For the Internet of things, will it be verticals or horizontals?

By Richard Nieva , written on May 17, 2013

From The News Desk

The first step in the adoption of "the Internet of things" – where Web capabilities are implemented into everyday objects – entails making sure there are even products in the first place. But as that ecosystem fills out, one of the next steps is addressing matters of market approach and distribution.

During a panel discussion yesterday at a conference hosted by Techonomy, venture capitalists and executives mused about the model the Internet of things would take as the landscape takes shape. And the question is: horizontals or verticals?

Horizontals, here, can be understood as a platform – something more open and vast, akin to Android. For something with as many untested possibilities as the Internet of things, having more voices, and more engineering minds at work building on a platform could be helpful for the landscape.

A vertical is more tightly controlled – specialized, individual companies with tighter focuses. The breakthrough vertical in the Internet of things, the panelists unanimously agreed, was the smart thermostat Nest. Horizontals have traditionally been a safe bet in the Valley, or so thinks Trae Vassallo, a partner at Kleiner Perkins Caulfield Byers (one of the firms that invested in Nest), because consumers initially need success stories to latch onto. “Especially in emerging, new areas, verticals are needed to pave the way,” she said. “People don’t buy platforms.” They buy products and services that are helpful to them, she continued.

Sarah Lacy argued in March that the sharing economy may be the first category where verticals work better than horizontals. She mentions Marc Andreessen’s initial inclination toward shunning investments in verticals at Andreessen Horowitz. Though early on, the firm decided against an absolute prohibition of verticals, and has invested in both.

So it’s interesting that the firm is once again considering the pros and cons of each, regarding the Internet of things. “That’s the most active debate that we have going on internally right now,” said Frank Chen, a partner at Andreessen Horowitz. “It’s an open question.” Right now, though, the firm looks to be going with its proverbial gut. In December, the firm led a $7 million investment in IFTTT, short for “if this, then that,” a horizontal platform that lets users connect Web services with other Web services. For example, using IFTTT, you can track your sleeping patterns with the Jawbone up and have the information automatically compiled onto a spreadsheet in Google Drive.

In the early goings of the Internet of things, the answers aren’t so defined. Andreessen Horowitz also contributed to a $1.1 million round in Osito, a personal assistant app, which CEO Bill Ferrell eventually wants to turn into a platform for location-based connected devices. For example, if a user is on his way home, Osito can ask you if you want the heat in your home turned on, or your front door unlocked when you get there. This one's has got a narrow focus on location-based services. So even as platforms emerge, there are niche ones among them. (Unlike a platform that's broader, like Facebook or Android.)

But regardless of horizontal versus vertical, the challenge ahead of device makers is still finding out what people first want in a connected product. “Ultimately, it’s about creating solutions that resonate with groups of people that are excited by it,” says Vassallo.

[Frank Chen is a partner at Andreessen Horowitz. Marc Andreessen, who cofounded the firm, is a personal investor in PandoDaily.]

[Illustration by Hallie Bateman]