With an addressable market of more than 450 million electric, water, EV and gas meters in service in the US today, the Internet of Things or “IoT” is exploding into the mainstream of every office building, home, multi-family and hotel property in a variety of applications. Historically, the “things” were wireless sensors that were deployed into a building’s mechanical systems—a sensor to monitor water usage, power consumption or a leak detection sensor to identify a flood in a building. All of these capital-intensive pieces of hardware were installed locally, one building at a time, and expensively integrated into some type of data collection and reporting interface for the building owner.
Up until recently, the problem persisted that IoT was very cumbersome and expensive to install at scale into large portfolios of buildings.
Today’s technology and business models solve for many of those questions and it’s becoming increasingly exciting for how we then interpret that data…“ Matt Macko, founder of stok
Today, for the first time, these formerly capital-intensive sensors can be sold “As-a-Service,” and handled as an OpEx item rather than a more expensive CapEx investment. IoT ushers in a new era of building and conceptualizing products that serve owners, investors and the tenants of buildings. More than ever this has opened the door for technology companies with a globally penetrated and sustained client engagement platform to monetize a more granular stream (s) of data from its client’s buildings.
Sensor to Investor
Global enterprises view IoT as a new revenue stream and a way to mitigate risk for the investor and operator of commercial real estate assets. A 2015 report from McKinsey made the case that revenue growth is by far the biggest factor driving IoT adoption. Early adopters of IoT in commercial real estate were focused on elegantly connecting a variety of disparate systems and tackling the Opex side of the equation. This low hanging fruit yielded a variety of case studies that supported the concept of using real-time data to make better informed operating decisions, primarily around energy consumption to lower building operating costs. But today these networks of sensors are being applied to the contextual space within the non-mechanical areas of real estate assets like tenant spaces and common areas.
Through the end of 2016, with the emergence of “sensors as a service”, IoT deployed even more rapidly than in previous years as a mainstream path to generating higher revenue for commercial real estate and the technology companies that focus on the sector. Today there has been a pivotal inflection point in the market, largely due to key trends that are shaping the scale opportunities in the market: new business models like “sensors as a service,” data monetization, lower cost sensors and less power intensive devices. These four factors have further fueled the scale deployment of IoT as a service.
More recently, the architectural design field has responded to these trends with new conceptual designs that embed this technology into the design/build phase. “The marketplace for a long time now has recognized we can’t manage what we don’t measure. That’s old news ”noted Matt Macko, the founder of stok, a San Francisco sustainability “think-do” tank, the firm provides workplace and sustainability strategy for some of the worlds largest technology companies. “The issue has been a lack of clarity about how and what to measure, along with the obvious need to assess ROI and overall impact on the performance of the asset. Today’s tech and business models solve for many of those questions, which makes it really exciting for us to use data to design and build increasingly exceptional spaces for Fortune 500 clientele and investment managers alike.”
Practical Operating Benefits
These mesh networks of sensors are providing real estate managers with new tools to operate their buildings and to enhance the level of services to tenants. With better precision and speed, service levels in buildings can be optimized to improve the tenant experience, which in turns leads to higher renewal rates for leasing, ultimately higher leasing rates and velocity drives higher valuation from investors. The impacts of IoT and data collection and visualization can do a lot more than save energy, it can literally transform the environments and experience for the tenants that inhabit these buildings.
This technology is being deployed far beyond the interior of buildings and into critical pieces of infrastructure that integrate with buildings and the electric grid. Companies like eMotor Werks, a Silicon Valley IoT company, are deploying their smart grid technology for electric vehicle applications into the growing EV market. In addition to their 20,000 charging stations throughout the US and EU, eMotorWerks’ IoT technology is embedded in electric vehicle charging stations of other OEM's devices such as AeroVironments, and even in the cars themselves. Their software controls the complex traction of charging vehicles, now enabled with intelligence and connected to the energy markets. eMotorWerks provides valuable grid management services - such as demand response, frequency regulation, peak shaving, and local load balancing that help utilities and ISOs better manage the grid volatility and prepare for and fully leverage accelerating EV adoption. eMotorWerks provides its customers with their “JuiceNet” cloud software to create an open platform for smart-grid EV charging that leverages abundant renewable energy while offering utility-coordinated aggregation for load balancing and control.
