Investment Memo: Swarm Technologies
How satellites the size of a grilled cheese unlock billions of dollars of potential for IoT
Did you know that today, 90% of the Earth’s surface doesn’t have cell phone or Wifi connectivity? While much of that space isn’t occupied by humans, as the proliferation of IoT devices grow, that surface area will certainly be put to use. With satellite connectivity being expensive, new and tenured businesses will struggle to allocate enough capital to power their devices. Satellites also come with bulky and costly hardware in addition to a difficult customer experience. Enter Swarm Technologies, a company looking to change this.
Swarm is changing the difficulties of operating with a satellite data provider through its small yet powerful satellite offerings. Swarm’s satellites offer a powerful two-way network that has global coverage, low prices, and easy-to-use hardware. Swarm’s satellites currently cover the entire planet, and once the entirety of their fleet is launched, they will have at least 3 satellites covering every point on earth regularly. These satellites are uniquely small, which makes them cheaper and more efficient to launch, the cost savings of which get passed onto customers. But despite their small size, the satellites have ultra-sensitive communications payloads (read: can send data easily across devices) built into their bus (the infrastructure of the actual satellite). Swarm uses some of the most streamlined and efficient technology available on its satellites, eliminating the need for bulky wires and infrastructure.
By 2026, the global IoT market is expected to reach $1,386B - from it’s 2020 size of $760B… a CAGR of 10.53% over that time period. Use cases have emerged across manufacturing, automotive, healthcare, environmental studies, and other industries; as most sectors approach a new age of digital efficiencies and data use. China and India make up two of the largest anticipated spenders in the IoT market and have relatively low internet penetration rates despite their immense size. Coming up right behind the Asia-Pacific region in spend and IoT growth is the Africa & Middle East (AME) region, according to GlobalData.
While connectivity spend is only a fraction of the total IoT expenditures that make up the trillion dollar market, analysts expect there to be upwards of 40 billion total devices by 2026. David Evans, a former Cisco researcher, calculated that 127 devices are connected every second.
Several of the largest markets: energy, agriculture, and environmental industries, will continue to grow quickly thanks to tailwinds resulting from a more green-focused America and re-entry into the Paris Climate Accord. Swarm is able to support new AgTech companies aiming to keep costs low and operating in rural areas. Similarly with energy companies operating in extremely remote areas, Swarm can help keep devices online and sharing real-time data 24/7. Swarm can also provide assistance in disaster response and air quality tracking, amongst many more use cases.
Swarm was founded by Dr. Sara Spangelo and Dr. Ben Longmier. Dr. Spangelo is a veteran of NASA’s Jet Propulsion Lab and Google X. Dr. Longmier founded Aether Industries (acquired by Apple in 2015), and from there proceeded to lead an Aerospace R&D effort for Apple. They have entered a mildly crowded field with incumbents such as Inmarsat, Thuraya, Iridium, Globalstar, Eutelsat, Intelsat, and Asiasat. These companies are saddled with the Capex burdens associated with their overweight, legacy technology products. This has opened the door to new players like Swarm Technologies and its competitors, which include Astrocast, Myrioata, Lacuna, Kineis, Kepler Communications, and Hiber.
Swarm’s network was officially launched for commercial use on February 9th, 2021. Fortune added the note that there are “81 tiny satellites” circling the globe, each “about the size of a grilled cheese sandwich”. Spangelo mentioned that this is just the beginning, and Swarm plans to onboard hundreds of customers over the course of the year, with devices connected reaching the hundreds of thousands by the end of the year. Bruce Trevarthen, an existing customer from a company based in New Zealand added the following when describing what sold him on Swarm:
A beekeeper’s hive-monitoring sensors that cost $450 monthly to connect using traditional satellite services costs under $15 a month through Swarm, Trevarthen said. Before Swarm, the high price of connectivity “ruled out 99% of all the use cases,” he added.
While Swarm’s R&D costs are likely pretty enormous, the low cost of launching these satellites will keep the bottom line revenue figure high. Especially as they continue to onboard customers and maintain them through sticky pricing and customer service. Given that the expected volume of online devices by 2026 is projected to be above 40 billion, as mentioned above, and the tile used to onboard each device costs $119 (the data plan is only $5 after onboarding), the potential revenue is gigantic. Physical product margins will be high for the tiles and for the satellite data post launch.
As a plus, you can actually track their satellites here if you want to nerd out a bit! Swarm has been consistently tacking on new customers, and as more and more satellites end up being launched, more customers will flock to the company. I’m excited to see what Swarm does next, and I fully expect that tracking link to get even messier.