a16z Podcast - a16z Podcast: The Technology is Ready, So Where is the Internet of Things?

Episode Date: January 9, 2015

Does your burglar alarm need to speak to your thermostat? What about your lighting system? And if all those things need to interoperate, how does that happen -- and what does that look like on the shelf at Home Depot? These are just some of the questions facing the Internet of Things. It was one of the highest-profile collections of gadgets and ideas at this year’s International CES, but is also a tech trend that has lots of consumers scratching their heads. a16z's Benedict (just back from the Vegas melee that is CES), Preethi, and Zal discuss the Internet of Things and more in this a16z Podcast. The technology is ready, so what are the breakout use cases going to be? The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Welcome to the A16Z podcast. I'm Zalbillamoria and I'm joined by Preeti Kasseretti and Benedict Evans, who is just back from CES. And I thought this might be a good week to discuss the Internet of Things, otherwise known as IoT. So Benedict, what do you think the state of the world is in terms of Internet of Things? Well, it's kind of at an interesting transition point, I think, because you saw dozens if not hundreds of people putting together packages

of devices of various kinds that you can put in your home. It's like you could probably buy a thousand smart doorknobs and a thousand window sensors. And it's kind of kind of at the point now where it's not really a technology question or even really necessarily a use case question. It's more kind of how do you get this to market? How do you explain to consumers why it might work? Which ones will they buy? How much should they talk to each other? Should you just buy a burglar alarm set and you'll put the burglar alarm set up and then you might or might not do a thermostat and you might or might not do a home audio system or should they be kind of on some sort of standard that all talks to each other.

And what are the overlaps between the things that should and shouldn't talk to each other? It's all about kind of route to market and kind of market positioning and what do you actually put on a shelf in Home Depot? Yep. Because the technology is all that. Yeah, it feels like, you know,

if you're talking about interoperability and standards, but it really does feel like there's hundreds if not thousands of manufacturers that are building for IoT, but do we really have killer use cases yet and killer applications? That's a really good question. I mean, you mentioned that you think there's a lot of use cases, but what are the transformational use cases?

Other than locks and potentially ovens, I don't see turning on a light being that transformational. The way that I tend to look at this is that, you know, our grandparents could have told you how many electric motors they aren't. You know, there was one in the car and one in the refrigerator and one in the vacuum cleaner. And now there's probably a dozen in your wing mirror. And you've got dozens of different electrical devices in your home. But you didn't go out and buy electrical motors. you bought a blender and you bought a coffee machine and you bought a microwave oven and you bought another vacuum cleaner and so on. And so those are what people end up buying. They buy a solution

to a particular problem. And I think quite a lot of these devices are just adding a bit more intelligence or a little bit more sense to it. Some of them make obvious sense. You know, some sort of intelligent thermostat seems like, well, that will be the world is going to be. Others like connected doorknobs or connected toilet flushes or all of these kinds of things are a little bit more up in the air. They may work. that may not. It is ultimately going to come down to how you communicate to a consumer, whether you make these things work together. And that is really the kind of, the big kind of fuzzy question, because, you know, you can kind of see that your TV might want to speak to your

high-fi. You can kind of see that your electricity meter might want to speak to your thermostat. Does your burglar alarm need to speak to your thermostat? Well, maybe. And if so, well, how would that work? and how does that translate into something you can buy in Home Depot? What are the logos? How do you actually make that happen? Is that easy or is that complicated? Is that something that happens as a web service, as a business development deal between your power company and your alarm company?

Or do you just buy two boxes in a store and they all just kind of work together when you load the smartphone app? So that's where all the kind of the – it seems to me that's that's where the part of the stack where the uncertainties are. Yeah, it's kind of interesting. You know, people are actually buying products that they don't even realize are already connected, you know, with IOT connections, Bluetooth LE, whatever the technology is, you know, the ZWave versus the Zygby radio wave technologies. And but it seems like how are all of these going to work together? And I think that I completely agree.

It's leaving consumers kind of blinded with figuring out how to work these together. And I think what startups and companies like Samsung and LG and Google, what they have to think about is providing whole solutions for consumers, providing the entire smartphone or whatever, a piece is of a smartphone, so that they can just buy it and that's it. Yeah, I think this is what's interesting, contrasting NEST on the one hand with something like HomeKit or the various kind of industry standards consortia.

