Developing the edge or scaling the core through corporate venturing Internet of Things. Daan Witteveen

Developing the edge or scaling the core through corporate venturing Internet of Things Daan Witteveen

Global M2M Connections (billion) The Global IOT Market is expected to see a forecasted to grow at a rate of 23% to reach a size of $1.2 trillion by 2022 Global M2M Connections 2012-2022 20 18 16 14 12 10 8 6 4 2 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 26 billion embedded and intelligent systems by 2020 $19 trillion global economic value creation by 2022 $9 trillion in annual sales by 2020 The US is the most mature M2M market will account for 20% of revenues and 19% of M2M connections in 2022 Number of connected devices classified as M2M will go up from 23% today to 61% in 2022 M2M is a growing percentage of subscribers and wireless revenues for major operators A third of M2M revenues are accounted for by Services; the remaining 2/3rds come from devices and installation 4 billion connected people 50 trillion GBs of data 25+ million apps 75% of executives exploring/adopting IoT Source: Machina Research (2013), Pyramid Research (2012), Gartner, Nov. 2013, IDC, Oct. 2013, The Economist, Oct. 2013, Deutsche Bank May 2014 2

In the IoT world, value is created when context-specific data can be collected and analyzed to drive action that meets a specific customer need 2 Sense data (real-time), trigger event 3 Collect and process data Smart Device Connectivity and Device Mgmt Social Integration 1 Use device Customer value: Receiving responses to specific needs and events. Data Storage Data Analysis Decision- Response Business value: Customer retention, improved business operations, data monetization and new revenue streams 4 Provide data, generate response Customer 5 Monitor services performance 6 Deliver services, notifications, modify products/offers Improve business Monetize data Service Provider Build customer relationships 3

A number of market forces are driving this rapid growth, both in terms of demand as well as supply Today and going forward, businesses must increasingly Accelerate product development to stay current given the pace of technology innovations Tech innovations spawning new features, services, platforms, business models Pace of technology evolution outpaces vehicle development Increasing complexity in business operations and systems Technology innovation as a differentiator Evolving Business Models Evolving Technology Evolving Customer Expectations Cater to an increasingly sophisticated set of customer needs The modern customer is more: Connected Tech-savvy Mobile Social Look for new and different approaches to package and offer services to customers Mechanisms for monetization Customer lifecycle management Models of product/asset ownership Evolving Competition and Ecosystem Act quickly to keep up with competition and contend with rapidly changing ecosystem dynamics Pressure to innovate Ecosystem movements (new players, acquisitions) mean that competition is coming from new quarters Increasing trend of partnerships to improve product offering and time-to-market 4

Seven industries will drive IoT growth in next decade Predictive maintenance Energy optimization Quality optimization Flexibility enablement Supply chain Security alarm system monitoring, video surveillance,. Smart appliances energy consumption control, interappliance communication Home Auto n Insurance Automotive Manufacturing Healthcare IoT Provider efficiencies Outpatient monitoring Qualified Self movement Smart Grid Retail Navigation Infotainment Vehicle-to-vehicle Fleet management Mobile point of sale Checkout optimization Shelf stocking Vending machine stocking Driver usage-based Home insurance Infrastructure insurance Outage management Grid efficiency / optimization Renewables management Smart metering 2014 2014 Deloitte Development The Netherlands. LLC. All All rights rights reserved. reserved

and to create value IoT requires corporations to transform into active ecosystem players Consolidation & Outsourcing Innovation & Corporate Venturing Platforms & Partnerships & (Corporate) Venturing Ecosystems 90 00 10 2014 Deloitte The 2013 Netherlands. Deloitte The All Netherlands rights reserved

The current IoT landscape is one that is highly fragmented, particularly in terms of vertical solutions 7

However, the industry is now seeing trends towards ecosystem collaboration with clearer roles and standards IoT Provider Ecosystem IOT Ecosystem Trends: Industry Groups IT services vendors Standards Bodies Hardware Makers Software vendors Network Service Providers Middleware vendors Cloud Service Providers (CSP) Regulators /Govt. Device Manufacturers New entrants: The IoT space is attracting a slew of new entrants, offering vertical-specific solutions (e.g., SmartThings, EVRYTHNG, FitBit). This is driving rapid innovation, while resulting in high fragmentation. Incumbents: Growing dominance and influence of large existing players in this space. Majority of the effort is dedicated to developing an underlying IoT platform (e.g., Apple s HomeKit, Intel s customizable platform) Venture Capital Investments: Venture Capital is piling into IoT leading to strong valuations (e.g., $530M to Jawbone valued at $3.3Bn, $80M to Nest valued at $3.2Bn) Acquisitions: Sizeable acquisitions are taking place, especially in the home automation and Telematics space (e.g., Google Nest, Boston Dynamics, Waze; Vodafone M2M Cobra) The desired outcome is an ecosystem where everyone benefits Standards Security Interoperability Breakdown of silos Horizontal layers Data commons with open access Go-To-Market Partnerships: Major players are forming partnerships to develop a strong go-to-market value proposition (e.g., Deloitte/Cisco, IBM/AT&T, TI/IBM/Others) Alliances for Standards: Companies are forming alliances to develop standards for inter-device communications and data management (e.g., Google Nest backed Thread, Intel backed Open Internet Consortium, Qualcomm backed AllSeen Alliance ) 8

Corporate Venturing has evolved from a 'copy cat' venture capital model in the nineties into an enabler of new business through partnerships in ecosystems on the edges of the core business of today The 'nineties VC' model Ecosystems & partnerships VC like operating model Portfolio approach Focus on return, and Hedging for new potential disrupting technologies Limited linkages with core business Enabling the core business to become an ecosystem player Adjacent to the core business Focus on value creation through partnerships VC terms & conditions 9

In the Bay Area, the building blocks of the ecosystem are talent, ideas, entrepreneurship, venture capital, and the development of platforms with touch points (api's) for startups to develop, test and scale-up new products & solutions 10

The ecosystems in the Bay Area differ from traditional markets in its agile operating model, engaging a hybrid talent pool and the ability to develop platform and interfaces Traditional Ecosystems The Bay Area Ecosystem Collaboration focused on efficiency (supply chain optimization & outsourcing) Open innovation between established players Developing 'end to end' products & solutions Struggling to collaborate with startups due to culture gap, and radical different operating model: planning & control vs. agile development Collaboration focused on business development and innovation Hybrid talent pool: entrepreneurs & employees Agile (lean) start-ups initially focused on developing a product (feature) Venturing is facilitated by cloud services collaboration platforms and open sourcing Corporate platforms (i.e. AppStore) provide touch points (i.e. APIs) for startups to quickly launch, test and scale-up

Once agile and touch points in place, corporate venturing opens the window to develop new business on the edges of your business Explore new venturing opportunities Test new business models Shape the future through small bets The new outsourcing: core vs. adjacent Partnership / business driven investment strategy Opportunity to transform end-of-lifecycle core business 12

Must do s to successfully apply corporate venturing in IoT 1. Full CEO support & dedicated team 2. Business alignment & a clear view on venturing levers 3. Venturing framework 4. Partnership governance 5. Deal terms & conditions 6. Customized KPIs 13