedback about how devices and equipment are performing, where they are, and how their owners are using them.

 

TMT smart watch

 

The potential for this data is most often talked about in the context of the consumer – for example, the use of connected telematics by car insurers to price cover according to drivers’ individual behaviours, or the fridge that enables you to order groceries. However, the bigger opportunity almost certainly lies in business-to-business applications, which have the potential to revolutionise the way companies in every industry imaginable operate.

In manufacturing, for example, one study shows 35% of US manufacturers are already utilising IoT technologies to boost efficiencies – employing sensors that send an alert when a machine needs maintenance to avoid a breakdown, say, or building connectivity into products that then report back on how they are being employed by customers once they’ve been shipped. In retail, the use of the IoT to track products and components as they move through complex supply chains is becoming commonplace.

For investors, the obvious question is where to find exposure to the technologies that promise such exciting results. One possibility is to identify the technology companies developing the tools that will power the IoT’s expansion – CB Insights data suggests such firms raised $3.7bn of funding last year.

Although many of these businesses are either very large or at a very early stage - where it is difficult to predict who the winners will be - there are increasing numbers of investible opportunities that investors are interested in. At Livingbridge we assess which themes are likely to feed into future demand. For example, IoT cybersecurity is a hugely attractive sector given the massive demand for tools and technologies that protect connected devices that have until now often been overlooked in this context.

Another exciting opportunity is to identify businesses in each industry that are securing competitive advantage from their early adoption of IoT technologies. In sectors such as agriculture, retail, logistics, healthcare, energy and manufacturing, the leaders have already begun to employ IoT tools. The most successful are already enjoying enhanced profitability and believe their investments will help secure longevity, by protecting them from disruptive new entrants and enhancing their productivity, for example.

An organisation’s use of IoT technology, in other words, will in future become a key differentiator – and therefore an important criterion weighed by investors considering a stake. And this will also create additional pure-play opportunities: those technology companies able to provide specialist IoT solutions for particular industries and sector will be in a strong position.

Businesses themselves need to pay attention. Those slow to respond to the opportunities afforded by the IoT can expect to be asked why they are overlooking a technology that by some estimates has the potential to add $11.1 trillion a year globally in added economic value.

Every management team should be considering the same questions. Where in my business can IoT tools add value, from helping to automate the production line to facilitating the accumulation of actionable insight from customer data? What are my competitors doing in this area and are they ahead of us? And where can I use the IoT to make the quickest wins on cost savings and revenue enhancements?

Businesses able to answer those questions more rapidly than their peers have a real chance to accelerate their growth and consolidate their market leadership. For investors, meanwhile, that represents an enticing opportunity.

 

If you'd like to hear more about our experience backing fast-growth technology businesses, please contact investments@livingbridge.com

 

 

Opinion