Because what NEST is doing is they're giving you, the point of NEST isn't the thermostat, it's the route to market and the communication. It's like you buy a thermostat. That's a really useful, valuable thing. Then you make a smoke detector, and you buy a security camera, and you start building out slowly around that

in ways that are really clear to communicate and clear for people to understand and it's clear how they're going to plug into everything and it just kind of works together. Now whether it actually does work or not is another question. But that's one strategy. The other strategy is that Ava Box in Home Depot has one logo on it and they all just supposedly work together.

But when you're actually standing in Home Depot and you're like, okay, I've got a whirlpool dishwasher and I've got a burglar alarm and they've both got this internet of things logo on, what does that even mean? Why is that any kind of meaningful benefit? Yeah, you mentioned Apple's HomeKit, and that almost seems like a complete head fake. I mean, if you actually go to their website, it's actually just a developer landing page with a couple of coming soon notifications. And so it feels like Apple may have just kind of announced it, you know, late last year, and kind of gave everyone a little bit of a freeze and say, okay, let's wait till see what Apple is going to come out with in terms of HomeKit, Health Kit, or even the Apple Watch in terms of the wearable. So it's kind of been interesting where, you know, if everything has to come together and work together and has to be interoperable. You have to almost imagine that the two major mobile operating systems

in Android and iOS will have something to say in this matter. I think that's right. I mean, the kind of the elephant in the corner here is that the smartphone, or maybe the wrong metaphor, but the smartphone is kind of the enabler for all of these things. Firstly, because the smartphone supply chain is creating the components that everything else is using, and secondly, because it's the network connection and it's the user interface for all of these things. Of course, it's, you know, you don't want to have a control screen on every window lock, you know, it's a lot more sense if all this smart lives in the smartphone. And so, yeah, therefore the smartphone guys think that they should be controlling it. But I kind of keep coming back to this

point. It's like, you know, I thought our colleague Mark made this point that, is it internet or is it just things connected to the internet? You know, again, do you buy a whole, you know, and some of the sort of visions of the internet of home and the mock-ups that you see with all these things talking to each other, they remind me of a sort of Westinghouse home of the future from the World Fair in 1960. you know where there's a wall of your house that's got lots of knobs and dials on it and you pull something and something else happens and I feel like you know maybe you're you know there's going to be a lot of different overlaps here like your TV and you will talk to your smartphone yes your thermostat might talk to your electricity meter might talk to your burgle alarm nobody's home turn the power off might not your connected car might talk to your thermostat they're almost home it's 50 degrees outside minus 50 outside turn the heating on 20 minutes before you get home that those kinds of edge those are the kind of the interesting tension points because it's where you can you can describe a scenario where absolutely your car should talk

to your thermostat but you can also describe the scenario where no the car doesn't talk to my thermostat i've just got the nest app on my phone uses geolocation to work out that i'm almost home or you know there's all these different ways that you might put that puzzle together yeah i think one big question here is like is i know i have no doubt that you know the connected home internet of things is definitely going to be the future and we're going to have a lot of technologies and applications and I think there will be just like we have hundreds of electric motors right right I think it's just a matter of like whether it's going to be this year or next year or the year after like I still feel like we're you know if you think about the gardener hype

cycle I think we're probably still in the trough of disillusionment we're still crossing the chasm so to speak in terms of getting into the early majority of actually where are we going to get the real kind of majority of users to get excited about actually putting these things things together. And, you know, we have a, you know, a couple of our portfolio companies, for example. Let's just, you know, take, for example, like Home Depot has a good relationship with quirky. And so when you go into Home Depot today, you can actually see the connected air conditioning unit. You can see the connected this and that. And they also have their relay station that kind of is the governing remote control for some of these things. So they're

starting to think about the packaging, to your nest analogy from earlier. They're starting to think about packaging these things together because they realize that this is a bigger problem than they, you know, then the industry is actually leading it on because the industry, if you step on to the CES shoreroom floor, it's like, oh, wow, this is the year. There's so many applications. There's so many devices. Every manufacturer from the old guard to the new guard

are developing devices. So the thing that occurs to me while you're talking about this, I kind of mentioned earlier that, you know, it's because the smartphone and supply chain is enabling this thing. Normally when these kinds of things arrive, the way it works is you've got a really crappy product because the technology isn't ready. And then you've got a slightly less crappy product.

