In the keynote presentation of 2014’s Consumer Electronics Show, Cisco CEO, John Chambers, estimated the market opportunity related to the Internet of Things to be valued at $19 trillion. Further, Chambers said that manufacturing would account for roughly $2.9 trillion of the total opportunity. As Chambers continues to trumpet these figures in other highly visible venues, he is assuredly trying to some extent to drum up investor enthusiasm as the self-proclaimed champion of the Internet of Things. However, what should not be left in the rhetoric is the sheer size of the market — even as a ballpark figure. While the Internet of Things is not a new concept, it is certainly an important and substantial one impacting manufacturers and technology companies alike.
“Refrigerator not running? Better call Google.”
In January, Google shook up the technology community with its acquisition of hardware/thermostat company Nest for $3.2B. This move was the cherry on top of an aggressive 2013 acquisition strategy that entailed the purchase of eight robotics companies. These massive bets placed by Google begin to seem more rationale within the context of Chamber’s market assessment.
On the other side of the tech coin, smartphone king Samsung recently announced its own smart-home computing platform that will let consumers to control common home appliances (e.g., washing machines, televisions) from a single app. Taken into account with Chambers’ mission to bring Cisco to the center of a world where every gadget and household item is IP-enabled, it begs a few questions: What we should make of technology bellwethers’ Internet of Things gamble, specifically the way they’re maneuvering out of their core competencies and into manufacturing? Have we reached some sort of market tipping point shifting from conceptual to actual? And, lastly, as the tech heavies compete for stake in the manufacturing sector, should M&D businesses start chasing them for partnership and/or capital?
A thorough examination of Google’s shopping spree
Understandably, Google’s foray into M&D, and robotics in particular, has the tech and investment communities asking questions. In 2013, Google acquired startups Bot & Dolly and Autofuss, along with Redwood Robotics, Perception, Boston Dynamics, Meka, Schaft and Holomni. If you also consider Google’s major focus on internal M&D projects like Google Glass, Google Fiber, and self-driving vehicles, then their moves can only be characterized as a direct, calculated choice to tackle hardware.
Robots can’t buy AdWords, right?
Despite all of the cross-industry deal making, don’t forget how it all started: Google sells ads. Google’s omnipresent search algorithm and Android mobile operating system continue to be the company’s core revenue drivers — so how will robotics and hardware fit into the big picture? It’s likely that Google’s closed-door executive chats are about robotics and other M&D subsectors becoming emerging industries in their own right, not unlike search engines were twenty years ago. Another rationalization could be that, given the tech world’s cutthroat competitive nature, these deals are more about investing in fresh talent than the businesses themselves. Remember, Nest is comprised of 100 ex-Apple staffers, including co-founder Tony Fadell who is widely considered the “father of the iPod.” The most popular theory, however, is that the above (powerful hardware, top talent) are peripheral benefits that accompany what is expected to be the real lottery of recent M&D acquisitions: the Internet of Things.
Google, Samsung, Cisco and others are investing in a new vessel through which they can deliver their more core offerings, and attempting to carve out a new market for their current tech platforms. The next hardware wars won’t be fought on smartphones or tablets, but on interconnected everyday products. The pressure is now on for companies to claim a strategic position on the battlefield.
“Hey! You! Get off of my cloud.”
Another interesting subplot in this story is that the emphasis of the conversation has returned to hardware despite the previous shift in focus toward cloud technology — which had many doubting the future prospects of technology enabled hardware. Contrary to cloud technology, this “hardware renaissance” brought on by the Internet of Things stipulates that tangible hardware still be involved. In this sense, the Internet of Things seems to be less of an example of the pendulum swinging back toward hardware as we’ve known it, and more a case of it swinging freely on an entirely new plane. By all accounts, the Internet of Things presents an opportunity for technology (software) and manufacturing (hardware) to expand the pie and grow together as opposed to some sort of binary tradeoff. Tech firms will need to partner with smart, innovative manufacturers who can create these products in order to take advantage of the concept, and manufacturers will need to find ways to partner with technology companies or face the possibility of being left behind — and in both cases the key words are “partner with”, not “replace”.
Guaranteed growth, one way or another
As consumers, we should be eagerly anticipating a day when our artificially intelligent iOS or Android home operating systems can predict our needs and better control the mundane evils of daily life. From an investor and business perspective, this market transformation is fascinating, but knowing who will be the last one standing when the music stops is guesswork at best. M&D executives have an especially keen interest in these shifts, as tech companies become a new potential partner group. Tech giants’ corporate developers — with their suddenly deep pockets and flexible spending plans — should be put on speed dial for investment bankers and M&D leaders searching for capital. COOs, operators, and consultants need to keep expanding the scope of what we call “operations” to include technology; conversely, CIOs and IT teams will benefit from a little M&D education, familiarizing themselves with shop floors, distribution, and other nuances of hardware businesses. Despite the future’s uncertainty, let it be known at this point that tech giants’ moves into M&D have not been made by chance. When it comes to the rendezvous between technology and M&D, we’ve only seen the beginning.
Tom Racciatti is a Senior Manager with West Monroe Partners based out of the firm’s Minneapolis office.
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