Rash of IoT acquisitions highlights low-risk augmenting trend

The past week saw 8 acquisitions in the IoT area, something of a record. This got us asking if this was indicative of anything, or mere coincidence, and a few trends can be seen through these deals.

It seems the era of IoT hype is over. The pot has been taken off the boil and is now simmering away, with the largest enterprises looking at ways to improve their existing portfolios via partnership and acquisitions, rather than looking to launch into new areas.

To this end, much of the industry has been lied to. The Internet of Things was never a thing – it is an evolutionary trend, not a revolutionary reinvention of the wheel that would irrevocably transform a business. No, it is a way of doing an existing function more efficiently or at a never-before achievable price-point. It is also a product of the massive fall in the price of a unit of computing, via the growth of the cloud and the cost of the end-device processors.

As such, investors are now asking for results – they want to know that a system can provide its promised benefit. Increasingly, this means AI-based analytics has received the lion’s share of attention, which ties into the traditional VC desire of a low sunk-cost software house that can be scaled or wound up pretty easily.

But Nokia has been at both ends of the tale, this week. It has offloaded its Digital Health wing, selling Withings back to a founder after finding that it did not have a concrete plan for the future, as well as identified a pressing need in its core portfolio, and addressed that by purchasing SpaceTime.

For Nokia, dumping Withings is an admission of failure. Here, the IoT was not a path to new business – but it definitely could (perhaps should) have been. When it acquired the French startup, it looked like a sensible move – allowing Nokia to take a leading device company that had hit on a winning combination of non-smart aesthetics and software.

This would have laid the groundwork for Nokia to move higher up the healthcare stack, heading towards hospitals and care providers, aided by the consumer data. It could also have perhaps moved into offering the Nokia Health portfolio to its business customers – as an offshoot of its business software and machine-learning powered analytics.

But in a leaked memo seen by The Verge, the ‘strategic review’ that Nokia had announced was actually a cover for this admission of guilt – that Nokia had squandered the potential of this promising startup. Chief Strategy Officer Kathrin Buvac wrote that “our digital health business has struggled to scale and meet growth expectations. Currently, we don’t see a path for it to become a meaningful part of a company as large as Nokia.”

For Nokia, a company with over $20bn in revenue, the $190m it spent on Withings isn’t the death-knell that it would be for smaller companies. Nokia can at least afford to make these mistakes, even if they might be quite painful. In a quarterly filing, Nokia wrote down $164m on the acquisition, which is a pretty bad over-valuation. Withings co-founder Eric Careel will be

So while Nokia cast off a company it couldn’t see a clear integration path for, it is still happy to purchase businesses that it thinks could be beneficial to the goal of becoming a B2B and licensing company, as laid out in the Buvac memo and later the sale Digital Health sale announcement.

To this end, it has bought SpaceTime Insight, a Californian startup whose expertise centers around machine-learning algorithms that provide predictive analytics. With these tools, Nokia can make a direct and quick impact on its existing business lines and products. It doesn’t have to move horizontally into new territory, like it did with Withings – it can simply improve its existing offering.

SpaceTime already has customers, which is not always the case, and will be slotted into the Software division – responsible for €1.6bn of Nokia’s total €23bn annual revenues. SpaceTime CEO Rob Schilling will also become head of the IoT business unit here, which looks like a vote of confidence. But here again, you see that the IoT is a small part of a division, and not a golden goose.

So Nokia gets to bring on board some of those customers, which include FedEx, Entergy, and NextEra Energy, which in turn might be graduated to larger buyers of Nokia services. In turn, SpaceTime gets to sell its wares to Nokia’s considerable channel, and Nokia will be able to harvest that AI-based expertise to potentially improve other areas of its portfolio.

Nokia Software’s president, Bhaskar Gorti, is aware of the evolutionary nature of the IoT. Speaking to TechCrunch, he said “I think the landscape is maturing. Two to three years ago, there was a lot of hype and noise, with the main focus on connectivity management. Now people are focusing on vertical industries and use cases, whether that is analytics or surveillance or something else. If you look at the value pyramid, 80% is in applications and analytics, and the rest is connectivity. That also means the rest of the platform-based approach is starting to build up more.”

In similar fashion to the SpaceTime purchase, Carl Data Solutions acquiring Astra Smart Systems was a move to augment Carl Data’s IIoT data offerings, boosted by the acquisition of Astra’s data center. There’s an expansionist element, in that Astra also manufactures environmental monitoring devices, but if the market moves away from hardware being viable, Carl Data will likely have recouped its investment from the improvements made to its core offering. However, as figures are not being disclosed, it’s hard to judge the risk posed by this acquisition.

This isn’t the case with Cisco acquiring Accompany, a Californian startup that sells an AI-driven customer relationship intelligence platform. It should help Cisco better sell its own products – as well as potentially sell the Accompany service to its own customers, via Cisco’s Collaboration Technology Group. For $270m, 0.56% of Cisco’s annual $48bn in revenue, Cisco can afford to write it off, if it doesn’t pan out. Just like Nokia’s, this is a low risk purchase.

German lighting company Osram (€4.1bn annual revenue) was also in the mood this past week, for portfolio expansion. It has purchased Fluence Bioengineering, a company specializing in lighting systems for indoor horticulture and farming. Osram is looking to muscle in on an emerging industry, expanding its own horticultural offerings with a startup that has accumulated sales in the ‘mid double-digit millions’ range in just 5 years. Again, it’s a low risk move, made by a big company looking to augment its core offering.

While smaller in scale, this augmentation trend was also seen in Synchronoss’ purchase of honeybee, to improve its digital transformation offerings, and also in Altair Engineering’s acquisition of CANDI Controls, to expand its also recently acquired Carriots PaaS with CANDI’s edge gateway expertise. Both deals are expansions of an established skillset and business line – they aren’t jumps into the unknown.

But the last deal on our radar is notably different. BP went out and bought Ubiworx, a smart home software developer that it had been working with for around two years. For BP, the acquisition is intended to help its Lightsource renewable energy division better compete in the solar-plus-storage market, as utilities move to embrace more renewable sources of energy – which are often distributed in nature.

It is, however, similar in that BP has plenty of cash to splash – $240bn in 2017 revenues. BP bought a 43% stake for around £150m in Lightsource last year, which is intended to develop a system that combines solar panels, home energy storage batteries, and electric vehicle chargers, in a package that plays nicely with utility grids – many of which are somewhat alarmed at the damaging impact that PEVs represent if they are all plugged in to charge at the same time.

However, BP does have more of an existential crisis on its hands than the other businesses here. There is a real danger that fossil fuel reserves will dwindle in the long-term, compounded by the fact that renewable energy is on track to beat fossil fuel sources on price well before the reserves begin running out. For a company like BP, which is aware of a looming threat like this, there is a need to go out and secure a future.

With so much money available, that’s not a particularly challenging feat, mechanically at least, but there is a need for businesses to realize when an IoT investment represents a way to simply improve the current offering, or if it could represent a life raft that needs to be jumped on urgently.