The days of consumer hardware company's access to startup capital is over. With so many high profile VC backed (Fitbit, GoPro, Hello, Juicero, Coin, Pearl, ect.) and kickstarted (Lily.ai, Pebble) failures, no one is willing to risk it.
I'd ascribe the failure to the commodification of the fitness tracker and increasingly platform-driven smart speaker space. Here are some companies that have raised big rounds recently:
+ SimpliSafe raised $57M from Sequoia
+ Ring raised $100M+ from DFJ
+ Formlabs raised $50M from Foundry
+ Sphero raised $23M in April
+ Anki raised $52.5M in PE
I'm not sure what the future holds for Anki/Sphero, but the first three examples have what GoPro/FitBit didn't — a clear recurring business model. This is a good blog post on the subject:
We use SimpliSafe at work. It solves far more problems than the "commodity hardware" issue. It solves the alarm ecosystem and shitty contracts that legacy carriers like ADT trap you into. It's definitely a good model going forward, as you noted.
EDIT: Additionally, it solves a "boring" problem, which not many companies want to tackle. Yet there's tons and tons of stable recurring revenue in this space that requires almost no additional innovation. Just stability, no-bullshit, and good customer service.
> stability, no-bullshit, and good customer service
I'm interning at a recently (12 months ago) acquired standout in the e-commerce provider field, and yesterday I was at a talk where the CTO/co-founder attributed their now multibillion dollar business to the exact same thing.
There are plenty of dumb problems that people just want to not worry about.
I will say, the downside is they spent about 7 or 8 years before going public, and another 4-5 before being acquired (for about 4.5x their IPO price). It wasn't quick money, because you can't prove stability in a year or two, but it is a very powerful business model.
> Just stability, no-bullshit, and good customer service.
VC mechanics are the opposite of this, they are built for hype-based financial engineering to sell companies to richer and richer investor groups. Product and revenue is secondary.
I would argue that Ring is the primary consumer success that the VCs are looking at right now. Everything else is not looking good.
Simplisafe raised the $57m in 2014 and seems to have been able to make a sustainable business without VC money.
Form Labs is seemingly (with the rest of 3D printing) moving away from consumer to B2B focus.
I find Sphero/Anki raises surprising and wouldn't be surprised if they had Chinese Funds leading the rounds.
Which pretty much assures increased growth as they produce more toys for Disney IP. Who knows they could also be using the tech in their parks or for production purposes.
Can somebody provide more context about Nest's struggles?
I understand that their new products may not be selling that well (lots of cash for a CO detector / camera / etc) but what about the thermostat business where they have partnerships with most every energy provider and their setup process / support is great? What articles did I miss?
I ask because of self-interest: I just installed a couple and I appreciate them, and I'd hate to see the software support fall by the wayside / be decommissioned by their parent company.
EDIT: I'm reading about not enough revenue on the acquisition price and leadership issues, but I find it hard to believe a company with a solid thermostat product being sold in outlets across the country would collapse, especially given the current utility partnership incentives. That said, I've been surprised before.
Three problems. First selling to Google automatically put Nest into the "Are they going to sell my home data" category. Denials to the contrary that's Google's business model for everything so naturally people assume it's going to happen.
Second rush to market for their smoke detector Protect caused a debacle when it was discovered it was far too easy to silence a real alarm so they were all recalled, etc.
Third Nest has no relationship or respect in the home HVAC industry. Pretty much every HVAC tech and owner I've spoken to has a strong dislike for Nest. And while installing the Nest isn't that hard eventually everyone is going to have HVAC issues that need professional repair and people will get an earful about their Nest. This gets around quickly.
Of course now there's more competition also by traditional HVAC companies like Honeywell. Although I had a Nest in my previous house when I purchased a smart thermostat for my son for his house warming I purchased a Honeywell just for the reasons above.
Thanks for this summary. My HVAC company does not install Nests and recommended a Honeywell on their end as a smart thermostat. I'd be interested to hear why the techs hate it so much as I've had a good experience so far and having one in the house wouldn't preclude you from doing anything with regard to replacing the actual systems involved. Thanks again for the thoughtful reply.
