Imagine a future where you ask your smartwatch to order a driverless cab for your ride home. As it arrives, it ‘talks’ to your watch and unlocks the doors. On the way back, you switch on the lights and heating and run a bath. Welcome to the Internet of Things.
It sounds like science fiction, but it’s fast becoming science fact – and if you invest wisely, it could make you very rich.
Depending on who you believe, by 2020 there will be anywhere between 20 and 30 billion connected devices controlling almost every aspect of modern society.
At home, you will be able to unlock your front door with your phone and see at a glance who’s been in the house, while the heating and air conditioning will sense how hot or cold you are via sensors in your watch – or even under your skin.
If you have a medical condition, doctors will know instantly if your health telemetry gives cause for alarm. If someone elderly has a fall, the emergency services will be immediately alerted.
If your children aren’t home from school on time, you will be able to see at a glance where they are and what they are doing.
In short, the Internet of Things (IoT) is the ability of almost every device – from phones and watches to vehicles, domestic appliances, heating, lighting and even tiny sensors – to communicate with each other.
In industry the implications go even further than in the home, as the IoT, in tandem with advanced robotics, takes over, and the need for human intervention becomes less and less important.
Embedded chips are already used in the logistics industry to monitor deliveries, and allow firms to automatically re-order when stock are running low. The IoT will also enable companies to run maintenance routines and fine-tune manufacturing processes in real time, as well as gaining data from chips built into their products to see how they are performing once they leave the factory, and why and how they break down.
Aircraft manufacturers and airlines will know instantly if vital parts are at risk of failing, helping to prevent accidents.
In agriculture, more food will be produced as giant agricultural companies such as Monsanto help farmers gain detailed, field-by-field data on climate, soil condition, pesticide and fertiliser use to allow them to fine-tune planting for optimum yields the following season.
‘Smart cities’ will allow public transport to be integrated much more closely, with realtime information on congestion and delays that will not just help travellers, but provide vital feedback for technicians and planners to improve road and rail systems for the future.
According to the Boston Consulting Group (BCG), by 2020 companies around the world will be spending £220bn over and above their normal IT budget every year on IoT.
Back in 2011, Cisco’s chief futurist Dave Evans said the Internet of Things would “change everything – including ourselves”.
He said it represented the “next evolution of the internet” with its ability to “gather, analyse, and distribute data that we can turn into information, knowledge, and, ultimately, wisdom”.
Wisdom may take a little longer, but so far Evans’ prophetic vision is rapidly coming true.
IoT business as an investment opportunity
The IoT businesses will change our lives out of all recognition in the next 20 years. So where do the biggest business opportunities lie – and with them, the biggest investment opportunities?
All types of tech companies involved in the IoT business are expected to achieved a compound annual growth rate of at least 20% from 2015 through 2020, according to BCG’s 2017 report, Winning in IoT: It’s All About the Business Processes.
But some types of tech firm have much higher growth potential than others. BCG says IoT’s real value is in the top two layers of the technology ‘stack’ – services, and IoT analytics and applications.
BCG expects that by 2020 these two layers will have captured a staggering 60% of the growth from IoT.
The rest of the technology stack – identity and security, the IoT hardware backbone, communications, and connected things – are seen as “enabling components with lower growth potential”.
If all this sounds a little too much like Orwell’s 1984 for your liking, then you’re not alone. Writing in a 2015 paper The Internet of Everything is the New Economy, senior Cisco IT engineer Plamen Nedeltchev cites concerns about security and privacy.
“Devices and sensors will augment human senses and become the eyes and ears for companies, law-abiding citizens, and even for hackers,” he says. “If things can be operated remotely and activated in the physical sense, we must exercise caution.”
He adds: “Unacceptable scenarios involve devices making poor decisions based on wrong or limited information. People may never allow machines to make unauthorised safety decisions concerning their private property such as cars, embedded sensors, and an endless list of other personal possessions.”
He warns of the very real threat that if an individual’s identity is compromised, “the security perimeter is defeated” – in other words, all your possessions and personal data are potentially compromised.
