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Surviving and Thriving as the Internet of Everyone Evolves to an Ubiquitous Reality

The Quantified Self (QS) movement began with fringe consumers obsessed with self-measurement, but today’s Internet of Things (IoT) – with sensors on and inside bodies, connected cars, and smart homes, offices, and cities – is expanding it to include everyone. Consumers will not have a shortage of devices or data to choose from anytime in the near future. Looking out further, to 2025, three specific factors will drive the technical evolution of the QS/IoT as a computing platform, each with implications for consumer relationships: improvement of individual devices; integration, from aspects of inner self to a holistic view of inner, outer, and extended self; and intervention in consumer actions.

  • Improvement: Before too long, gimmicky and overpriced devices will disappear from the market, while runaway hits will make headlines (and millions of dollars). From 2005 until now, sensors have driven QS – specifically, sensors attached to or focused on humans. An early example is fitness wearables, but they’re already a commodity; today’s Samsung, Google, and Apple smartwatches are a natural evolution. Bragi headphones now do health tracking; Samsung’s Artik platform, Intel’s Curie and GE’s GreenBean offer startups an easy way to create consumer IoT devices. Image sensors – cameras – enable gesture interfaces and new channels like lifelogging, where users of Twitter’s Periscope and Facebook’s Facescope live-stream their lives.
  • Integration: Fitness trackers and action cameras capture data on or next to consumers’ bodies. IoT technologies quantify consumers’ “inner selves,” and marketers can learn as much from them as they have by examining purchase histories, web surfing habits, and other digital footprints. Other IoT datapoints include vital signs from exercise, sports, and adventure wearables; food, from precision agriculture to smart utensils like HAPIfork, to microbiomes and Toto’s smart toilet; and medical bioelectronics, personal genomics, and mood- and mind-monitoring like Neurosky. The IoT tracks consumers’ outer lives of family via smart baby bottles and wearables for pets, and extended selves via connected thermostats, diagnostic dongles in cars, and image-recognition systems in stores and city streets.

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As VCs Retreat Four New, Nimble Innovation Funding Structures Step In

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Venture capital is seemingly synonymous with innovation. Venture-backed software companies like Google, Facebook, and Twitter have launched products that billions of consumers use on a daily basis, and their funders have reaped huge dividends.  VC has also catalyzed successful biotech and cleantech companies like Genentech and Solazyme. Thousands of important, successful companies would not exist if it had not been for venture investors providing funding and business acumen to entrepreneurs and inventors.

And that’s why it’s so worrisome that traditional Venture Capitalists are in increasingly obvious retreat. Over the past five years:

  • VCs are doing less: dollars and deal count are down. According to the National Venture Capital Association (NVCA), venture funds peaked in 2011 with $29.7 billion going into 3986 deals. In 2012 they fell to $27 billion, in 3796 deals; and while 2013 is not wrapped, it looks to be a down year again. And VCs are raising less money to invest; through September this year they had brought in $11.6 billion, a plunge from $16.2 billion in the first nine months of 2012. In fact, for 11 of the past 13 years, VCs invested more money than they raised. All these declining numbers point to a long-term shrinkage of VC – meaning less money and mentorship for innovation.
  • VCs are struggling to create value, especially outside software and drugs. Medical biotech and software have long been the dominant categories of VC investment (taking about 15% and 60% respectively). But with global warming fears and oil prices soaring from 2005-2008, many investors briefly branched out into “cleantech.” For example, VC Khosla just put another $50 million into its biofuels maker KiOR (client registration required), which has been on a downward spiral of missed production milestones, producing just 80,000 gallons to date this year (it claimed it would produce more than 3 million gallons by the end of 2013). VCs’ other forays (client registration required) into areas like nanomaterials have fared similarly. Sadly, the only return on many of those investments was to make VCs realize that they don’t understand the science, engineering, and economic constraints on the technology, and even if they did, commercializing it takes too long for VCs to wait.

Fortunately, several alternatives to traditional venture capital are arising to take up the slack. Where will they complement VC, and where will they replace it?

  • Corporate VC invests $5 billion: Corporate VCs like Intel Capital, BASF Ventures, and Monsanto Growth Ventures are large corporations’ way of staying abreast of, and investing in, promising new technologies they find. Last year they invested about $3-5 billion – less than a fourth of conventional VC, but CVCs put it towards areas like industrial and agricultural technology that traditional VCs don’t know how to commercialize.
  • Conscious Capital (aka “impact investment”) grows to $9 billion: As legendary investor Warren Buffett recently argued in a New York Times op/ed article, charity has the potential to better achieve its goals if it adopts more business-minded principles. JP Morgan recently estimated that impact investment will grow by 12.5% this year to $9 billion. And many super-successful entrepreneurs like Jeff Bezos (Amazon), Elon Musk and Peter Thiel (PayPal), and Richard Branson set aside money for pursuing technically audacious goals (client registration required). VCs can’t make such long-term, high-risk bets with their partners’ money, but firms like Bezos Expeditions, Breakout Labs, and the Skoll Foundation can. They are investing in companies like Modern Meadow (client registration required) (which grows meat from cells, lowering the need for both natural resources and animal suffering) and D-Wave (client registration required), the world’s only quantum computer manufacturer.
  • Competitions bring in $2 billion, but have outsized impact: Like business-minded conscience capital, innovation competitions are based on the premise that competing for investment makes the recipients stronger. While high-profile programs like the X Prize and NASA Centennial Challenges are the best-known, the Institute for Competition Sciences, which documents data and best practices in the area, estimates that 30,000 competitions take place worldwide annually. While they are a smaller slice of the overall dollar pie and seldom can fund an innovation entirely, they amplify the value of all other investments into the organization.
  • Crowdfunding bringing $5 billion: Sites like Kickstarter and Indiegogo help small entrepreneurs and inventors to get seed money from thousands of individuals, usually in exchange for the product or merchandise like stickers and t-shirts. Then there are “pure science” crowdfunding sites like Microryza, FundaGeek, and Petridish.org which seek to support experiments and research that may or may not have a tangible return to the donor. Crowdfunding brought innovators some $1.5 billion in 2011, $3 billion in 2012, and will hit $5 billion this year. As with other sources, Crowdfunding’s biggest benefit is not the money – the fundraising campaign brings publicity, customer input, and community-building all at once.

Venture capital is slowly shrinking, while the four new forms of funding – Corporate VC, Competitions, Conscious Capital, and Crowdfunding – are set to pass $20 billion in aggregate, and are growing, fast. In fact, it seems inevitable that they will surpass VC in the coming year or soon thereafter. It’s important to keep in mind that these new forms of funding can both complement traditional venture investment, as well as compete with it by offering better terms inventors and entrepreneurs. Whether they are competing or collaborating, innovation can only benefit from these novel approaches.