Yes, hardware is hard. Consumer discretionary hardware is especially hard. Expect ups and downs. Just because a company is struggling now doesn't mean its success is over. (I know that's not exactly what you were saying; just thought your comment could use that clarifying follow up.)
I think the problem with hardware startups is more subtle. Unless you open up a fundamentally new market segment or find a niche application, your product is asking to be commodified. Smartwatches and fitness trackers were too obvious a category and Samsung, Apple, etc. were sure to swoop in and win. There really is no distinguishing feature for Jawbone or Fitbit. Other hardware startups like Anki are doing stuff that's niche and novel in areas unlikely to be ever entered by Apple/Google/etc.
The technology component of Jawbone or Fitbit was, even in 2007, very very basic and hardly novel. There is literally nothing in Jawbone or Fitbit that is super novel: their sensors aren't ground breaking, their algorithms are (presumably) meh, etc.
VC's hope that these companies will mature to become superstars and achieve the level of tech quality of Qualcomm, FB, GE, Intel, Google, etc. in their respective markets. This didn't happen with Jawbone or Fitbit.
What about hardware that doesn't so directly rely on an information network, such as sous vide (Anova was recently acquired [0]) and appliances like the Roomba? e.g. I'm sure Google engineers could eventually design a great sous vide, but not much about a sous vide does is amplified by the Google ecosystem. I suppose those kinds of things, as useful and coveted as they are by their fans, could reach elite status in their niche markets, but the highest potential valuation would be too small beans for some VC.
Roomba came out in 2002 so it predates the current round of VC hardware companies by quite a number of years. I feel like Roomba has been around long enough that they have strong brand recognition, even if their product is cloned and commodified.
There are 3 items on that list, and all 3 have been present in all of Fitbit's competitors for years. Even if Fitbit was first mover on these technologies, they've long since lost any unique ownership of any of these 3.
Read the details. Yes, Apple Watch has some form of heart-rate monitoring. But what's described on that page is continuous all-day monitoring. Fitbit has better technology to better serve the consumer.
Yes, you can tell Apple Watch what kind of workout you're about to do and it will record it. But what's described on that page is automatically detecting and recording a type of workout based on motion. Fitbit has better technology to better serve the consumer.
Yes, you can track sleep with a third-party Apple Watch app if you're careful about when you recharge the device. But that page says "your Fitbit tracker can record your time spent in light, deep & REM sleep, as well as your time awake, then distills that information in easy-to-reach graphs in the Fitbit app."
There have been niche products that supposedly tracked sleep stages but they've been reviewed as inaccurate. Fitbit has unique ownership of this technology and major players haven't even claimed to compete with it.
That page doesn't say specifically, but my recollection is that it's otherwise every 10 minutes if you're still. In non-workout mode they don't measure heart rate if you're moving; presumably not accurate enough.
All-day heart-rate monitoring can only be claimed by devices with a battery life of at least a day.
right... I mean "continuous" on a digital device is still going to have some sample rate... Apple Watch has a 10 minute sample rate most of the time and some higher sample rate when they are doing "continuous" monitoring during a workout. Fitbit must have a great way to store that data if they really are doing "continuous" monitoring all day.
I'd argue that the incumbents wouldn't have thought it possible to build a smartwatch or fitness tracker if it wasn't for these start-ups, though. They're just really good at acquiring and copying.
When the iPhone first came out, the way you measured your heart rate was by putting your finger over the camera on the back of the phone.
> They're just really good at acquiring and copying.
Right, but that's why the products become commoditized. The inventors get an early burst of success and easy money, but everyone else figures out how to make similar products very quickly.
Even smartphones are commoditized. The iPhone and the Samsung phones are the rare examples of commodity hardware that can beat the competition on the strength of their software experiences. The other companies are fighting tooth and nail in a textbook example of a commoditized market where the profits are difficult to eke out.
> When the iPhone first came out, the way you measured your heart rate was by putting your finger over the camera on the back of the phone.
