Those of us fond of exploring the world of emerging opportunities at the intersection of cleantech and computing power often talk about the Internet of Things. When he first coined the term in 1999, Kevin Ashton prophetically wrote:
If we had computers that knew everything there was to know about things—using data they gathered without any help from us—we would be able to track and count everything, and greatly reduce waste, loss and cost. We would know when things needed replacing, repairing or recalling, and whether they were fresh or past their best. The Internet of Things has the potential to change the world, just as the Internet did. Maybe even more so.
I share Kevin’s sentiment that the Internet of Things has the potential to be world changing, but I find it is increasingly important to define what “things” we are talking about. The world is obviously full of inanimate machines from huge to microscopic and tracking all of these disparate devices would require varying levels of investment, networks, and data crunching capabilities.
The topic was on my mind this week as I reflected on two new deals we tracked in i3 that represented opposite ends of the spectrum of things.
The first, Eaton’s blockbuster $11.8 billion acquisition of Cooper Industries, is a testament to the increasing importance of the Internet of Big Things. Eaton and Cooper both deal in hardware and controls systems for everything from buildings to vehicles. The combined global company will have over $21 billion in revenue and will merit mention alongside the world’s largest smart grid players – ABB, Siemens, Schneider, Alstom, and GE. Cooper had interestingly been of the earliest acquirers in the space when it picked up smart grid networking specialist Eka Systems in early 2010.
At the other end of the spectrum, the Internet of Small Things, we saw ZigBee chip maker Ember acquired by Silicon Labs for $72 million. Founded in 2001, Ember has been a true pioneer in developing low power and low cost wireless technologies for use in small devices. It has championed ZigBee which, in theory, has gained significant traction in the advanced metering market although many of these chips, installed in smart meters, still remain dormant.
Cooper, a publicly traded company, was acquired for a very healthy 30% premium to its stock price. Ember, a private company, on the other hand was acquired for a discount to its total paid in capital ($72M versus $81M in total paid in capital). What does this say about the state of play in the Internet of Things?
For me, it is a signal that we are still in a period where the biggest value is coming from tracking big things. There is still so much low hanging fruit to be captured by monitoring and optimizing the biggest sources of energy use and the biggest pieces of equipment, that it is genuinely hard to justify significant engagement on the long tail of small things (though its day will come).
While network builders and equipment providers are eager to see the world of machine to machine communication flourish sooner rather than later, we must be asking ourselves simple return on investment questions with each new device we propose to track. Tracking something for novelty sake may be technically interesting, but everything must have a good business.
For now, as far as the energy business goes, that case is still best made by tracking Big Things.
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