and a slightly less crappy product, and after about five years, the technology kind of catches up with the vision of the use case. What's happening with wearables and internet of things is it's the other way around, because all the components have been created already for another industry, for the smart phone industry. It's like, you don't have crappy internet of things. You don't have crappy world. They're just there. And so people have been handed all these components, and they're trying to work out what to do with them, rather than having the vision of the great use case and then try and build the technology to fit it. It's like you've got the technology and now you're thinking, well, there must be something I can do with sensors in the home.

Yeah. But what? I'm not quite sure. Yeah, no, I totally agree. All the building blocks are there. The sensors are there. The processing units are there. The communication, like wireless, wire technology is there. It's just the use cases. So something that's transformational for a consumer is what I'm looking for because I think that will kind of ignite the IoT market. It will kind of finally prove to consumers that this is here and it's ready and they want it. And then you can kind of sell them on these nice to have services. That's right. I mean, you know, the key use cases

around IoT, I think, you know, if you kind of boil it down, there's security, there's convenience, there's energy savings, and I think there's a cost savings element, which I know that you're interested in this space in terms of like maybe there's an industrial or enterprise application here, which is much more kind of ready to go. And maybe BlackBerry, for example, just launched

their new IOT platform, and BlackBerry is still synonymous with enterprise and security today. So, I mean, what are your thoughts on the industrial applications? Yeah, I mean, industrial, I think it's kind of hidden in the back. Everyone's excited about the consumer stuff, but that industrial side is also huge. For example, GE with their aviation, they have the smart jet engines, which the mechanics don't even need to check the plane once it lands, and that they just know if it needs

maintenance or not. I'd say it's a ton of time and a ton of fuel and ton of just money for aviation industry. And then there's like health care. Elder care monitoring for doctors, that's a huge issue because if you have something like diabetes or high blood pressure or whatever, you need continuous monitoring, and this kind of technology can really make differences for doctors. So that's another industry that's kind of huge, and I think it's already happening, and I'm really excited for that to take off. Let me throw one more wrench in the equation here. So I think some people might classify Google

Glass as an internet of thing device, but whether it's a wearable or augmented reality, I think there are consumer as well as enterprise applications. What are your guys' thoughts on whether, you know, that kind of internet IoT device is actually going to be able to take off? Well, I think there's a short term and a long-term question here. I mean, the short term, it feels like Google Glass is probably too limited in its capability and it's probably too intrusive in the form factor for anything other than an enterprise application. And I've seen a lot of really cool Google Glass Enterprise applications in the

consumer market. It clearly doesn't seem to work very well. I think there's a kind of a longer term story here around watches, which seemed like a better way of having that ambient screen maybe than something that's kind of clamped onto your face. Yeah, it seems like glass is something for professions that you don't have to show your hands like surgeons. Yeah, or you're up the top of a pole with your hands full of spanners and cables and you kind of want to see the checklist. I think there's a, there's a sort of a longer term point here around, you know, what the kind of, you know, are we still going to be looking at black plastic rectangles or black glass rectangles in 10 years? And, you know, things like glass, things like watches, things like

magic leap, which, you know, again, we've invested in, are interesting as they kind of point to sort of what might happen after the black glass rectangle. But, you know, we're kind of a long way away from that at the moment. So should startups be scared of interoperability and should they wait for Google, Apple, Samsung, et cetera, to go and create interoperable standards for everything to work together, or should they kind of blaze the trail forward and try to figure out, you know, is there a killer use case here? I don't think they should wait. I think they should build their technology to be open, scalable, and I think Samsung already

has an open platform, so there's no reason to wait because consumers know it's out there, they're ready for it, and I think it's there. it's the entrepreneur's opportunity now to take it and prove to consumer that there is a real use case for this. Yeah, I think that's right. I mean, as I said, the challenge is how you articulate what you should be doing with this. You know, it's the nest story. How do you go and give consumers a really clear reason what this is? What are you going to put on the shelf in Home Depot that will sell itself as you walk past it from five feet away?

