Tim Chou: "Is it time to invest in IoT?"

Yesterday, Tim Chou, of Oracle fame, had this to say about investing in IoT: 

"if you’re an early-stage or even late-stage investor, it would be wise to be a student of this area as it promises to create as big a disruption as the second generation of enterprise software. And if you’re a startup with a vision to build products for things, not people, get started. Maybe in 12 years we’ll talk about you like we now talk about VMware, NetSuite and Salesforce."

With regard to his headline: "Is it time to invest in IoT?" I'm going to have to go with Betteridge's law here. Chou speaks of a the world in 2004 as if past performance indicates future results. 

We're no longer in 2004. 2007's iPhone changed everything about the way the enterprise space deals with connected technologies. It used to be that you took your jobs' device. Now offices say "bring your own." Windows used to be the gold standard for computing in the office, while Macs were appliance-like, user-friendly machines for the home. Now huge percentages of anyone on the exec track under 35 have one.

Why? Because we're currently in world where the technologies consumers adopt is leading the industrial and government purchasing trends. Put another way, with new-fangled stuff coming out every day, and connected technologies virtually inescapable in the US, decision makers are going with systems they find familiar rather than green-lighting contracts for anyone with a great pitch and a charismatic sales engineer.

The tech in the consumer space succeeds only when there's consistent reliability. That's why iPhones and Galaxy phones are water resistant; why you only reboot your computer once a month, and your wifi router once a year, if at all.

In the consumer IoT space, the leaders, the "big dogs," are frankly, flailing. 

Right now, players like Google's Nest and Belkin's Wemo are on their heels rather than poised to score.  The reasons are many, and some have to do with solving problems that industrial outfits that would seek to connect oil pipelines and water mains will also face. For Wemo, it's reliability. For Nest, it's strategy. For both, it's cost. The top reason why Nest isn't doing well is because consumers are completely uninterested in paying monthly fees in order for their fancy electronics to work properly (Nest Cam, I'm looking at you), especially when such devices are only as expensive as they are because of foolish $500+ million decisions like the purchasing of DropCam only to re-brand it. Then there's the fact that they've spent their R&D money on making a 3rd thermostat that most consumers find indistinguishable from the first two.

Wemo has had issues with reliabilty-- their radios may be fine but the software has suffered many a terrible review on Amazon and other places. The prices for the devices feel higher than they should.

They're not the only IoT manufacturers that are on the fritz. Let's not forget how GE invested in Quirky only to see it fail less than 18 months later.

Why does this matter? Because to get this stuff right, you need engineering teams that are properly motivated, and money helps get them there, though for some it's not enough. Nest, Quirky, Wemo-- these companies are buttressed by larger organizations with solid businesses that can afford to invest like Google, GE, and Belkin. They can afford to pay well and provide incredible perks and benefits to their engineers-- and those engineers are struggling not only to get everything working properly, but to maintain these connected systems. The  lucrative government contracts that Chou is alluding to with his reference to "industrial machines" and "enterprise things "go to the lowest bidder.

Recall the technical marvel that was the Obamacare healthcare exchange web site.  Amazon.com doesn't go down but the healthcare site did-- because the people running it didn't have the resources they needed to maintain the systems. The lowest bidder with the teams that are willing to (sort of) work for less. IoT may well be in that same place right now-- especially when it comes to infrastructure-based systems.

So, what to do? What are the signs that this space is maturing and can be considered stable? First; it's important to wait until there's a sure sign of an interoperability framework, whereupon devices made by disparate players can easily talk to one another (or at least a competent unifying service with a compelling revenue model). Proprietary is clearly not the name of the came in consumer and such failed eco-system lock-in schemes won't fly for industrial or enterprise either.

Second - if you need an emerging technology to park your money, noodle on this: Auto is getting not only connected, but electric. With Bolt, Volt-2, Leaf-2 and Model 3 (probably) on the horizon, spend your cash on battery tech. The infrastructure is solid, the tech is stable but making leaps and bounds and the demand for electricity storage is actually there.