Blog Archive

24 Jun’14

Unlocking Value Creation Opportunities in the Internet of Things (IoT)

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The global enthusiasm surrounding the ecosystem known as the ‘Internet of Things’ (IoT) has positioned data as one of the most valuable assets that a company can own and monetize. According to IDC, the worldwide market for IoT applications (intelligent and embedded systems, connectivity and security services, infrastructure services and platforms) reached $1.9 trillion last year, and is expected to more than triple to $7.1 trillion by 2020.

The valuation of technologies in the emerging IoT ecosystem will largely depend on the revenue models around data monetization through control of he IoT data value chain. It is becoming clear that controlling the data value chain from the point of data collection to the point of data analytics is key to unlocking these value creation opportunities. Hence, companies proceed through acquisitions to get better control over the value chain. Google’s $3.2 billion acquisition of Nest Labs, followed by the recently announced $555 million acquisition of Dropcam, granted Google access to home data collection endpoints through Nest’s growing inventory of home automation devices and Dropcam’s home security cameras.

There are several areas where IoT data analytics can increase original equipment manufacturer (OEM) profitability and create new revenue opportunities, including longer asset uptime, enhanced customer experience and reduction in maintenance and service costs. As seen from GE’s launch of its Industrial Internet platforms in 2012 to airlines, energy companies, hospitals and other industry segments, there are some interesting opportunities related to the value creation associated with data in the IoT ecosystem. These opportunities exist not only in the industrial space, but also in consumer-facing IoT applications such as home automation and wearables, as well as in industries such as agriculture.

Putting privacy and security concerns aside, data represents the promise of new economic benefits that are only possible when big data is leveraged in big ways.

To read the full blog, published on IAM Magazine, click here.

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07 May’14

Revisiting patent valuation: lessons learned from toilets, Singularity and the triple bottom line – Industry Report

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The Singularity University in Silicon Valley has an ambitious mission when it comes to educating its international, diversified student base: the 10^9 challenge, which involves developing ideas that improve the lives of at least one billion people over the next 10 years. In the eyes of visionary founders Ray Kurzweil and Peter Diamandis, these large-scale, ambitious ideas on the critical path to solving world problems should be top of mind for innovators worldwide. Looking at patents through the ‘Singularity’ lens, it quickly becomes clear that high patent value does not always correlate to the magnitude of the underlying innovation. On the contrary, many valuable patents today derive their value from the size of the product market employing the underlying invention, which might be a very small and marginal feature whose value can be traced back to a few words in the patent claims. That type of analysis is focused on ‘enforcement valuation’ based on the breadth and coverage of the claim language, as opposed to the magnitude of the problem that the invention is addressing. The questions then become whether patents are valued the right way and whether there is a better way to measure the value of patents that would reflect the impact of the underlying innovation on people and markets. Continue reading

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16 Apr’14

Industry report – Crowdfunding, the JOBS Act and the future of innovation funding

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If you back a Kickstarter crowdfunding project by a company that ends up selling to Facebook for $2 billion, do you deserve to get a return on your campaign donation? This is the q
uestion raised by some of the backers of the September 2012 crowdfunding campaign of the Oculus Rift virtual reality headset, which successfully raised $2.4
million on Kickstarter, a rewards-based crowdfunding platform.

Rewards platforms are not considered equity investment Efrat Kasznik Foresight Valuationportals. Instead, they offer ways for companies and projects to find supporters who make a monetary contribution (donation) in return for a set of rewards – ranging from merchandise such as a t-shirt all the way to pre-ordering the actual product itself. One Forbes analyst calculated that a campaign backer who put $300 into Oculus as an equity investment could have made a return of $20,000 when Facebook bought Oculus 18 months later for $2 billion. However compelling, this argument is largely flawed, as a rewards-based donation is technically not an equity investment. Equity crowdfunding is still pending in the United States, awaiting the Securities and Exchange Commission (SEC) regulations required for the implementation of the Jumpstart Our Business Startups (JOBS) Act, the 2012 legislation destined to open up equity crowdfunding to non-accredited investors in the United States for the first time in history. Several key valuation issues are worth discussing in the context of crowdfunding which are very specific to the crowdfunding platform and the regulations surrounding it. Continue reading

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12 Mar’14

Business model innovation: why building a better mousetrap is not enough – Industry Report

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Foresight Valuation Group LLC – IP valuations

What do solar energy and personal communications have in common? While energy and communications seem unrelated industries, they have significant similarities if one considers the role of business model innovation as a precursor to success in bringing new technology to market. Take, for example, two companies:

  • SolarCity Corporation (Nasdaq: SCTY), a solar panel installation company, which is publicly traded with a market cap of over $7 billion; and
  • WhatsApp, the text messaging company which was purchased in February 2014 by Facebook for $19 billion.

