IoT Crowdfunding: Yes, Users Will Fund IoT

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Surely the Internet of Things will be crowdfunding, but first a question hangs in the air.

Few buzzwords are heard more often in tech circles than the Internet of Things (Iot). The vision of a series of connected smart devices, the IoT is supposed to revolutionize everything from households and appliances to cars and clothes. Yet, considering that the conventional wisdom is that new products take about five years from concept to market, the time is coming when a legitimate question to ask is: where is the IoT?

The answer, perhaps, is that we are looking for the IoT in all the wrong places. Instead of originating in long-established corporations, the IoT may be developing in plain sight in a mixture of startups, free software, and — above all else — crowdfunding.

Not that corporations are not working on smart devices. In a sense, the IoT is the next generation of embedded systems, which have been around for years.

Moreover, many corporations, particularly the most innovative ones, have been exploring the possibilities of the IoT for years. In 2014, Google purchased Nest Labs, a move that Business Insider described as “making a huge bet on the consumer Internet of Things.” Similarly, in 2015 Samsung announced a focus on technologies to help the development of the IoT.

Even Microsoft, which has not been considered a center for innovation for some time, plans in 2016 to roll out technologies to provide enhanced monitoring of meters and alarms.

Yet such initiatives seem cautious compared to the buzz around the IoT — especially when you consider that the IoT, for all the excitement it generates, is more about new applications for existing technologies than radical new technologies.

In contrast, a year after an unsuccessful crowdfunding campaign, Cornerstone, a startup spun off from DoBots, a Dutch robotic company, is already taking orders for its namesake product, a device that adds smart services to existing electrical outlets.

Nor is Cornerstone an exception. From 2012-2014, Kickstarter listed at least 176 campaigns associated with the IoT, with an approximate 40% success rate — a rate slightly above average. Add the last year and a half, and the number likely increases by at least fifty percent.

Figures from Indiegogo are unavailable, but a search on the site for “Internet of Things” returns dozens of campaigns. As on Kickstarter, many of these campaigns are educational — often centering on the Raspberry Pi — but at least as many are attempting to raise funds that put them in the category of would-be small businesses.

In fact, for every corporation exploring the possibilities of the IoT, there are probably three or four projects actively developing or even selling products. Perhaps some of these projects will be eventually be sold to corporations, but the numbers and the activities suggest that, when the IoT becomes as common as household appliances, many of the ideas behind it — if not necessarily the products — will have come from crowdfunded startups.

IoT Crowdfunding: Sources of Innovation

By conventional business theory, such statements may sound wild and grandiose. According to Joseph Schumpeter in the 1934 The Theory of Economic Development, innovation comes from manufacturers.

However, more recent work, in particular that of Eric von Hippel, refutes the traditional perspective. A professor at the Sloan School of Management at MIT, von Hippel has been studying innovation for almost four decades. His conclusion is that as much as eighty percent of innovation comes from users — both consumers, and developers who work regularly with a product — and he has found an independent confirmation of his research in the practices of free and open source projects.

According to von Hippel, established companies can add incremental improvements to existing projects. However, corporations are far less likely to develop new products, let alone a radical shift in direction. “The people who create the market are the lead users,” von Hippel says.

Von Hippel’s conclusions help explain why corporations are slow to respond to new directions like the IoT — they are set in their ways. Either they are have trouble seeing the potential in a new direction, or else the fact that the innovators are either low in the corporate hierarchy or outside it altogether means that the average corporation can easily make decisions without taking their ideas into account.

By contrast, in crowdfunded small businesses, the innovators are also the decision-makers. Familiar with the products, and often personally enthusiastic, they have less trouble seeing possibilities and acting on them than many executives do.

Add the facts that the organization of innovators is smaller and flatter, and that many innovators prefer open standards and open source software, and the fact that much of the development of the IoT comes from crowdfunded small businesses becomes obvious. The perfect combination of crowdfunding, open source and small business is not only where much of the IoT is going to be created, but also other innovations as well.