Actually, no. Pulse-oximeters were always quite cheap. Also, Casio had heart rate (although not continuous) monitors on some of their watches for many years.
> The days of consumer hardware company's access to startup capital is over.
So I haven't worked at a hardware start-up but it seemed pretty difficult even before these companies to raise funding versus a pure software play. I'm not necessarily convinced this makes it easier or harder. Is there a specific reason you think it will be harder now?
Also, for what it's worth, Fitbit and GoPro are still going. I'm convinced Fitbit can get back on the growth curve as long as they can get a new product out the door that consumers want. Tall order for sure but I don't count them as a failure yet.
GoPro want to move to doing software more so than hardware. Considering their software has always considered to be lackluster to borderline terrible I'm less convinced they will turn it around but also not yet willing to say they're a failure.
I worked at a VC funded hardware start up for the first eight years of my career. You'll never read about it here though; we made digital pathology scanners. When I left we had sold the company for ~300M and were bringing in about ~30M / year in revenue.
I guess my point is that there is more going on in the VC space then you'll read about on HN.
This goes well with the great-grand parent's comment on consumer hardware not being as attractive to investors. I think a lot of it lies in the complexity of the product. A smart watch or rugged video camera seems trivial to replicate and commoditise from an investment and technology standpoint compared to digital pathology scanners.
I'll look at the article at some point, Jawbone had multiple best selling products -- bluetooth speakers being one -- no idea how that covered investment. Hell, A16Z gave all of Skype one of the speakers 6 years ago as a thank you. They did some nice hardware.
What I do know, per your point, investment in and around hardware startups is not publicized. I wonder how some of the networking hardware startups that started the carriers of those I know (and benefited me) would be taken now.
Cisco / Nokia / etc. hardware acquisitions apparently aren't HN sexy.
In 2014, there was piles of "success stories" for VCs to look at and the market was hot. Most of those successes have turned into down rounds or complete shutdowns in the last year.
Fitbit lost me when they refused to support HealthKit. As it stands I'm not sure they can escape their demise as the market transitions from limited function devices to multi function devices like the Apple Watch. They strike me as getting rolled over the same way Diamond, Archos, and Creative got crushed by the iPod.
GoPro has a similar problem. Outside of special circumstances most smartphone cameras are now good enough for most consumer needs and will only get better. I think they could survive if they target the extreme sports type niche but otherwise I don't see them achieving escape velocity.
Both could be good acquisition targets a la Withings and Nokia. But the number of possible buyers is limited. Microsoft is possibly the only one that comes to mind that doesn't have anything in either space although given the failure of Windows Phone I'm not sure they have the desire to try something similar in a different market.
Actually the iPod was not a multi-function device. Palm Pilot was. But it turned out the specialized device was the one that transitioned into the multi-function device people wanted.
According to Wikipedia both Diamond and Archos players were DOA by 2005, two years before the iPhone was released. Creative struggled on for a few years post iPhone. 2005 was the year of the iPod Photo and the iPod Video, although the beginning of the iPod as multi-function device started in 2002 with addition of the PDA functionality.
By 2006 Apple had 72-74% of the MP3 player market, with SanDisk, Creative, Zune, Sony, Samsung, and other accounting for the remainder. I seem to recall most of the damage was done by the iPod Mini.
Correct, all those MP3 players were killed by the mini and the nano, some by the big iPod. None of them competed with the iPod Touch which was a post-iPhone product.
Note that if Shenzen companies started publishing proposals on Kickstarter, they could make a success: Compared to SV products which get delivered in a year or two, they could churn prototypes in a few weeks, build confidence with investors and repeat. I hear people screaming "but they're not reliable/trustworthy!", but you can build trustworthiness by delivering bigger and bigger products, and, actually, Kickstarter would benefit from working in an environment which doesn't entirely rely on the producer's good will.
They already do, see uArm. At one point they were listed as a US company, but they seem to have updated their page. I have nothing bad to say about the experience - my robot arm arrived on time, it pretty much works, some niggles with the software but they seem to be fixing it.
