Last week's announcement that Comcast would be acquiring iControl’s Home Automation software assets for ~260m and Alarm.com would purchase iControl’s security assets (primarily the Piper video surveillance product) for ~140m is an indication that serious dollars are in play in the wild wild world of IoT communication & networking.
Investors in iControl converted their 90m VC stake into ~400m in 13 years (a 450% ROI over that span). As consumers, you and I would take that Return in a heartbeat! But VC’s aren’t consumers. By their standards, the ROI was OK , as they “generally” expect a 600% ROI in a 10 year period. The return on this transaction was purely a function of the high amount of capital iControl needed, along with the longer time-to-exit. Regardless, everyone made money - which is a great thing!
No doubt, this will be the first of many acquisitions in this space. It makes perfect sense given the business climate that Internet Service Providers (ISP’s) and Multi-System Operators (MSO’s like Comcast) find themselves in.
1) The revenue streams of these large ISP’s and MSO’s have been under attack for years as smaller ISP’s emerge and take share (even more so today with Millenials and others drifting away from classic cable services towards more Internet based content subscriptions like Amazon and Netflix).
2) It’s only natural that these large companies try and replace those declining revenues with new products and services – like Home Automation. Most major providers have been experimenting with this for the past year or two – most prominent would include:
o Comcast - Xfinity
o Time Warner - Intelligent Home
o COX Communications - Homelife
o Direct TV - Homeshield
o Charter Communications - IntelligentHome
o AT&T - Digital Life
o Rogers Cable - SmartHome
3) As with most experiments in business… you start small, prove out the model, and then execute on a large scale if the business case holds water. `
4) IMPORTANT: If the business case does prove worthy… the service provider MUST own the entire supply chain. This was the case with Comcast. They proved out the premise, then realized they had less than 100% of control over their Home Automation service offerings… so they HAD TO acquire iControl (otherwise iControl would have far too much leverage over Comcast).
This will no doubt repeat itself 3-4 more times this year, as iControl provides the infrastructure for COX, Charter, Time Warner, Rogers and others. You can bet that EVERY SINGLE ONE of those companies is looking for an alternative right now – one that isn’t controlled by a direct competitor.
And the degree of difficulty goes way up when an MSO wants to 1) implement on a large scale and 2) do so without risking security (two of the area’s in which WigWag has Patents).
What we do at WigWag – provide networking infrastructure software and services that enjoin the worlds of classic IP based networking with IoT communication - is extremely difficult! It’s a technically contained subject matter in and of itself (ie. you can’t do it casually - it MUST be your focus). Case in point - we’ve spent 3.5 years on the problem and have only recently begun to ship our first solution set (available at Amazon.com and WigWag.com).
The iControl acquisition validates two important shifts in our space. First, what we do is valuable and important to large companies, and consumers alike… and second, the tech has become mature / secure enough, to deploy on a large scale. We’re pleased to be at the heart of it!
There are also lessons to be learned by the HANDFUL of truly viable startups in the IoT networking space. Lesson 1) become viable on <20m in investor capital if at all possible… it makes for a much easier 10X valuation at exit, and lesson 2) become viable & relevant in less than 10 years. Happy to report a bright future for WigWag on both fronts!
Have a great Q3 everyone. More to come!