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

Last year, the buzz from the CES global tech show in Las Vegas was a futuristic sound system poised to disrupt the audio industry. Created by an Israeli startup, the device used camera-powered head tracking and sophisticated acoustic engineering to beam sound directly to the ears of the listener, and nobody else.

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

But they never did—and maybe never will.

“One of our investors filed for bankruptcy. The business spiraled and went bust. We had a hard time securing enough funding to continue,” said Tomer Shani, co-founder of Noveto. The company is sending one executive to CES this year with one of its last working prototypes, searching for opportunities to start over, he added.

It isn’t unusual for companies to show products at CES that never make it to market. It is also typically harder for hardware startups than software companies to get funding, since they build physical products that must be manufactured and distributed.

Those barriers are just the start this year.

There is rising economic uncertainty and interest rates. Covid 19-related issues in China have complicated access to parts and manufacturing. Meanwhile, venture-capital funding in the third quarter of this year dropped more than 50% from a year earlier, according to data from the startup-tracking firm Crunchbase.

Entrepreneurs will have a harder time borrowing money, and established businesses will miss opportunities to reach new customers if, to stay alive, they have to slash their advertising budgets, say analysts.

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 smaller hardware startups make connections vital to their progress. But given 2023’s uncertain prospects, it could be a while before the next wave of startups unveil gadgets we can’t live without.

A Time to Regroup

In a typical prepandemic year, about 200,000 attendees converged at CES in Las Vegas. The show went fully virtual in 2021, and last year’s gathering attracted 44,000 people. This week, the Consumer Technology Association,which organizes CES, said it expects 100,000 attendees. The show floor opens Jan. 5.

Among the exhibitors, the CTA anticipates about 1,050 startups, which often showcase the most unusual items. That is down from more than 1,300 startups that it says attended in 2020.

Consultants and investors expect to see familiar items on the show floor, perhaps with slight updates, and fewer of the leading-edge, sometimes absurd, products that get us to stop and gawk.

“It’s best for companies to avoid pie-in-the-sky announcements this year,” said Carolina Milanesi, president of the technology-consulting agency Creative Strategies. “No one wants to invest in that right now.”

German startup Plankpad, which makes fitness-videogame products, was considering exhibiting new versions of its balance board at CES but decided to shift launch plans to 2024. “Hopefully by then, the industry will be over all the bad news,” said the company’s chief strategist, David Cervenka.

Pivoting and Downsizing

Policy makers have their eyes on Big Tech’s dominance, so founders hoping to sell out to a large firm potentially no longer have that as a viable exit strategy, analysts say. More startups might look to build businesses by partnering with others, and use CES to announce new collaborations, according to Shawn DuBravac, chief economist at the market-research firm IPC.

Some companies are adjusting to the new consumer landscape by downsizing their creations. The startup Color+Light is bringing a mini version of Fluora, its LED houseplant, to CES. The new device is $200 cheaper than the original.

Others feel pressure 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 pulled out. In its scramble to recover, its production costs rose by 20%, say its founders.

They hoped to ship it in 2020 for $169. The product just began shipping for $269.

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

Finding New Needs

Entrepreneurs are expected to focus more narrowly on areas consumers value throughout an economic downturn, such as healthcare, child care, automation and accessibility, said Austin Badger, managing director at Silicon Valley Bank, which provides financial services for tech startups.

Rather than showing experimental products and devices for all ages, startups this year might build products targeted at specific demographics, Ms. Milanesi, the Creative Strategies president, said. This allows them to focus on a smaller market that larger companies haven’t tapped.

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

Cutbacks at large tech companies might also create new opportunities for startups. Some well-publicized budget cuts have centered around terminating hardware products, including Meta Platforms Inc.’s Portal video-chat box and Snap Inc.’s Pixy selfie drone.

While most laid-off tech workers are quickly finding new jobs, they also might seize the opportunity to try a role at a startup or even strike out on their own, said Mr. DuBravac of IPC.

“People with life-changing ideas will find a way to bring those to fruition,” he added. “Tinkering in the garage, that’s where you’ll always find innovation.”