No problems with Shenzhen companies running Kickstarters, after all they can probably have much better relationships with the factories than Westerners are likely to.
honest question: why then did no one copy the iPod, and no one has copied the iPhone with any success?
as soon as the iPod came out way back in the day, the criticism was that it would soon be copied. No one ever did, and I worked in the music business at the time and was familiar with everything on the market. nothing ever came close, apple made a ton of money.
it's a common thing to say that it's not defensible/can be copied, but I don't see that happening always.
Wasn't the iPod successful because you could get music online legally and easily for it?
Memory is hazy, but I seem to recall that without the iTunes store/application you had to either mess around ripping CDs, or use illegal downloads.
The one hardware innovation the iPod had was to use the teeny hard drives just coming on to the market at the time, when everyone else was using flash. Flash was the right solution ultimately, but for a while the HD worked around the problem that Flash was too small for a decent set of songs. Reputedly Jobs decided to take most of the volume supply of the small drives initially, preventing copycats from executing.
I think the interface was way more important. Archos beat Apple to market with little harddrives (https://en.wikipedia.org/wiki/Archos_Jukebox_series#Jukebox_... ) but the player is pretty something or other looking and has a bunch of chincy buttons. Even the mechanical clickwheel was vastly better than pressing a little button a couple dozen times.
While factually true, I think that misses GP's point?
If you take a look at the context of their question, they are asking why no one has killed the iPod by copying it.
I suppose the answer is probably as said by rokhayakebe elsewhere in this thread, "Copying the hardware is easy. Copying the ecosystem is a different challenge."
I am asking the question about hardware, not software. if it's so easy to copy hardware, how do you explain apple's dominance with the iPod for such a long period?
Having good software stack is invaluable isn't it? Having Shenzhen clone and crank out a similar piece of hardware which has the worst minimally functional app isn't going to help anybody?
It's also hard: see Samsung's crappy attempts at replacing the Google apps that no one uses and/or is poorly coded. Also see Bixby failing at English so far.
I think the simplest answer is that apple simply kept innovating at a pace that shenzen couldn't match. Back in the iPod's hey-day, every new release was a groundbreaking improvement in miniaturization. The other OEMs were racing to copy the iPod mini while Apple was developing the iPod nano, or the iPod Colour while apple was working on the iPod video.
and, of course, as another reply says the software has always been a big part of the iPod.
Though it seems counterintuitive, I think it's the lack of a patent system in China that prevents its people from being innovative. Without a guaranteed monopoly, people are less likely to take risks and just turn to methods that are known to turn a profit (replicating foreign products and/or focusing on lowering manufacturing costs).
But now, the economy of Shenzhen has matured to the point where squeezing every ounce of production is no longer sustainable, and thus is forced to innovate. Perhaps that explains the number of hardware startups there: it's an advantage to be closely located to the manufacturer of your parts. That was also once true for Silicon Valley.
Maybe the failure of many hardware startups now can be attributed to manufacturing jobs being outsourced.
I think the patent durations of hardware should be shorter, just like many here think that they should be shorter (if existant at all) for software.
Part of the issue with durations in hardware is development time. It would be nice if the duration could take into account the date of first sale rather than just the inception of the idea.
Apple had complete control of the small form factor harddrives. Noone else could get their hands on them. There were other MP3 players before iPod, but they were either too big, or couldn't hold enough music.
By the time flash storage caught up, it was more about fashion.
In broad strokes, you're pretty spot on, besides not mentioning the simplicity + usability of the software. Apple absolutely made portable music sexy (again) and reaped the benefits all the way to the iPhone juggernaut of today.
Not sure why you got down voted, but here's an up vote.
Because the magic in the iphone and ipod come primarily from software (and for the ipod, the music licensing relationships that apple alone had in the beginning.) Android hardware can be pretty good; the app ecosystem, the ecosystem in general, the clear love that Apple has for the iphone, and the control that is (generally) used in user-beneficial ways all make the iphone superior to android.
in the case of the iPod I'm not sure that was true. remember, these were the days of everyone having a bunch of mp3s on their hard drive. The actual iPod software was extremely rudimentary, and basically barely integrated with iTunes. this was still in the days of windows, keep in mind, and before apple actually launched iTunes for windows. and still, it was immediately a dominant player and not one company was able to launch a competitor _before_ apple built iTunes for windows.