Capital Drivers: Venture Capital to Global Industrial Giants
Another factor propelling the adoption of IoT is that four of the major network OEM’s—Amazon, Cisco, IBM, and GE—have decided to support IoT with massive investments and network modifications, facilitating dramatic simplification and cost reduction for network connectivity to these billions of devices. These large scale industrial giants are bullish on IoT, with GE whose own Predix offering will generate $15billion in revenue by 2020, is estimating that the “Industrial Internet” has the potential to add $10 -$15 trillion to global GDP over the next 20 years. From McKinsey to Gartner, nearly every leading research institution around the world seems to agree that IoT will add trillions of dollars of opportunity to the market over the next 10 years, with Gartner predicting more than 20billion connected IoT devices by 2020.
The largest industrial OEM’s are feeling stiff competition from a growing number of startups that are driving the cost of sensors lower, and many of them have created software applications that are tackling niche parts of the value chain. GE whose investment arm, GE Ventures, is constantly on the lookout for new technologies that would compliment one of their vertical platforms in industrial software, aerospace or healthcare, are making shrewd investments in all of these categories in addition to their own R&D investments.
Numerous global industrial giants like GE, Cisco, Qualcomm and even larger number of VC’s like Kleiner Perkins, NEA and Andreessen Horowitz are dominating the investing landscape for IoT seed stage startups and later stage Series A+ rounds.
Regulatory Drivers
Financial and environmental regulatory compliance is the second driving factor behind IoT adoption and the most compelling for companies that are poised to capitalize on this technology. Various legislation at the federal and state level require buildings to measure and report on critical utilities like energy, water and waste consumption from the point of use (or in this case the building level sensor). We’ve already seen how the U.S. Energy Act (2007) accelerated efforts to monitor energy consumption, and measures like Title 24 in California make it a requirement for buildings over 5,000 SF. Nearly a decade after the Energy Act was passed, nearly 450 million smart-connected meters exist in the US market and this will more than double by 2020, making it a leading IoT device to control and monetize.
Other environmental metrics are also being mandated to be monitored in the built environment; from VOC, to CO2, to numerous other Indoor Air Quality standards. Each of these requires a mesh of sensors and software to collect, measure, aggregate to an enterprise level platform and then report out to various groups of stakeholders.
Measurabl, a San Diego based software company has been helping its global real estate clients tackle exactly this problem by automating their non-financial ESG data that allows institutional investors the ability to report out to the capital markets on how it manages its environmental and carbon footprint in buildings. Companies like Measurabl are benefiting from the trend led by large asset managers like Blackrock, whose CEO Larry Fink released an open letter to the world’s largest publically traded firms, encouraging these companies to track, measure and report on all of their ESG metrics and data. This new type of non-governmental, market-centric regulation is being driven by the financial market’s eagerness for greater transparency in their investments. Measurabl to date has nearly 5 billion SF of global real estate assets automated through its enterprise-quality platform, and it sees a future where data will start to converge from the collection at a building sensor, up through the building operators and asset managers and ultimately the information will be consumed by investors in the capital markets.
Trillion Dollar Market Opportunity
Today, we are the beginning of a new era; the ground is quickly shifting towards the deployment of mass scale data sensing IoT devices, creating a rapidly expanding market. To realize the benefits of IoT, organizations must design and implement each layer of the IoT architecture at-scale, with the goal of efficiently tapping into the enterprise’s multiple functions to ensure tight integration with environmental, health, safety and sustainability metrics. This is a “top down” approach, where the enterprise platform has created a marketplace of clients within large-scale portfolios of commercial real estate, and the IoT devices— the “things” plug into the platform in a simple to deploy “Lego” style, ensuring that the application is "future-proof" and can be responsive to new devices and technology.
The opportunity will be LESS about how to connect “things” and far more about the insights garnered from the instrumentation of large parts of commercial real estate portfolios. The IoT sensor itself is quickly becoming a commodity, but the “magic quadrant” of value will be in the analytics and reporting performed on the voluminous streams of real time data emitted by the “digital fingerprint” of the assets that they stream. IoT is the missing layer of data for many platforms that have been able to monetize the “instrumentation-to-insights” part of the commercial real estate value chain.