ANALYSIS MAR 19

What Google's Acquisition of Xively Taught Us About the IOT Market

Last week, Google announced a preliminary deal to acquire internet of things (IOT) platform pioneer Xively. The acquisition has been estimated around $ 50 million and signals to the market that Google has some serious ambitions about the enterprise IOT space.
Xively was initially incubated by LogmeIn and was considered, together with platforms such as ThingWorx(now PTC) one of the early proponents of the idea of a platform as a service(PaaS) model for IOT applications.

Considering Xively's deep technology stack, the deal can be seen as a bargain for Google. The valuation certainly seems on the low end for a company that has been battling in the IOT platform space for a few years now. However, beyond the headlines and speculation, there are some interesting implications that the IOT market can extrapolate from the acquisition.
1. IOT Platforms is a Big Boy's Market
Xively had all the ingredients to have become a successful standalone player in the IOT platform space. A strong technological foundation that included some of the fundamental building blocks of IOT backends. A solid financial backing from its parent company and an ambitious vision that positioned as a leader in the IOT platform space for both the consumer and enterprise markets. However, differently from other markets, those ingredients are not enough to win in the IOT platform space.

IOT solutions are a capital intensive market. Each implementation of an IOT platform entails long sales cycles followed by months or years of development. Not surprisingly, those dynamics have made it easier for big enterprise software companies such as IBM, GE, Amazon or Microsoft to achieve leadership positions with their respective IOT platforms. Large sales forces combined with deep pockets to invest in professional services and industry expertise is making it incredibly harder for startups to stay relevant in the enterprise IOT space.
2. Google Cloud IOT Core Will Become Relevant
Xively had all the ingredients to have become a successful standalone player in the IOT platform space. A strong technological foundation that included some of the fundamental building blocks of IOT backends. A solid financial backing from its parent company and an ambitious vision that positioned as a leader in the IOT platform space for both the consumer and enterprise markets. However, differently from other markets, those ingredients are not enough to win in the IOT platform space.

IOT solutions are a capital intensive market. Each implementation of an IOT platform entails long sales cycles followed by months or years of development. Not surprisingly, those dynamics have made it easier for big enterprise software companies such as IBM, GE, Amazon or Microsoft to achieve leadership positions with their respective IOT platforms. Large sales forces combined with deep pockets to invest in professional services and industry expertise is making it incredibly harder for startups to stay relevant in the enterprise IOT space.
3. IOT Consolidation is Happening
This is not exactly news but the IOT platform market might be headed for another wave of consolidation. Two years ago, we saw some enterprise software incumbents such as Amazon, Citrix or Cisco acquire early market leaders in the IOT platform space. The pinnacle of that M&A wave was Cisco's acquisition of Jasper for $1.4 billion. Google's acquisition of Xively could mark the beginning of another wave of M&A activity. Startups such as IOTIFY, Things+ or ThingSpeak are definitely attractive targets.