Despite Early Days, Market Consolidation for The Internet of Things Has Already Begun

forbes.com

If you’ve heard a tech CEO or any other tech industry guru bring up the Internet of Things in the last few years, you’ve no doubt heard lots of blue sky declarations about the future. And no wonder, what with all the the eye-popping growth numbers being touted by everyone from Cisco to GE.

But here’s the truth: While there will no doubt be some big winners in all the various Internet of Things markets, whether it be smart home, connected cars, industrial networking or wearables, the reality is that like any big tech category the majority of the spoils often to a very few.

Sure, mobile phones have 10-20 legitimate players in the market, but 80% of the market share is eaten up by the top 4-5 players.  Same with network hardware, PCs, and more other categories. Not that there isn’t a decent living to be made off a vibrant and growing ecosystem dominated by a few companies (there can be), particularly when you break down a market into all of the necessary technology “components” such as chips, embedded software and cloud that don’t make up the consumer-facing brands we in the media obsess about.

But, as often as is the case, there will also be lots of companies across the entire value chain that either fall into the hands of bigger players or disappear completely in time. Take for example the smart home, one of the most visible Internet of Things categories, where market consolidation is already well under way. Just this morning, AlertMe, a smart home software and services platform that got an early start, got acquired by British Gas.  As I noted, the lack of serious momentum beyond a couple core customers meant the writing was on the wall for AlertMe and it was better to fall in with your biggest customer and investor.

Hive Thermostat from AlertMe

Examples abound of other smart home and IoT companies being acquired, whether it’s deals for smart home hub makers like Revolv or SmartThings, chip makers CSR and Lantiq, or the biggest one of all so far, Google's buy of Nest for $3 billion. The common thread between these acquisitions? They all represent technology behemoths (Google, Samsung, Intel and Qualcomm realizing they needed to bolster their core portfolios to capitalize on a trend and a market they saw as an important and growing one. No doubt, this will fuel additional market consolidation over the next few years as Microsoft, Amazon, as well as Apple and Google, all build their technology war chests for the future.

This is part of the reason interest in the IoT market has been so hot for early stage capital the last few years, and 2015 likely won’t be any different. These startups and their investors realize that the big players often enter markets through acquisition, and once there often start throwing cash around to shore up weaknesses and to avoid a company with disruptive technology from falling into the hands of a competitor.

We may be entering the second or third inning in the Internet of Things market, but it’s a market that been slowly building for some time and  many players have been at it for a while. Expect 2015 and beyond to be exciting times, but also don’t be surprised as the market – like all markets - takes its natural course and companies gobble each other up at an ever faster pace.