The iPod wasn't that popular before Apple launched iTunes for Windows, though. So I imagine competitors were considerably less interested in it as a target.
Also, one of the iPod's major interface innovations was the click wheel - IIRC they've patented the hell out of that, so no one was about to launch a competitor.
I hate iTunes and I'm glad to be rid of it, but I really miss the iPod hardware. Driving that clickwheel by feel was so much more convenient than looking down at a touchscreen.
Well it was copied by zune and probably others. The part of the equation that is glossed over is iPod provided a soup to nuts media product. You didn't have to mess around MP3 or aac encoding stuff, they have a portal with a staggering amount of content that you could just click and download to your iPod.
Superior hardware is not why people buy Apple products. The reason why it's hard to copy the iPod and iPhone is because it's hard to replicate the Apple brand. That's why there exists a lot of products that have the same functionality but not the same market revenue.
That depends on what you make. Some things are still really hard and have things you cannot copy. In my field the hardware alone is very difficult so just copying will not work but even if you are persistent and get it done, you need a lot of external factors to go along as well which takes years. And explains some of the failures we have seen.
Why do the big corps succeed (Google, Apple, Amazon) and the startups fail. I guess all three of those have had failed hardware products and successful one as well. So they can afford a failure? Startups just need more runway?
The big ones all caught a wave and rode it, while these startups tried to create the wave. (Actually, that's not quite true - all these hardware startups were riding the wave of cheap Chinese components and free trade. It's just that it turned out the bottleneck for a hardware startup isn't manufacturing, it's customer acceptance. Apple rode the same wave with the iPhone/iPad, but they also had a well-established core competency of knowing exactly what the customer wants.)
There are still waves going on now, and there are probably some startups being founded right now that will get rich off of them. It's just that the waves probably aren't what VCs think they are.
Amazon is putting large ads on the amazon.com homepage for it's products. I don't think if a startup had build exactly the same product they would have been succesful.
Apple had Steve Jobs, who had both a great vision and a cult of personality that made people buy apple products. Apple didn't have another major successful new product since Steve passed.
Google doesn't really have that many successful hardware products, except maybe Chromecast (which benefits integrations with youtube, chrome, etc.), Pixel (which benefited from good timing, the biggest competitor had to recall their flagship phone) and Home (which has less market share than alexa and benefits from Google's NLP technogloy).
Chromecast is only successful because it's so cheap. Similar as much of Amazon Echo's success is due to the discounts they often offer. That's nothing a startup could really compete with.
Big corporations are ok with costs of creating a low margin hardware product because it is loss leader to other products and services with higher margins.
Bringing a hardware product to market costs a minimum of $7m in the US. At Seed/Series A, this is a huge amount of money for investors to swallow.
Smart hardware belongs to big players only. A hardware company needs to deal with, Design, Engineering, Marketing, Production, Sales, Customer services, etc... If any of those step is messed up, the product is over. This is why I don't recommend anyone to get involved in this kind of business.
The reasons that these products fail is usually feature creep. Whether due to Kickstarter stretch goals, or pressure from VCs, people don't know when to draw the line and ship. That's followed closely by underestimating costs and under-pricing products. After that you have the risk of developing the product you want, not the product that everyone else needs. I would never suggest anyone starts a hardware business until they've worked in one to get a feel for cost estimation.
This is no different to software, but it's a lot more problematic with hardware. Unless you plan very well, patching hardware is expensive and/or impractical. You're often much better off releasing a basic, but very functional product (i.e. your MVP) and iteratively addressing customer demands with later version.
The second is that selling complex products to consumers is really hard. If you sell stuff to industry the benchmark for smartness is often much much lower.
