There was a time not so long ago when a consumer electronics maker would develop a great product or two, go public, and expand across the country and then the world. Think Apple with its Macintosh computers or Eastman Kodak with its Brownie cameras.
Given the promise of the Internet of Things/smart device market, you would think the same would be true today. Indeed, the private market is littered with such companies and projects. Just check out crowdfunding sites Kickstarter and Indiegogo.
Last year, venture capitalists poured $5.25 billion into computer hardware, electronics, and consumer products, an 88 percent gain from 2012, according to MoneyTree report from PricewaterhouseCoopers and CB Insights. Top firms in this space include Rylo, a 360-degree camera maker privately valued at $120 million, and Eero, which is developing next generation Wi-Fi technology for smart devices, valued at $215 million.
Crunchbase estimates VCs invested $1.46 billion alone in U.S.-based IoT startups last year compared to $461.7 million raised in 2013.
But the record of consumer electronics firms that have gone public in recent years has been less than stellar. Fitbit, GoPro, and most recently wireless speaker unicorn Sonos have all seen their stock prices plummet after their IPOs.
Acquisitions, not IPOs, seems to be a more realistic exit for these companies. Indeed, cash rich tech giants like Amazon and Google are not only rapidly developing smart products but also acquiring or investing in these startups.
By contrast, retailers like Best Buy and Target have largely refrained from such deals.
That’s a mistake, said Brittain Ladd, a retail consultant and former strategy executive at Amazon. Instead of just selling smart devices, retailers should develop deeper relationships with vendors and help design, install, and connect these technologies in homes and businesses, he said.
And in order to effectively do that, retailers need to look at some acquisitions, Ladd said.
“If retailers want to be in the home, they have to go all the way,” he said.
Let’s first examine why consumer electronics makers today struggle as publicly traded companies. Platform giants like Google, Apple, and Amazon don’t sell any one thing so much as they sell integrated sets of products and services that work seamlessly with each other.
Think of how consumers can subscribe to Apple Music or iCloud through MacBooks, iPhones, and iPads. Or Amazon Prime members can access the Washington Post, the newest episode of The Man in the High Castle, and grocery deliveries from Whole Foods, which Amazon acquired last year for $14 billion.
For consumers, why would they buy individual products when they are already so deeply invested in these tech ecosystems? Indeed, Sonos stock sharply fell after Amazon said it would expand its line of wireless speakers. Amazon will also use its formidable ecosystem to entice consumers to sign for its AWS cloud computing business so they can store and back up the data, Ladd said.
Throw in voice-assisted technology like Alexa and Amazon becomes even more prevalent in the smart home. Indeed, the company’s $200 million venture capital arm, called the Amazon Alexa Fund, has already taken positions in startups focusing on cybersecurity, energy and utilities, and kitchen appliances.
The pace of innovation has also quickened. So a publicly traded consumer electronics company that makes only or two products might their products out of date within a short period of time.
Given this environment, retailers should not let Amazon and Google snatch the best smart device startups from the market.
Best Buy, for example, offers televisions and tablets to wireless speakers and power adapters under their Rocket Fish and Insignia brands. The company used to operate a venture capital fund but discontinued it after CEO Hubert Joly joined the retailer in 2012.
Yet Best Buy sees the smart home and IoT as the future of its business. The company is focusing on turning its Geek Squad brand, which traditionally focused on computer repair and tech support, into a service that visits people’s homes and helps them install and connect various devices, from smart refrigerators and washing machines to televisions and security alarms.
Such employees can also advise consumers on what devices and technology to buy, providing the retailer an important sales channel directly into their homes.
Target operates “Open House” in San Francisco, an experimental showroom designed to show how smart devices can work together in a model home and garage it constructed on the space. The retailer has worked hard to cultivate relationships with device makers, hosting events and opportunities for startups to directly pitch their devices to Target executives.
Target has previously said it is interested in venture capital investments. Indeed, the retailer last year acquired a stake in Casper Sleep, an online seller of lower cost mattresses. Casper, which operates a R&D center in San Francisco, has been exploring sensors, data, and software as sleep presents a potential big market for smart devices.
Best Buy and Target may not generate as much cash as tech firms but they are hardly poor either. The two retailers already possess elements that Amazon and Google lack in great numbers: physical showrooms to promote smart devices and, with Best Buy, the ability to reach consumers directly in their homes.
The only thing they need to put it all together is exclusive access to the best smart technology startups are developing. And that requires venture investment and acquisitions.
This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.
Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.
This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.
The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.
Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.
This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.
Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.
Copyright SharesPost, Inc. 2019. All rights reserved.