Things Are Heating Up

By Knowledge@Wharton | January 16, 2015

Stories about the Internet of Things — everyday objects that have been upgraded to send and receive data — are growing ever more common in the media, and for good reason. As a July post in the New York Times’ Bits blog commented, “Over the next few years, very little stands to be bigger than the Internet of Things, or IoT…. The IoT is expected to eventually touch some 200 billioncars, appliances, machinery and devices globally.”

But before we can reach that future of 200 billion or more networked objects, developers will have to deal with a host of on-the-ground challenges.

Picking the Winners

Michael Aronson, managing director of MentorTech Ventures, showed a Zepp Sensor, a device designed to analyze precisely how people swing baseball bats, tennis rackets and, in the case of the one he had brought along, golf clubs — and guide them on how to improve. The device, he explained, would report “my swing speed, my swing plane … and advise me which club to use. It’s really cool.” But, asked if it would put caddies out of business, he said no. Specifically, he noted, the Zepp doesn’t sense the environment, so it can’t suggest to someone how to play based on weather conditions the way a smart caddie would. However, he said, “That’s definitely an improvement that should come along.”

Shifting to a subject even more in his milieu, Aronson then talked about the tricky business of judging the sound investments in this new arena. “The big question we always have is, ‘How are you going to monetize it?’”

He described a recent meeting with a San Francisco company that has developed a parent-paid Internet protection system for schools. The system is designed to block certain apps and websites from kids’ devices, and restrict other sites for use only during particular times or days. “Then we say, ‘Well OK, how many parents have actually adopted it, and what price are they paying?’ They really didn’t do a whole lot of testing.” Further, the company’s monthly recurring revenue was less than $50,000, rather than the $75,000 to $100,000 that Aronson says he would like to see.

Another question is whether people will pay for the monthly service on the device. “Right now, about 25% of the people who buy the hardware continue with the subscription model at the expiration of the free trial period.” Overall, he feels the company still needs to fully prove its case to investors.

Another device, NeatConnect, is a scanner that doesn’t need to be linked to a PC. Aronson explained that the gadget, which hit the market last year, contains smart firmware (permanent software programmed into a read-only memory) that sends images straight to Neat’s own Cloud-based storage service, or to the user’s choice of many other locations such as Google Drive or Dropbox. “This is one of our portfolio companies … they’re about $100 million in revenue.”

Asked whether it was true that venture capitalists tend to back away from products like NeatConnect, which rely on proprietary hardware, he replied, “A lot of people are allergic to hardware these days, although it’s changing a bit with the success of companies like Nest [Labs],” the home automation company purchased by Google last January. He noted that Neat is actually in the process of transitioning to “modify all our software and cloud services to run on any hardware that’s out there.”

Connecting Where Connectivity Is Scarce

Daniela Perdomo is co-founder and CEO of goTenna, a start-up that builds tools for decentralized communication. The goTenna device, which resembles a high-end pen case with a small strap attached, can be paired with a smartphone to enable people — in the words of goTenna’s website — “to communicate without any need for central connectivity whatsoever — no cell towers, no Wi Fi, no satellites — so when you’re off-grid you can remain connected.” The catch, of course, is that it only enables communication with another goTenna-equipped device, and the range is only a few miles, but sometimes, that sort of person-to-person connectivity is just what you need.

“I didn’t start this company thinking that I wanted to start a hardware company, but there was no other way to solve the problem of no connectivity,” said Perdomo. “So we realized it involved hardware, and then quickly realized it also involved firmware, networking and software — plus a website [for the product]. So it was really everything.”

The goTenna device, she said, can be “very helpful when you’re hiking, traveling, in an emergency, or in the event that central connectivity fails.

“We are a little different than most connected devices,” she noted. “We use Bluetooth LE [low energy], which is the new standard … I’m not sure if any of you have had a nightmare experience with, say, trying to connect your iPhone to your car or to your glove or whatnot, but Bluetooth LE makes it really easy to pair and it doesn’t drain your battery.”

As a hardware platform, goTenna can be combined with software, so it can be “monetized with all sorts of stuff,” according to Perdomo. For example, she said that Facebook Messenger has shown interest in goTenna around the idea of providing messaging services in parts of the developing world it’s difficult or impossible to get a cell signal.

A Smarter Way to a Smart Home

“When I go home at night, my garage door opens automatically when I just pull into the driveway, and if it’s after dark, it knows to turn on the lights in the house, open up the interior door and unlock that,” said Mike Harris, founder and CEO of Zonoff.

Zonoff is a smart home software company. It powers, among other things, the Staples Connect home-automation service, now available through more than 500 Staples stores nationwide. In addition to Internet-connected garage door openers, light switches and locks, the service also connects gadgets such as smoke alarms, motion detectors, cameras, thermostats and water sensors.

Harris describes Zonoff as “kind of a behind-the-scenes, white-label supplier of technology to … multibillion dollar companies that have channels to consumers.” He said that Zonoff takes technologies from firms big and small — “everything from the Lutrons and Honeywells of the world, to start-ups, the Fitbits, the wearable companies” — and brings them together in “a seamless experience.”

As an emerging company, Zonoff’s biggest challenge right now is scale, according to Harris. “The market has heated up so much that everybody wants to get in the space as quickly as they can, and so we’re hiring as fast as we can to do a lot of those capabilities.” But he sees another challenge at the industry level for the smart home business, which is a lack of consumer awareness that these technologies exist. “That’s part of why we pushed through the strategy of partnering with these big, well-known brands, because we can leverage their outreach to go out and educate the consumer that this is even possible.”

Where Will IoT Go Next?

Aronson predicted the Apple Watch will be a success. “It’s a really great standalone product,” he said. Asked if Aronson thought it would “gobble up the Fitbits of the world,” — referring to the popular activity/sleep tracking wristband — and Aronson said yes.

Perdomo noted that some IoT technologies originally intended for consumers may spread into other applications if they are “truly useful and not a novelty.” She gave examples from her experience with goTenna. “We developed it to solve … what was for me the problem of not being able to communicate when I needed to most. And we launched it to consumers, but now we’ve got a two million grant from the City of New York to provide it to small businesses…. We’re also speaking with Bank of America, Swiss Re, and Doctors Without Borders.”

Several industries seem ripe for future IoT development. Aronson pointed to financial services. “We’re seeing the innovation now in payments…. Everyone will start wearing a device, and there will be a lot of ways to interact with your bank and with retailers.” Harris named sports as a potential area, referring to the recent emergence of “smart” football helmets that can send concussion alerts to those on the sidelines. He thinks education is “a big one as well.” “Tracking kids in schools: what they’re doing, activity levels, safety issues. I think there are some really interesting opportunities … and it’s totally underserved right now.”