In fact, the innovation in the internet of things is usually not in the technology itself – what’s so exciting in small boxes sending data wirelessly to a server? – but rather in the applications, i.e. how the IoT can change so many aspects of how the world works. For us, one of those aspects is the ‘smart buildings’ sector, where we see great potential for fast growing, profitable businesses which, at the same time, can help tackle climate change.
Indeed, we see IoT solutions bringing a key contribution to the massive issue of wasted energy in buildings, with a number of possible routes to create value:
However, this is a sector with large growth opportunities across the board and we expect to continue witnessing the emergence of many start-up businesses. A number of them are already of significant size (e.g. Sigfox, Everythng) but there will be more – and we look forward to investing into start-ups developing software (or a combination of hardware and software) in the field of smart buildings and energy management.
Far more connected things than people in the world
With ever smaller and cheaper micro-processors, the number of everyday devices becoming connected is only going to increase. It’s been six years since Ericsson famously forecasted that there would be 50 billion connected devices globally by 2020, and Gartner now ‘only’ forecasts 20bn such devices by 2020 – but still this is three times the number of humans on Earth.
Such figures include a wide variety of objects, with applications across consumer and industrial sectors, from transportation to energy, consumer electronics to banking, health to manufacturing – as evidenced by the many ‘verticals’ targeted by IoT generalists like telecom operator Vodafone. There is no doubt, the IoT is a big market with total spending on endpoints and services expected to reach almost $2 trillion in 2017.
Energy efficiency in buildings: a hidden goldmine in the fight against climate change
When investing in start-ups, we want to focus on those with a positive impact on the environment and in particular those which help reduce energy consumption and CO2 emissions. As such, let’s start boldly and tackle the largest energy consumers.
Transportation is one that easily comes to mind: according to the International Energy Agency, transportation represents 35% of global final energy consumption. We’ll come back to transportation in another article of ours in the Clean Transportation Revolution series.
However, equally problematic are buildings. According to Rocky Mountain Institute, residential and commercial buildings, when put together, also account for 35% of global energy consumption.
If buildings can literally make or break the critical transition to a low-carbon energy future, the good news is that the rise of connected objects can make them radically thriftier and more sustainable.
The seemingly endless potential applications of IoT in buildings
In a world where smartphones are ubiquitous, it can be surprising to think how little technology is deployed in the buildings we live in and even work in.
Declining costs for metering systems, new automation capabilities and the advent of cloud computing are creating enormous opportunities. More and more sensors of all types, machines, office equipment and virtually any part of a building can now be connected to networks.
In theory, there is no limit to the amount of data that can be harnessed from buildings – whether they are homes or offices or industrial sites. The market opportunity is huge. For example, Navigant Research estimates that commercial and residential IoT products and services will generate more than $750bn in revenues through to 2025.
Here are a just few examples of what can be done with the data collected by IoT devices in buildings:
The value is in the data
Providing IoT hardware can be a viable approach for some players, but there is a tendency for hardware to commoditise – and, more fundamentally, why settle for one-off hardware sales when an IoT solution will provide the customer with recurring benefits – such as lower energy bills?
The long term value of connected things comes from mining the data that sensors generate and using it for key applications that can be repeatedly monetised. Data is where the value is – and in many cases, the real prize is having real-time data from all these devices.
Who will pay for these? Consumers might be willing to pay subscription fees for IoT devices in their homes, but so far, success in this field seems to be correlated with the size of the company backing the product e.g. Amazon, Google or Apple.
As such, for a start-up, it is likely to be sensible to tackle the B2B market, with potential customers ready to purchase an IoT solution because it will deliver quantifiable and long lasting benefits to their organisation. Below are a few examples of where we see value creation opportunities.
Monitoring alone is already a valuable proposition
Many of our houses are more than 100 years old and commercial buildings are designed to last many decades. Still, if we are going to meet climate change targets, we need to improve the energy efficiency of buildings, not in decades but now. As such, the main task ahead is not to build better houses or office blocks today and in the future but to ‘retrofit’ the current stock of buildings to the best possible standards.
Retrofitting is a costly exercise – and so it is essential that the economic equation is well understood, pitching the long term benefits versus the immediate cost. Quantifying the energy savings that can be achieved – and then checking that they have indeed been achieved – can transform energy efficiency from an ‘invisible asset’ into something tangible for decision makers, homeowners and real estate investors alike.
IoT sensors and data analytics are key to evaluate pre- and post-retrofit energy use in real-time, with a high level of granularity and accuracy. The value that this information provides is instrumental in scaling the deployment of energy efficiency investments.
Adding more value via a feedback loop
Once the sensors start providing large amounts of data about how much different types of energy are used in a building, when, where and in which circumstances – and if you can compare this performance to that of similar buildings in similar circumstances, the logical step is to enable the building to learn and adjust its settings automatically.
Heating, cooling, lighting, ventilation, etc. can all be controlled by software, creating an intelligent feedback loop – and hence optimising the usage of resources in the building whilst at the same time ensuring optimal wellbeing for the occupiers.
In their own different ways – and addressing very different market segments – this is the opportunity that two start-ups such as Shields Energy and Switchee are after. It is easy to understand why it makes sense for a real estate asset manager to pay a subscription fee for an IoT solution which will enable him to minimise his costs.
More sensors lead to even more value
So far we have mainly considered sensors and devices which are targeted at optimising energy consumption in buildings. However, once you start installing IoT devices somewhere, it is extremely easy to embed a number of different sensors into each such device – and hence to get live data on many other parameters beyond temperature, including light, occupancy, humidity, concentration in different gases and air quality, information on whether doors are open or closed, etc. Here are two examples of how this adds value.
Shields Energy has developed a box with temperature, humidity and light sensors. Combined with the company’s other systems, these can deliver energy savings but also better operational efficiency and end-customer satisfaction – e.g. by adjusting the intensity of lights on a platform in a train station to real time conditions.
Switchee’s little device for the social housing market incorporates five different sensors, which, when combined together, make its solution attractive to different types of landlords facing different types of issues, and enable different types of operational savings to pile up – and hence improve the return on investment for the landlord. Indeed, beyond the initial energy saving element, Switchee can deliver other benefits:
Data overload: machine learning to the rescue
The future may be connected, but with multiple systems monitoring hundreds of electrical-powered devices, identifying the right efficiency savings is no straightforward task for energy managers. In theory, adding more sensors means creating more optimisation opportunities – but in practice it is not that simple.
In one of its papers, Rocky Mountain Institute gives a great example, explaining why in its own smart building the question of whether to raise the window blinds quickly becomes “a metaphorical rabbit hole”: will the sunlight save more lighting energy than it costs in cooling energy? Would it be best to pre-cool the building to address these cooling needs, or might pre-cooling prevent from utilising natural ventilation later in the day? What if half the office calls in sick and the occupants’ body heat is insufficient to help warm the space? What if the weather changes?
Clearly this must be an opportunity for developers of machine learning systems which will draw from past experience as well as from lessons learned in similar buildings around the world.