Otto, a smart-lock start-up that generated a lot of buzz in the tech community when it debuted in August 2017, suspended operations in mid-December after an unnamed investor backed out of a proposal to purchase the new company.

According to CEO and creator Sam Jadallah, the start-up was courted by a major company that showed great interest in Otto locks despite their $699 retail price tag  — roughly three times higher than similar products on the market.

“In early September, we were approached by a public company who understood the product we built, the engineering behind it, and the opportunity it represented,” Jadallah wrote in a post at Medium. “Initially they proposed investing, but quickly shifted the conversation to an acquisition.”

However, the agreement with the potential buyer prevented Otto from securing other investors, and when the deal collapsed in December, so did Otto. The company had burned through about $45 million developing the product, according to Ben Havilland, a former employee who is critical of the way the start-up was run.

“CEO and investment team ignored the negative aspects of the $700 lock and didn’t see that the competition would be able to provide the same features (and more) at less than 1/2 the price,” Havilland wrote in a post at Medium. (He was among about two dozen Otto employees who were laid off with just two days’ notice and no severance pay.) “Potential new investors were excited at launch but then they quickly realized other people/companies had similar assets at a greatly reduced cost to them.”

Fortune Brands Home & Security Inc., the parent company of Therma-Tru Doors and Master Lock security products, was among the early investors in Otto. LinkedIn co-founder Reid Hoffman also provided funding.

According to a product release in DWM‘s December-January issue, Otto was created by “a team of consumer hardware and home product engineers from Microsoft, Apple and GoPro who share 175 patents and have an average of 16 years of experience.”

Because concerns about cybersecurity are a major issue for smart-home products, Jadallah said the company  created “the most robust encryption and security model in any known locking system. We utilize 256-bit encryption with asymmetrical cryptography, enforce authentication of all end points, and utilize the most advanced encryption methods that far surpass what others describe as ‘military grade.’ ”

Otto also is made of high-grade stainless steel and features a “small, subtle” design that sets it apart from other smart locks on the market, Jadallah said.

However, its high cost might have scared off the unnamed investor, especially considering that while U.S. homeowners are starting to embrace smart-home devices, research indicates they’re not ready to shell out big bucks for them yet.

“One-half of consumers view smart door locks and smart video door bells as unaffordable,” said Parks Associates research analyst Brad Russell in 2017. “This is a significant challenge for the smart-home market. The average price of a smart door lock is $220, while traditional non-connected door locks can be purchased for $80-$100. Innovators and early adopters clearly recognize the value of smart-home products, but the early majority of U.S. consumers sees only marginal value, which is insufficient to justify the premium price for smart products.”

Leave a Reply

Your email address will not be published. Required fields are marked *