CES 2023: Annual tech show kicks off as hardware startups face innovation crisis

Last year, the buzz at the global tech show CES in Las Vegas was a futuristic sound system set to disrupt the audio industry. Created by an Israeli startup, the device used camera-powered head tracking and sophisticated acoustic engineering to deliver sound directly to the ears of the listener, and no one else.

The product has made Best of CES lists from various publications, including ours. It eclipsed its Kickstarter fundraising goal, received dozens of pre-orders and raised millions of dollars in funding from investors, its creators said. The $800 devices were supposed to start shipping to customers last March.

But they never have and may never do.

“One of our investors has filed for bankruptcy. The company took off and went bankrupt. We struggled to get enough funding to continue,” said Noveto co-founder Tomer Shani. The company is sending an executive to CES this year with one of its latest working prototypes, looking for opportunities to start over, he added.

It’s not uncommon for companies to present products at CES that never make it to market. It’s also generally harder for hardware startups than software companies to get funding, because they’re creating physical products that need to be manufactured and distributed.

These barriers are only the beginning of this year.

Economic uncertainty and interest rates are rising. Covid 19 issues in China have complicated access to parts and manufacturing. Meanwhile, venture capital funding in the third quarter of this year fell more than 50% from a year earlier, according to data from startup tracker Crunchbase.

Entrepreneurs will find it harder to borrow money and established businesses will miss opportunities to reach new customers if they have to cut advertising budgets to stay alive, analysts say.

Opportunities to develop competitive products still exist. Some of the best-known companies, such as Microsoft Corp., iRobot Corp., Uber Technologies Inc., and Airbnb Inc., were founded during economic downturns. And the annual CES megashow tends to be where small hardware startups make connections vital to their progress. But given the uncertain outlook for 2023, it could be a while before the next wave of startups unveils gadgets we can’t live without.

A time to regroup

In a typical pre-pandemic year, around 200,000 attendees converged on CES in Las Vegas. The show went entirely virtual in 2021, and last year’s rally drew 44,000 people. This week, the Consumer Technology Association, which organizes CES, said it expected 100,000 attendees. The show opens on January 5.

Among the exhibitors, the CTA expects around 1,050 start-ups, which often present the most unusual objects. That’s down from the more than 1,300 startups he says participated in 2020.

Consultants and investors expect to see familiar articles on the show, perhaps with slight updates, and less cutting-edge, sometimes nonsensical products that make us stop and gape.

“It’s best for companies to avoid unreal announcements this year,” said Carolina Milanesi, president of tech consultancy Creative Strategies. “Nobody wants to invest in that right now.”

German startup Plankpad, which makes fitness video game products, was planning to show new versions of its balance board at CES, but has decided to postpone its launch plans until 2024 according to chief strategist David Cervenka.

Rotation and downsizing

Policymakers have their eyes on Big Tech’s dominance, so founders hoping to sell to a big company potentially no longer have that as a viable exit strategy, analysts say. According to Shawn DuBravac, chief economist at market research firm IPC, more startups may seek to build businesses by partnering with others and use CES to announce new collaborations.

Some companies are adapting to the new consumer landscape by scaling back their designs. The Color+Light startup presents a mini version of Fluora, its LED indoor plant, at CES. The new device is $200 cheaper than the original.

Others feel compelled to raise prices. The German startup Steambox is developing a lunchbox that heats food with steam. It was forced to source new materials for its product after a manufacturing partner in China withdrew. In its rush to revive, its production costs have risen by 20%, its founders claim.

They were hoping to ship it in 2020 for $169. The product just started shipping for $269.

The founders of Steambox plan to use CES 2023 to find retail partnerships in the United States. Amit Jaura, co-founder of Steambox, said the company “had to raise prices or the business wouldn’t work.” He added that she would offer free shipping to offset some of the extra costs.

Find new needs

Entrepreneurs should focus more closely on areas that consumers value throughout an economic downturn, such as healthcare, childcare, automation and accessibility, said Austin Badger, director general of Silicon Valley Bank, which provides financial services to tech startups.

Rather than showing off experimental products and devices for all ages, this year’s startups could build products aimed at specific demographics, said Ms. Milanesi, president of Creative Strategies. This allows them to focus on a smaller market that larger companies have not tapped into.

“We have an aging population with higher disposable income, which presents many opportunities for new health and nutrition tracking services,” she added.

Cutbacks at big tech companies could also create new opportunities for startups. Some well-publicized budget cuts have focused on the removal of hardware products, including Meta Platforms Inc.’s Portal video chat box and Snap Inc.’s Pixy selfie drone.

While most laid-off tech workers find new jobs quickly, they might also take the opportunity to try out a role at a startup or even go it alone, IPC’s DuBravac said.

“People with life-changing ideas will find a way to make them happen,” he added. “Tinkering in the garage is where you will always find innovation.”

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