How Y Combinator Grad Estimote Plans to Turn Beacons Into a Big Business

When Estimote graduated from Y Combinator in July of 2013, the startup was riding one of the hottest trends in tech: beacons. By the end of the year, the company had raised $3.1 million to turn its fist-sized adhesive proximity beacons into an “operating system for the physical world.”

Today, the success of that mission depends in part on making the beacons more accessible. In August, the company rolled out a smaller sticker that allows developers to provide any object with the ability to interact with the digital world around it. At 3mm thin, Estimote Stickers, which the company pitched as “nearables,” are designed to attach to any product. They contain not only Bluetooth and proximity sensors, but also motion and temperature detection sensors as well. The battery allows the product to run for up to a year.

“Your smartphone is a pretty incredible supercomputer, but in a sense it’s also ‘blind’ to the immediate world around it, particularly indoors, where GPS doesn’t work,” said Tanuj Parikh, senior director of business operations at Estimote. “Beacons make it possible for consumers to enjoy brand new mobile experiences, from indoor navigation to proximity marketing to hyper-personalized service.”

We have already seen beacon applications in a range of industries from healthcare to tourism, but the most meaningful investments have come from brick-and-mortar retailers. As the ecommerce market continues to grow, retailers have turned to mobile devices and in-store technology such as a beacons to cater to a consumer who increasingly expects a digital experiences both online and off.

“Among retailers, there is a lot of excitement about beacon applications and use cases, everything from proximity marketing to in-venue analytics to indoor way-finding,” explains Parikh, “It’s also a sector in which you can see clear ROI, with beacon technology helping with everything from attribution to purchase funnel conversion.”

For better or worse, most of the innovation around beacons have come from larger brands. But Parikh argues that the beacons — particularly as an attribution tool — could help open the small business market. Parikh talks about closing the attribution loop, citing how companies like Yelp can know what you search and how you interact with advertising, but don’t know if you actually stepped into a store or restaurant in the end.

He believes that beacons could release a whole new data-set to business owners that will allow them to better target and understand their customers. Small business owners will be able to see a demographic breakdown of who is in the store at any given time and whether they’ve come to the store before. They will be able to track loyalty and trends over time.

“Unlocking that information could lead to significantly improved and personalized service that we no longer expect at our local businesses,” he said. “The reality of dense urban environments is that those small and medium-sized business owners don’t have the tools or sophistication to do that currently.”

As early creators in the space, the Estimote team is optimistic about mainstream adoption of the technology, believing Bluetooth low energy to be the winning choice for connecting devices and transmitting information about proximity and location. Technology will improve, sensors inside beacons will get cheaper and smaller, the argument goes, and the barrier to entry will decrease.

But as the barriers to entry decrease, the competition from new entrants and existing players alike will increase. What’s unclear is whether Estimote can create enough differentiation in its software to stem the tide of commoditization that often occurs in hardware business. Earlier this week, Shopkick, a beacon provider that got its start as a loyalty application, sold to a division of SK Telecom for over $200 million dollars — a solid exit for the sector.

Either way, the market is growing fast enough to handle those new entrants, says Parikh: “Last year and this year were very much about people getting their hands on the technology and experimenting and prototyping first in a lab setting and then in a limited pilot basis in a few locations,” he said. “We think 2015 will be when we start to see larger beacon deployments that directly impact lots of consumers, particularly creating new magical mobile experiences.

Becca Goldstein is a contributor at Street Fight.