As a result of such security concerns there will also be big investment opportunities in those companies working on the data security side of the IoT sector.
Listed below are some examples of the world’s biggest internet of things companies that are heavily invested.
Internet of things companies to invest in
Cisco Systems – One of the world’s biggest companies in the field of networking hardware with a market cap of $167bn and earnings of $9.6bn in 2016, Cisco is used by many of the world’s leading blue-chip firms.
IBM – The behemoth behind the big mainframe computers of the 60s and 70s, ‘Big Blue’ has reinvented itself for the 21st century. It holds a patent on data filtering in connected devices, allowing them to not just send and receive, but interpret information. IBM is also teaming up with Cisco to create networks of devices that provide real-time data for industry, from manufacturing to mining and oil & gas. IBM has a market cap is $136.8bn and had earnings of $13bn in 2016.
Qualcomm – A multinational semiconductor and telecoms equipment company heavily focused on the IoT. It is in the middle of a fight with the European Commission to clinch a $39bn takeover deal for rival NXP Semiconductors (below). Qualcomm has a market cap of $77bn and had earnings of $6.5bn in 2016.
NXP Semiconductors – Dutch-based NXP is driving innovation in the areas of connected cars, cyber security, portables, wearables and the IoT generally. NXP has a market cap of $39.8bn and posted earnings of $9.5bn in 2016.
Google (Alphabet) – Google has its finger in pretty much every pie going when it comes to the IoT, and a near-monopoly on the internet search market. It is working on artificial intelligence (AI), personal assistants, self-driving cars and continuing research on ‘smart’ glasses. Holding company Alphabet’s market cap is $689bn with earnings of $19.47bn.
Amazon – Now far more than just an online marketplace and delivery company, Amazon has pioneered the virtual domestic assistant in Alexa through its new Echo IoT device. It also has a booming cloud server business that can be used by developers to analyse data from connected devices. Amazon has a market cap of $481bn and produced operating income $4.2bn in 2016.
Apple – Apple famously pioneered the mouse-driven graphic user interface, or GUI, that we all take for granted with computers, and launched the world’s first mass-market smartphone. Some argue that innovation has been thin on the ground since Steve Jobs died, but the Apple Watch is now a standalone device that can function as a phone and GPS unit, and Apple is known to be developing a self-driving car. It also holds a patent called ‘local device awareness’ that allows devices in close proximity to talk to each other. Not a company you can dismiss. Apple has a market cap of $822bn and had net income of $45.7bn in 2016.
Microsoft – Apple’s long-time rival is heavily invested in the IoT through Windows 10, which has been designed for use in industrial environments, as well as on home PCs. Together with its Azure IoT software suite, it is well positioned to profit from the boom in IoT manufacturing processes. Microsoft has a market cap of $597bn and income of $3.1bn in 2016.
There are many other big companies such as Verizon and Comcast trying to carve out their own niche in the IoT, while there are hundreds of startups and early-stage tech ventures that could well become the Googles and Apples of tomorrow, as the endless possibilities explode in a new technological revolution.
It’s these small growth companies that are the ones that could really make you rich, but as always, do your research thoroughly and never put all your eggs in one basket.
A safer option is to invest in a fund that focuses on a tech theme – you will be buying into a vehicle that holds possibly dozens of companies that the manager and his or her team will have identified as well placed for growth.
There is even an exchange traded fund (ETF) – a fund whose shares you can buy and sell on the stockmarket – specifically set up to invest in the IoT. The Gobal X Internet of Things Thematic ETF is the first of its kind, but expect others to follow.
Totally connected society
Perhaps Frank Feather, CEO and chief trend tracker for Future-Trends.com, sums it up best, in a survey by the Pew Research Center Internet Project and Elon University’s Imagining the Internet Center.
He wrote, “The Internet of Things will become pervasive, creating an almost totally connected society.
“We will be close to a situation where all the global population will have access to all the world’s information – and to everyone else – using any device, including wearables.
“In an anyplace/anytime/real-time world, anyone will be able to access any public database, any product/service provider, any government agency or politician, and everything that belongs to them personally, via such devices. This will be fairly commonplace by 2025.”