Internet of Things takes off
America’s Samsara will continue to profit from the digitisation of our homes and offices
One of the biggest ways in which the world wide web is changing our lives is the Internet of Things (IoT). It’s about connecting all manner of devices, or “things” – such as sensors, gauges, household appliances and cameras – across the internet to our computers, mobile phones and other technology platforms. By digitising the physical world, we can control and monitor everything around us from the palm of our hand.
Take, for example, thermostats in your home connected online to your mobile phone. Whether you’re at home, work or even overseas, you can see the real-time temperature in any room and change it remotely. Information from the physical world has been digitised across the internet for your benefit – you can warm-up your home before heading home on a cold day or reduce the heating to cut your bills.
Who’s there?
Another example is the smart doorbell. When someone presses the bell, it rings not only at home but also on your mobile phone wherever you happen to be. With a built-in camera you can instantly see who’s visiting, speak with them or just keep an eye on your home. You might live in Oxford and work in London, yet have a continuous “presence” at home for peace of mind and security because of gadgets joined up online. Your home heating or doorbell are just one end of a huge spectrum of uses for IoT. For major industries, utilities and public services, there are big safety, environmental and productivity gains to be had from being able to monitor and control their operations on a much bigger scale.
Helping them to digitise their operations and reap these rewards is San Franciscobased Samsara (NYSE: IOT), a $19.6bn, fast-growing play on the IoT theme founded in 2016. It believes that businesses are still in the early days of digitising their operations and that its rapidly growing list of customers will prove lucrative for decades to come. The customers it focuses on are in industries such as construction, logistics, transport and energy. These sectors jointly comprise 40% of global GDP and thus underpin the world’s economy.
Many of these sectors continue to expand robustly. But employees are not so easy to attract because of competing job offers, while equipment is harder to obtain owing to shortages of components such as microchips. Managers must nevertheless boost productivity and cut costs.
The data that Samsara can generate from tracing all the sensors embedded in a company’s equipment aids very targeted decision-making about cost reductions and improved use of equipment, eliminating time wastage and tightening workflows.
Cost savings
Each customer is different, but benefits from working with Samsara can include fuel savings and lower carbon emissions by changing routes and driver behaviour; cheaper insurance by using data monitoring to improve safety culture; maintenance cost savings by identifying faults early rather than relying on inspections; and more costeffective deployment of people and equipment by tracking their activity and efficiency.
Used in these ways, IoT technology undoubtedly boosts customers’ profitability. But it’s also important to corporate leaders because it fosters good relations with regulators monitoring areas such as health and safety and management, while other firms also want to work with well-run organisations. It is, therefore, an essential rather than discretionary cost, meaning Samsara’s revenues – almost all of which are paid as subscriptions – are recurring. At the last tally, nearly 1,850 customers (up 50% on the year before) are repeatedly spending more than $100,000 a year with it.
This subscription-based business model means future finances are highly predictable, a prized quality on which investors typically place a premium. Moreover, customers pay Samsara from their annual operational budgets, which for many of these complex sectors cannot be cut back easily or for the short-term – unlike general IT or marketing expenditure, for example.
With integration at scale still in its infancy, IoT plays like Samsara, with its fastgrowing recurring-revenue business model, are another way for investors to add technology exposure to portfolios to gain from the digital transformation of the global economy.