Market data:

The Rise of the Machines… Part 2

A few years ago, we embarked on a journey in the emerging field of connected technology. After being exposed to selected research reports and attending a few conferences in Silicon Valley, we believed that, in spite of the hurdles still to be overcome, billions of devices were going to be connected in an effort to create improved industrial processes and new customer’s experiences.

That was the genesis of our Internet of Things portfolio, a strategy dedicated to find companies that were going to be central in developing this new trend of connectivity.  It wasn’t a simple process as we first needed to figure out the subsets within the major theme (i.e. B2B or B2C, framework or user app, cybersecurity protocols, etc.) and then as we were picking names, we realized that in many cases we had to accept what we called “dirty exposure,” or investing in a large company with only one or two divisions dedicated to the IoT theme.

Overall, the strategy has so far been a success, benefiting from the development of our thesis, mergers and acquisition activity and of course the general tailwind of the tech bullish environment.

From a fundamental perspective, we believe that IoT is still in its first innings.  Valuations might be a little extended in some names, but the long-term trend is as strong as it ever was.  The process of digitizing the physical world has only just begun and we project a long journey ahead of us.

Consulting giant McKinsey just put out an update report entitled “The Internet of Things: Mapping the value beyond the hype,” where the economic potential of unleashing IoT is analyzed through hundreds of cases.

The following are the main elements emerging from the report:

  1. By 2030, McKinsey estimate that IoT could unlock between $5.5 trillion and $12.6 trillion of economic value.
  2. The factory setting remains the environment where the largest economic impact could be realized. Human health is the second most likely setting to generate economic surplus.
  3. B2B apps are where the majority of IoT value can be created; McKinsey quotes an approximate 65% of the estimated IoT value potential by 2030.
  4. Headwinds are still present. The total value captured by 2020 was estimated at $1.6 trillion which, while considerable, was at the low end of the range for the scenarios McKinsey mapped out in 2015.

In conclusion, we will continue to sweep the IoT spectrum for established out fits and emerging companies that may bring us defining new technologies to support the convergence of the digital and physical world.

Should you want to discuss this strategy further or ask for a copy of the full McKinsey report, please reach out to your THALASSA CAPITAL team.