Jan 5, 2016 · 6 minutes

Ever since laptops starting delivering diminishing returns, the iPhone with it’s own announcement calendar took away any mobile hotness, and 3D TVs proved to be a big flop, people have been debating the relevance of CES.

Actually, they’ve been debating it even longer than that. Google “CES” and “relevant” and “over” and you’ll see about a million articles on the subject, stretching back almost to the event’s origin.

But over the last few years, there were some reasons to think CES could get some new sex appeal. That software could eat even the most hardware-y of confabs, as the kids (who read VC blogs) say.

Unfortunately each trend has been a disappointment in some way.

The first was the rejuvenation of hardware via cheap Chinese manufacturing and crowdfunding. Who needs hardware-adverse VCs?

That’s not been an unmitigated success. Dan Raile wrote one of many accounts of how China can fuck a fledgling company here. The Bohemian Guitars’ cautionary tale begins so well:

In 2013, Lee and his brother Shaun raised $54,233 in a little over a month with a Kickstarter campaign to build electric guitars using recycled oil cans for guitar-bodies. After that success, they began looking for ways to scale up production.

In October of that year they met Kevin Harrington, formerly of Shark Tank fame and Home Shopping Network millions, at an event where they were pitching their company. Harrington took an interest in the South African brothers’ vision.

“As a CEO, I was naive and inexperienced. Looking back, I was also a little starstruck,” Adam Lee said. “The first time we met Kevin Harrington, he told us that in a year we’d both be millionaires. It’s hard not to be struck by that. I mean, my brother was still in college at the time.” 

Spoiler: From there it goes horribly wrong.

The two biggest Kickstarter hardware successes were the Pebble Watch, which raised $20 million, and Ouya, which raised $8.5 million. At the time, it was hailed as a hack on raising a Series A and giving up equity for a concept and VC’s too wondered why any hardware entrant would hit up an investor before it had proof of demand from Kickstarter. But neither ended well. Ouya’s assets were sold in distress last year. Pebble has done better, and has sold more than one million units, hailed by some as a cheaper alternative to the Apple watch. But it was a rocky road, and it’s hardly a top Silicon Valley startup.

These companies tried hard-- they just ran up against the challenges of the hardware business. More chilling are outright scams and projects that collapse or disappear. Kickstarter itself hired a journalist to investigate what happened with the Zano Drone Project.

At least Kickstarter seems to be concerned about this kind of stuff. Indiegogo has long considered outright scams to be “part of the fun” of crowdfunding. One of the many lies we caught Healbe in was that it debuted at CES. It didn’t. And last year, Indiegogo’s Slava Rubin was photographed mugging with one of the “hotter” Indiegogo companies at CES…. Tellspec. Yes, the one that boasts a miracle food scanning technology that still hasn’t shipped, threatened to sue Pando, bizarrely denied it threatened to sue Pando, and, well…. just go here to read that whole bizarre saga here.

Today, no one is at all certain today that crowdfunding is the future of hardware, an indicator that a company is a good venture bet, that a product pitched will even work…. or that you’ll ever see a device you may back.

OK, how about wearables? Well, there’s exactly one company that has done well enough that it’s been a fund maker for its VCs: FitBit. But even in that case, there’s concern about the future. As Kevin Kelleher’s wrote after FitBit’s strong third quarter:

This must be what it feels like to score a personal best on a run only to have someone throw ice water over your head.

Fitbit delivered blowout earnings, vindicating for now the bulls who have been battling a tide of bearish sentiment. And yet somehow the stock ended up tumbling as much as 10 percent after the announcement. 

Nike ditched its wearable strategy altogether, Jawbone has struggled mightily, and even the Apple watch has had mixed reviews. Most people I know long ago stopped wearing a fitness tracker and are largely let down by the lack of killer utility in their iWatches. And we know how poorly Google Glass fared. This category has made no one look good aside for-- strangely-- FitBit. That says more about the skill of FitBit’s management team than it does a strong category dominated by a single winner.

There are plenty of predictions of “hearables” being the next big thing. Maybe a company like Doppler Labs could be another FitBit in the making. But the big question seems to be why we need any of these tech devices closer to our bodies than the phones in our pockets if health and fitness wasn’t the killer app. So many of the entrants-- whether the iWatch or companies like Ringly-- are just a way to avoid having your phone out of your pocket. But the phone is still doing almost all of the heavy lifting.

And then there’s the Internet of Things-- which the first two trends also fit into. If Pebble and Ouya were the “Holy shit! Everything has changed!” moment of hardware crowdfunding and FitBit was the “Holy shit! This is a real company!” moment of wearables, Nest was the thing that made the Internet of Things category swirl with Jetsons like excitement.

CB Insights has tracked the funding in IoT, and it’s doubled in six years. Some $7.4 billion has been invested in nearly 900 companies. That sounds good. But that total is over six years, and a heady six years of fundraising. Consider the total venture capital invested in the fourth quarter of 2015 was $37 billion. In six years, Uber alone has raised more over the same time than the entire IoT category. Even content companies raised nearly a billion dollars in 2014. Given heady estimates that the Internet of Things will connect some 30 billion devices in the next four years, that’s not a huge bet in a time of free-spending venture capital.

More interesting, the top two investors in this category are corporates who have a lot to gain: Intel Capital and Qualcomm Ventures. The companies that have raised the most are View which makes commercial smart windows, Proteus Digital Health, struggling Jawbone, and Sonos, which can hardly be called a startup has been around for some 15 years. The bulk of its recent funding has been secondaries. Nary a new, innovative talking fridge, smart lock, or Nest challenger among them.

Despite so many demo days, the bulk of people I know pretty much just have a Sonos which is confined to music, a Nest, a traditional security system, a refrigerator that doesn’t make a shopping list for them, and maybe some home automation software via an existing player like Comcast.

Unlike wearables, a big company like Amazon or Google seems the most likely to dominate here, not the startups. I was really excited about all the smart locks coming onto the market. I totally get the utility and the value proposition, as someone who runs her company out of her house and always worries about all the keys floating around. Fast-forward, and I still have the same old dumb lock. I’ve just changed it a few times to give myself peace of mind.

I have no doubt that millions of “things” will become smart. I just wonder if it’ll be like previous revolutions around RFID or nano-particles, where the bigger players and most pervasive implementations tend to be industrial companies and use cases that get little mainstream attention and certainly don’t return entire funds.