Article: What Happened To Consumer Device Startups?

As we had several articles about smart home and also Apple, Amazon and Google I would like also to bring to your attention the Crunchbase article which brings the big four in context of consumer market:

It turns out that many of Kickstarter projects do not deliver and investments into consumer iot is shrinking third year in a row. Article also brings some useful insights on state of already functioning companies and their ability to move from first satisfied customers to scaling up.

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I definitely understand this development. Personally, I funded in 5 smart home Kickstarter/Indiegogo projects now, and while I was always receiving at least parts of the promised products or refund, nearly all of the companies were or are dying, at least to some degree.

In the end, it’s the same story for all of them: First, hardware is hard. It’s a much bigger challenge to provide an innovative and working hardware product (which contains software as well) than a software-only product. Anyhow, this difficulty is usually not really rewarded by better margins.

Which leads us to second: there is a lack of a sustainable business model. While software startups mostly rely on subscription models, hardware startups sell their product once having to provide continuous (hardware & software) support for it afterwards. Even if they produce in-budget (which is rarely enough), they run out of money after delivery because they do not earn enough with ongoing sales to pay their basic costs (staff, facilities, …). There are many good ideas and nice gadgets out there, but in the end most of them do not lead to attractive products for the mass of people. Why? Because the mass of people don’t want to maintain a zoo of gadgets with comparably limited value-add for their daily life. Smart home needs more widely accepted standards, sustainable business models accepted by the mass and also more advanced solutions which provide a better cost-benefit ratio (with cost I do not only mean money, but also time for set-up & maintenance).
This is not a startup-specific issue, it’s a general issue with innovative, smart hardware products. Are Amazon Echo or Google Home gainful investements yet? Absolutely not. I guarantee, Amazon and Google are loosing millions, if not hundreds of millions, with this business. They also don’t have any working business model yet. For them, it’s a long-term strategic investment which they cross-finance with their cash cows. What are their cash cows? Surprise surprise: Software products & platforms.

But let me also mention that start-ups also often do mistakes. The most common mistake is that they start to develop all product integrations on their own and build their own isolated ecosystem which is a huge overestimation of their capabilites. Usually you can’t build, maintain and support an attractive ecosystem with a start-up budget.

There are some exceptions for sure, but none of them is a breakthrough measured at their margins. At the software market, entry barriers are much lower with better future prospects at the same time.

Anyhow, smart home continues to be a developing market. It will all come with time as technology will get better and when the big players establish a widely-accepted, standardized smart home ecosystem.

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