Anyone who worked in technology before 2003 can tell you that it’s no coincidence that startups have exploded in the past 10 years – when servers costs when to zero, and open source software caught up to its proprietary counterpart, it didn’t matter how many people (a lot) were on the web, because scalability was born. Today’s software companies are born in minutes, which is why today’s VCs are predominantly focused on software; however, if Google’s acquisition of NEST earlier this year, as well as the dozen other hardware & robotics acquisitions it’s made in the past 18 months are any indication, the real money is in hardware.
The “Hardware Revolution,” the idea that, like the software revolution 10 years ago, the cost of building a hardware company will approach zero, is well on its way. Open source hardware like Raspberry Pi and Arduino make learning & building hardware more accessible. 3D Printers & Fab Labs are making rapid prototyping, one of the most costly parts of a hardware company in terms of time, quicker and less expensive. Lastly, with China’s economy opening up internationally, cities like Shengzen are establishing a presence and welcoming foreign hardware startups, enabling hardware CEOs to quickly build relationships with manufacturers.
Building your own software on top of the hardware is still 90% of the work; however, that 90% of work takes less and less resources to operate, and yet, Venture funding still lacks for most hardware startups, because most VC firms have built their success on their knowledge of Software, and thus, are weary of Hardware. There are, of course, exceptions: Thamlic Labs is backed by Spark Capital, and Bloomberg Capital’s Matt Turck runs the NYC HardWired meetup for Connected Hardware & Internet of Things; however, what has really enabled hardware startups to thrive has been crowdfunding.
The financial investment – “pre-orders,” if you will – are of course a great way to bootstrap manufacturing costs (everything’s cheaper in bulk, all the way down the value chain); however, where Crowdfunding really gets interesting is in how it enables startups to do product validation & price testing, which explains why Venture Funded startups like Thalmic labs still chose to do pre-orders, and why successful funding campaigns by Oculus Rift & SmartThings were followed quickly by venture funding.
While the campaign videos have become a bit too structured – sell the problem, make it personal, show a woman jogging, etc. – what makes campaigns successful hasn’t changed much, and platforms like Indiegogo are learning every day how campaigners can leverage crowd funding.
The KPIs have become as strict as any software startups – what is the average donation price, how many supporters, how much are people willing to pay for he product (done by testing pricing throughout the campaign via various levels of prizes) – and while software VCs still don’t seem to get it (WiThings most recently raised funding from the French Government’s fund BPIFrance, despite there being over €1.5 Billion in capital available in France alone), hardware founders certainly do.
There are still some barriers to the hardware revolution – distribution is still a pain, and if you think Google AdWords are expensive, try doing a marketing campaign for a hardware product. And yet, behind every problem is an opportunity – much like crowdfunding responded to one of hardware’s problems – and so, as the Internet of Things & Connected Objects continue to grow in the coming years, those startups who eliminate those problems (much like Cloud Hosting eliminated expensive server costs) stand not just to make a quick buck, but to become the cornerstone in the future of Connected Hardware.
These problems include treating and communicating data – IoT Telco’s like SIGFOX are building their own network, while many think that low-energy Bluetooth coupled with the right existing network will do the trick. Interoperability between devices is a huge pain, and services like IFTTT are tackling this their own way, while other players – big (Qualcomm) and Small (Sen.se) – look to be the IoT cloud.