As a complete outsider, my sense is that things like under costing are partially the result of modern tear-down cost estimates. Where you get a new phone, open it up, and write an article that the $700 msrp iPhone "only costs $135 to build!". No mention of scale to get those component costs, labor cost to assemble, labor cost to design, lengthy prototype phases to idepedently test new ideas and then integration test... just cost of parts. It would be like costing a cloud startup from idea to product solely based on your expected AWS charges.
If your BOM cost is say $200 including labour, then you should be targeting a price of at least $600. That $200 doesn't include the cost of design, tooling and so on. If you bought a $50k CNC machine you want to get some ROI! If you go for a distributor, they're going to take 10-20% (and they may want a volume discount). You might want some room to have sales, or offer bundle discounts to attract customers. You have to ship the product, market it, support it and fund the next iteration. Why go for razor thin margins? If you have a niche, people will pay. Apple have this nailed - they are expensive because they actually price their products sensibly and they're rolling in cash as a result.
> The reasons that these products fail is usually feature creep.
That's part of the reason Pebble failed; they were forced (like from pressure from VCs) to expand their business and they really over extended.
But more than that, I think Pebble was dead the moment Apple, Samsung, and the other big players jumped into the market. Pebble's first mover advantage was destroyed almost immediately by the technology and marketing might of those companies.
Software is often harder for big companies and easier for small companies. Hardware works the other way.
To be fair, Jawbone predates all these companies and raised a good chunk of money in the process. Consumer hardware is hard. I had jawbone stuff many years ago - all the best to Hosain. The Jawbone story has been long, and his perseverance is unparalleled.
The best hardware startups are really "software wrapped in plastic". This provides the opportunity for more a business model that supports repeat transactions. Dropcam is just one successful example.
And I don't think is totally a bad thing! Huge rush of money the last 3 years seeking new opportunity as costs to starting up had dropped (but still high). I believe there will still be some winners that will shake out of that, and in a few years some funding will be back with many lessons learned. I suspect hardware as a way into selling recurring 100% margin software subscriptions will be the move, ala Ring, Simplisafe, Latch, etc. TBD!
Money tends to be spent. The more you have, the faster you spend. Hardware companies take it the worst, because new founders don't know what they don't know.
GoPro closed today at 8 a share, a $1.1bn valuation [1]. They went public in 2014 at 24 (about a $3.3bn valuation) after raising a round in 2012 from Foxconn at a $2.25bn valuation.
Their revenues are falling and their operations losing cash. They have $75 million of cash on their balance sheet, less than their Q1 2017 net loss.
It's not fair to say GoPro has failed simply because investors and traders had unrealistic expectations. The "action camera" market was already saturated in 2014, and it's hard to imagine how they would continue growing at their previous rate when they're selling replacements and minor upgrades.
It's possible they're in the process of failing, but it wouldn't surprise me if trying to meet unrealistic expectations caused a large part of their problems.
I think at this point the worst case scenario is that they get bought out by a bigger electronics company because their name brand alone is worth quite a bit.
Agreed that it's unfair to call it a failure. GoPro is what most people think of when you suggest filming something sports-related. They made a product which does what it says it does, and has become a very recognizable brand for action filming. Nothing lasts forever, I'd mark their efforts a success.
What does this have to do with classifying them as a success or failure?
But while we're on your topic, don't forget there is value in brand recognition and trust in a company which isn't a random Chinese vendor. And why do you think the Chinese clones exist at all? They followed the success of GoPro.
For enough people a premium iphone is worth the wait xtra cost, which is why Apples smartphone profits are greater than all other smartphone makers combined.
Right. GoPro to me is like the iPhone of the action cameras. Yes there might be other cameras with better performance, but when you think about an action camera and you have the budget you go for a GoPro. That can hardly be considered as a failure from the point of view of a product. Now, investor's point of view will clearly differ as per the data pointed out.
They aren't a failure because their stock price is low, that's a symptom. They are a failure because they couldn't create a sustainable business, and are hemorrhaging cash.
It IPO'd at $24/share and is now $8/share. They are having a hard time releasing products and when they finally do make it out they are inferior to the competitors. (see karma drone)