Which is that kind of the challenge here, because that's the app store for the Internet of Things. It's certainly the app store for connected home. how do you actually what is your vision for something fantastically cool not well i bought 150 sensors and i put them in white plastic boxes with wireless connections um here you are because that's kind of a lot of what i was seeing at c s absolutely i mean i think you know one one person was telling me um that you really need to watch the the bigger manufacturers and the retailers also this year to really see if this is going to be the year for iot i mean if you think about home Depot, I mean, their revenue is up 30% versus last year. For $100 billion company, that's quite

remarkable, actually, to be thinking about it that way, that way. And, you know, they were telling me that, you know, in some way, straight or form, like, this is a way for these, you know, big box retailers to actually differentiate against online retailers like Amazon, because they've got the store clerks on the ground that can actually educate consumers on how to actually install and use IoT devices in their home. And so there might be a little bit of an interesting play there in terms of like the end of the last mile in terms of getting these devices into consumers' hands. And that might be something like really a good way to watch whether IoT is really going to take off this year. I think that's right. I mean, manufacturers

are the ones that are know how to build products. If you think about the, for example, the self-driving car, Google, Google is doing the self-driving car for its own reasons. They're going to collect a bunch of data and all that stuff that they like to do, whereas a company like BMW knows how to build cars and so if they should they should be the one that are innovating on the self-driving car and building thinking about the internet of things if you think about it there the consumers know BMW for their cars yeah it's really interesting the whole connected car as part of the iot ecosystem is a really fascinating topic i mean google is waiting into it apple is waiting into it uh again blackberry launched another uh platform yesterday for the car um you know it's kind of

interesting to see uh like so many different players coming into the space i mean is this something that we're going to see Benedict, like, you know, I think in terms of like, am I going to buy a car? Am I going to buy a car because it has IoT-enabled technology? Well, I mean, the car manufacturers have always managed to use accessories and alloy wheels and car sunroofs and what have you as a way of differentiating a car and, you know, getting you to spend $1,000 more on something that costs them 50 bucks. And I think that's certainly part of how they see this stuff. Clearly the kind of the dilemma that they have is that they don't want to end up being kind of disintermediated by a software provider. I'm not entirely sure how real that

that thread is because it's not like, you know, a TV set where the elemental functionality moves into the software or a smartphone where the elemental functionality moves into the software and the guy is making the thing that gets no say. Car is still basically kind of about driving, at least until we've got self-driving cars. And even then, you know, it's all basically about how you put the bits of metal together. So I don't think they're going to be squeezed out in quite the same way. But I, you know, to point. I think it's absolutely the case that that screen on the dashboard or how it talks to your phone will kind of be another piece of added value. So Benedict, there were so many devices on display at CES this year. Are we, is that reality? Are we going to walk back in and see that as

reality? Well, I did see the first compelling use case for a curved screen, which is on a slot machine, which actually made fantastic sense to me. Otherwise, yeah, there's always frost and there's always stuff that doesn't happen. So, you know, 3D never really happened, for example. I think there's an oddity here, as I said earlier, in that generally the way it works is you have this shining vision of the wonderful thing and the technology doesn't quite live up to it for years and years and years. Whereas because all the stuff got made for smartphones first, all the components got made for smartphones first, you've got all the products and they all work. It's just that you haven't really, no one was really able to articulate what they should do or why you would buy them

or how they would work together. And so you've got sort of vast thundering herds parling into fitness sensors as like a wearable that might make some sense. And maybe next year there won't be a single fitness sensor and maybe next year there won't be a single selfie stick either. But then underneath that, I think, there's this sort of very strong logic behind some of those use cases.

The question is, you know, how you communicate that and how you kind of take that to market and turn that into something that you can sell to a normal person. Absolutely. I mean, IOT is a fascinating space. I think 2015 is going to be a very, very interesting year for both the big incumbents as well as startups. I mean, ranging from the connected home, connected cars, industrial applications, and the like. And so I just wanted to thank Benedict and Preeti for being here, and we're done.

Thank you. Thank you.