Musing: What’s the next $1bn+ “tools” market?

I was catching up with a friend of mine yesterday who’s looking to build a company in the wearables space and we started chatting about fast the wearables has been growing. The conversation stuck with me and as I left lunch I started wondering what the next big “tools” markets were going to be. The “tools” metaphor is referring to the observation that during a gold rush it’s usually more profitable to sell the pickaxes, wheelbarrows, and other supplies that miners need versus prospecting for gold yourself. Chris Dixon has an interesting post describing this phenomenom that’s worth a read, Selling pickaxes during a gold rush. Some recent examples would include the growth of collaborative open source development fostering GitHub and the shift to “cloud infrastructure” spawning PaaS companies like Heroku. Anyway, so what areas might end up creating $1bn+ tools markets?

IoT and Wearables

2014 might well go down as the year of The “Internet of things” (IoT), everyone is buzzing about it, everyone wants to leverage it, and everyone is a bit confused by it. The market is still immature but there’s already a flurry of competing standards and technologies. Looking just at connectivity, developers could potentially dealing with NFC, RFID, and Bluetooth LE. Given this early fragmentation and the wide range of potential applications, I think it’s a good bet that the IoT tools market will grow quickly over the course of the year. Locally, ThingWorx has already had a succesful exit and the Boston Business Journal is already throwing around nicknames.

On the consumer side, wearables is already a large market and its only projected to grow larger. Currently, the “activity tracker” space is fairly consolidated but that’ll certainly change as devices emerge to track different metrics through different technologies. The net result of this is that anyone looking to aggregate data from a heterogeneous set of devices will face an uphill battle. To combat this, we’ll definitely see tools emerging to help manage this complexity and create uniform interfaces. RunKeeper’s Health Graph is an early player here and they’ll certainly continue to innovate.

Cryptocurrencies

Bitcoin (and *coin) baby! Even though an $8bn market cap isn’t enough to buy WhatsApp, it’s certainly nothing to sneeze at. At this point, it’s still to early to declare that Bitcoin is “here to stay” but it’s definitely going to hang out for a bit. Given its immense disruptive potential and the archaic nature of existing financial infrastructure software, it’s almost a certainty that hugely successful “tool” companies will be built in the cryptocurrency space. From the “Bitcoin” version of payment processors like Braintree to electronic brokerage software like Interactive Brokers I think we’re going to see dozens of interesting cryptocurrency companies.

SaaS cloud wrangling

In the last few years, the number of SaaS products a typical company uses has grown exponentially. Nearly every function in a typical company has been influenced by SaaS products, from marketing and sales to accounting and strategy planning everyone’s data is now “in the cloud”. Despite the the availability of APIs, it’s become increasingly difficult to extract, manipulate, and analyze all the data stored within cloud services. Ad-hoc reports that used to involved combining a few Excel sheets now might require costly custom development. Tom Rikert of a16z has a great post describing the early stages of companies addressing this market and more will certainly follow suit. After the groundwork is laid, we’ll certainly see Google Now style “smart insights” to help companies discover new opportunities and insights.

Making predictions is always risky business and hopefully I don’t look back with these and facepalm. Anyway, would love to hear what anyone thinks in the comments.

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