#BONUS – IoT starts walking the talk

Consumer demand for connected devices is gaining momentum and the conditions are now right for creating an explosive increase in user demand. The desire to deliver exciting products and offerings will push the established players into M&A activity, since true disruptive innovation more often than not takes place outside of the big corporates.

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 As projected in Northstream’s predictions last year, IoT consumer demand has really started to take off. Northstream believes that in 2016, we will see continued strong growth. This will be stimulated by an increasing number of exciting offerings reaching the market in important and well established segments such as connected cars, connected homes and gaming/augmented reality gadgets.

On the corporate side the delivery on the promises of industry 4.0 for increased efficiency and new service-based business models proceeds, but at a slower pace. This is due to a relatively complex value chain and enterprise resistance to seriously rethinking business strategies in the coming 12 months.

What we do foresee in the corporate world is huge amounts of M&A activity in the IoT, and more generally, in the digital arena. This is similar to what happened for mobile device solutions just a few years ago, when various big players from SAP to IBM engaged in M&A to consolidate a fragmented, for long hyped, market niche. We now believe that IoT M&A activity will hit corporates and even across industries. Enterprise mobile companies will consolidate, and we can expect enterprise tech giants like Adobe, Amazon, Cisco, HP, Intel and Salesforce to shop for enterprise mobile application companies like AnyPresence, Appcelerator, Kinvey, Kony, Xamarin or Xively.

Big cloud companies like Salesforce and Adobe will look to invest in mobile and automate it. Forrester predicts that in 2016 marketing tech vendors will find themselves in an arms race to provide automated products, data-driven insights and deliver engaging in-app experiences. Mobile marketing startups that could be of interest include Kahuna, Localytics, Swrve and Urban Airship. Some more traditional companies will also pursue IoT start up acquisitions to try to stay competitive by disrupting their market. British Gas is an example of a non-tech giant acquiring an IoT startup: British Gas will invest £500 million into its connected homes business over the next five years, following news that the company sold more than 200,000 Hive thermostats in its latest quarterly report.

Internet giants like Facebook and Google, already heavily engaged in fostering digital and IoT innovation, will increase efforts to expand service portfolios and audiences via acquisitions in order to reach specific demographic segments, geographies and markets (e.g. Alphabet acquisition of Nest Labs). IoT startups will be also appealing to established digital players whose core products/services are experiencing stagnating demand and whose balance sheets are cash rich, e.g. when IBM created an Internet of Things unit in March 2015 it also forged a pact with The Weather Company. The general theme was to use The Weather Company’s data and sensors and combine it with IBM’s analytics and Watson platform.

All global ICT vendors in the world are focusing heavily on IoT as one of the key areas for future growth, but it is through innovative startup companies they will learn which applications and services that will best address consumer and enterprise needs. Innovation will spring from the startup arena – yet these players will be primarily dependent on established players to succeed in the market. Therefore, Northstream believes that 2016 will be the year when the IoT M&A wave truly hits the industry.

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