In a playing field littered with the corpses of failed ventures, these two companies point not necessarily to cutting-edge technology, but rather to filling the gap in a business model as the key enabler of their success. SolarCity had one of the only initial public offerings (IPOs) in the solar industry, an industry known for high failure rates, due primarily to its successful solar system financing programme which allows it to distribute a product with a negative return on investment to millions of households. And the recent WhatsApp acquisition is largely attributed to the lack of revenue model agility on the part of incumbent carriers, which created an opportunity for WhatsApp to tap into its user base – and grow to 450 million subscribers worldwide.

SolarCity: making solar systems affordable
In late 2007 I was on the founding team of a residential energy efficiency start-up in Silicon Valley, engaged in developing a data-driven analytical platform for homeowners to understand their energy consumption and savings opportunities. The residential sector has always been a tough nut to crack when it comes to energy efficiency: homeowners are motivated by a complex set of incentives (saving energy, saving cost and reducing their carbon footprint) that often seem at odds with their actual energy consumption behaviour. Utilities have been experimenting for years with all types of initiative, ranging from handing out free energy-efficient light bulbs to installing smart metres that would balance off the load during peak hours. Successful IPOs are the exception to the rule in an industry that has grown accustomed to a steady stream of bankruptcies, poor earnings reports and dwindling funding resources.

SolarCity was founded in 2006 and was originally backed by Elon Musk, the maverick Silicon Valley entrepreneur, who is also the founder of successful electric vehicle company Tesla Motors. The company designs, installs and maintains photovoltaic (PV) solar systems on residential rooftops. Solar panel installation is a lucrative business. Most of the money being made in the solar industry does not come from making and selling solar panels, where the market is flooded with cheap PV panels from Asia. A recent Massachusetts Institute of Technology study found that in residential systems, solar panels typically account for only 20% of the overall cost of the system. The rest includes the cost of electricians to install the panels and hardware to connect the systems to the grid. Most of that money goes to companies like SolarCity.

From an economic standpoint, residential solar systems are expensive to install and do not actually pay back in energy savings over the duration of typical home ownership, which creates a major hurdle to adoption. The key difference between SolarCity and many other solar companies is that its strategy is not based on innovative new PV panel technology; rather, its competitive edge lies in utilising existing solar technology with an innovative approach to financing the panel installation. Instead of asking for a big upfront payment, the company created a financing programme whereby it leases the systems to homeowners. The lease payments are offset by power savings from reduced electric bills and the surplus electricity that can be sold back to the local utility. By doing that, SolarCity has managed to convert a product with a negative return on investment to an affordable energy-efficiency solution.

WhatsApp: picking up the slack in messaging services
Telecom research company Ovum Ltd estimated that service providers worldwide lost about $32.5 billion in 2013 in text messaging revenues to free social messaging applications like WhatsApp, a loss that is projected to reach $54 billion by 2016. Internet-based messaging services have particularly increased outside the United States, where carriers charge high fees for texting on top of the regular voice and data plans. In order to protect their text-messaging subscribers, US carriers began to offer flat-rate, unlimited text messaging in many of their plans. However, carriers in other parts of the world are largely affected by the proliferation of free social messaging apps: in Mexico, for example, it is estimated that about 90% of all instant messaging goes through WhatsApp.

For much of the past three decades, voice has dominated the revenue streams for almost all telecoms operators. The changing face of the mobile industry affected the business models and revenue structure of service providers. In 2013 voice revenues were expected to fall below the 60% threshold globally for the first time. The drop in voice revenues has been compensated by the rise of messaging and data revenues, as service providers try to keep the overall average revenue per user (ARPU) at stable levels. A ‘perfect storm’ set of circumstances created the fertile ground for WhatsApp to take over the market: the ubiquitous broadband internet access, the proliferation of mobile devices and the gap in business model on the part of the service providers. These circumstances pushed subscribers to adopt free personal communication applications at increasing rates.

One might argue with the price paid by Facebook for WhatsApp’s massive user base, but this acquisition was definitely triggered by the global accelerated growth of WhatsApp, which would not have been possible but for the gap in revenue model that caused telecoms companies to lose users that they already own, due to the wrong billing model. It remains to be seen how WhatsApp’s 450 million users will be monetised by Facebook, but this represents a missed opportunity for the service providers whose focus on maintaining their ARPU metrics and existing billing structure is causing them to lose sight of some of the new revenue opportunities in telecoms services today.

In some industries it is not enough to build a better mousetrap. Often, the key to product or service success in the marketplace hinges on coupling intellectual property with the right business and revenue model.

For further information please contact:

Efrat Kasznik
Foresight Valuation Group LLC
Tel: +1 650 561 3374

Continue reading

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