internet of things

AUGMENTED REALITY: Government and Military Use Will Drive Magic Leap, HoloLens Adoption.

Last week, we spent a bunch of time talking about how consumer VR as a standalone platform is not turning out to be as good as iTunes, the iPhone, YouTube or the Web. One problem was the form factor, another problem was the lack of pirated content -- though games and adult content will slowly address this. This week, we want to point to IoT (Internet of Things) and Augmented Reality (AR). Do these themes have a reason for being and are they an opportunity for a major retooling of our interaction with technology? Here, we think the answer is a stronger Yes. But this is due to a surprising reason -- government and military use.

The Web was popularized through consumer use and now powers our digital selves. But it was brought to life and initial use as ARPANET in the 1960s through funding by the US Department of Defense. Imagine unlimited funding with life and death use cases by a nationally-embedded client base. This is also what the Chinese government is doing in relation to AI, blockchain and quantum computing, and get to the meat. First, Bloomberg reported that AR companies Magic Leap and Microsoft's HoloLens are bidding on a $500 million augmented reality Army project. The order is for 100,000 headsets which would run the Integrated Visual Augmentation System, overlaying intelligence on the physical world. These would be used for both training as well as in live combat. The manufacture of these types of devices would create an economic base on which consumer versions could be created, as well as condition a whole generation that using AR headsets is normal.

Another data point supporting this idea is the investment by local government entities (e.g., UK councils) in digital twins of their neighborhoods for urban planning. In particular, Liverpool is running a £3.5 million IoT program that combines the rollout of a 5G network with innovative health and social care services for residents. Of the 11 proofs of concept in place, examples include video connection between vulnerable people at home and their pharmacy, AR maps that bridge physical distance and combat social isolation, and sensors that monitor whether older adults are dehydrated. Similarly, earlier this year, Bournemouth was mapped into 3D, incorporating 30 different data sets, also as part of planning the 5G network. These live 3D maps, which could then be projected into the real world via AR devices, are a social good and should be part of centralized infrastructure. This in turn can further move the needle in consumer adoption and market maturity.

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Source: Magic Leap (BloombergNext RealityDaily Mail), UK Authority (LiverpoolBournemouth), Wikipedia (ARPANET

INSURANCE: $300MM Acquisition of IoT MiddleWare by Munich Re

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Let's move into the physical world. Very very physical. Reinsurance company Munich Re has just written a $300 million check to acquire Relayr, a startup in which it previously invested. Relayr digitizes industrial manufacturing, installing IoT sensors in production lines on various machines that capture information at the edge, layering an artificial intelligence layer that helps maintain these machines before a breakdown happens, and then integrates this information into manufacturing enterprise software through middleware. Like in the consumer world, data exhaust can power the automation of human intelligence, but it must first come from the digital twins of physical objects.

The phrase that stuck with us was that the company's solution "reduces the risk of failure". For an insurance company that wants to minimize losses and improve underwriting accuracy (i.e., know the risks better and take better bets on average), more data and transparency goes directly to the bottom line. Insurance companies are data science companies (more so even than advertisers), so we think they are in a unique position to apply AI to the physical world. A cute question: will Google underwrite insurance for its own self-driving car, or can an insurance company start selling third party cars with built in IoT insurance after learning all the risks? 

We point to a few more symptoms in the sources below. Oxbow Partners, an insurtech research firm, just highlighted Geospatial Insights as an interesting machine vision implementation on top of satellite data. The resulting data sets include oil tanker inventory, retail parking lot car counts, crop yield predictions, and real estate infrastructure value. At least 50% of the business is insurance companies, with the rest going to investors and strategy teams. Oxbow suggests that the main barrier to success is integration of such data into workflow and middleware -- something that Relayr had clearly gotten right. If you're hungry for more Insurtech, check out below a top 49 trends article from Tearsheet, and a screenshot of a chatbot from Hi Marley, a private label insurance automated customer agent platform.

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Source: Companies (RelayrGeospatial Insight), Business Insider (Relayr), DigIn (Hi Marley), Tearsheet (49 trends)

INSURANCE: Catch 22 of Insurtech Transformations

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When we looked at Insurance in our artificial intelligence deep dive, nearly $400 billion of cost was up for grabs as a result of the platform shift. But there's a catch. Getting to the other side can look pretty much impossible for an incumbent. Ripping out legacy systems, which support billions of dollars of revenue, and sailing into an unproven direction is not a popular choice for a public company CEO. So instead of jumping onto entirely modern architecture, companies like John Hancock partner with transformation consultants / software providers like Infosys for multi-year $10 to $100 million projects. Further, according to the innovation officer of MetLife, only 30% of execs really "get it", and even then you only have 18-24 months of runway before the company starts to ask for operating results. Compare that with the 5-7 years that are afforded a new startup to get off the ground. And we know that startups are much faster at execution.

On the other hand, we see the symptoms of fundamental change all across the space. For example, Allstate had to send 3,000 employees to assess the damage from hurricanes Harvey and Irma last year. But it also deployed drones (trained on 5,000 hours of prior flight time), which provided needed image data before the humans even got to the location. How soon will drone pilots and video Facetime agents replace the traveling adjusters? Similarly, companies like Roost are deploying telematics in homes, retrofitting old smoke alarms to detect water damage, weather issues, and other dangers, with connected data streams into smart phones and monitoring systems. If this data is real time and builds out the IoT/AI corpus, what need is there for human assessment in the majority of cases?

The idea that terabytes of daily data from smart systems can interact with legacy insurance infrastructure seems untenable. But in 18-24 months of execution, the best outcome is that these products can become mere bolt-ons. Compare that to Lemonade's approach, which is open sourcing its insurance policies on GitHub and practicing radical transparency on its metrics and approach. And further, entirely new cyber risks are emerging, around which traditional insurers have no systems at all. Crypto projects like Coinsurance (pay out in case an Initial Coin Offering fails to list on an exchange) and Coin Governance System (pay out in case of ICO scam) are rethinking the bundling of financial products which are becoming top of mind to many Millennials, 5-10% of which own crypto currencies. Such new entrants will need to get enough scale for the old guard to believe that the world is changing -- see you in 5 years.

Source: DigIn (30% ExecsDrones), Coverager (John HancockRoost), LemonadeCoin Governance System

FINTECH: Minority Report Retail

Source: Bloomberg, Farfetch

Source: Bloomberg, Farfetch

Sometimes we need a little bit of Minority Report science fiction to get the imagination going. And sometimes, that science fiction is already built and can be seen in a functional retail store. In what may be interpreted as an Amazon-taunting art exhibit, luxury boutique Farfetch has created a tech-forward store experience that hits at the future of connected retail. 

Here are the functional concepts: (1) a customer profile activated by smartphones upon entering the store for store staff, (2) a smart clothing rack that is able to sense what objects customers pick up and put back on the rack using ultrasound, creating a wishlist/history, (3) a holographic display that renders shoes that can be customized by features in real time, and (4) a connected mirror that can serve as both concierge and payment terminal. With just a little bit of extrapolation, it is clear that these concepts can connect with identity on the blockchain, payments through financial institutions, and mixed reality wearables from high-tech companies. Watch the video for the full effect.