Who Will Control the Internet of Things?

The early Internet was a strange, chaotic place -- much like the young universe, if it were plastered with animated GIFs. Over time, that bewildering mass coalesced around familiar open standards that are still in use: CSS, XML and its derivatives, grizzled veteran HTML (now in its fifth edition), and others. The next leap forward, toward an Internet of things, is rapidly approaching. The key to its success is likely to lie in its openness, and failure might well lie in the aftermath of patent warfare.

Network all the things
The mobile revolution has brought with it plenty of border skirmishes, as dedicated followers of the sector can attest. However, it's a much different thing to lob law bombs over the striking similarity between your product and a competitor's, and to claim ownership over its means of communication. This hasn't yet happened to the Internet of things, but the concept hasn't yet taken off in a major way. Patent filings already abound: A quick (and highly unscientific) search for the term on Google's (Nasdaq: GOOG  ) patent search engine turns up 56 results. The more accurate term "machine to machine" turns up 4,500 filings since the turn of this century.

Why is this so important? Think of the Internet times itself: 24 billion devices (up from 9 billion today) of all shapes and sizes connected and transmitting simultaneously by the next decade. Much of it -- such as wirelessly connected RFID tags and other monitoring systems -- will be automated. The implications are manifold, but let's focus on the standards issue. Will the Internet of things develop through open collaboration like its progenitor, or will some companies stand in the way with proprietary patents?

The patent player: Apple
Apple (Nasdaq: AAPL  ) filed a patent at the tail end of 2009 dubbed "Local Device Awareness," which describes automated connections between a number of close-range devices. Some potential applications could be device position targeting (think locating your keys) or proximity-based gaming.

The breadth of the claim is surprising, as it could be used to demand royalties from services we've come to know and love, like Wi-Fi hotspots or Bluetooth devices. Apple's reliance on proprietary processes and technologies means, in my mind, that they're less likely to be big winners in this Internet of things. However, the company's litigious history makes me wary that the patent could be used as a cudgel to stifle development.

The patent player: InterDigital
If Apple's patent seems overly broad, patent hoarder InterDigital (Nasdaq: IDCC  ) has gone for specificity. It holds some 33 known patents covering machine-to-machine communication. Buyout rumors spiked the stock this fall, but after Google scooped up Motorola Mobility (NYSE: MMI  ) , the patent licensor's shine dulled somewhat. Holding an array of patents on what could be the next big thing post-mobile revolution could help the company regain some of its luster, or at the very least increase its royalty revenue. Keep an eye on CES this year, as InterDigital plans to highlight its Internet of things technologies at the conference.

The patent(-less?) players: Google (and Motorola)
Motorola Mobility, soon to be absorbed into the all-consuming technological blob that is Google, will also be at CES, and it has ideas of its own. The Connected Home Gateway, as it's called, attempts to make connecting myriad devices as easy as pressing a button. In some ways its description is reminiscent of Apple's wide-ranging patent, which could lead to more conflict between the two mobile titans once Motorola becomes part of Big G.

Controlling the connected home is only one element of the Internet of things, but it's an important one. Motorola and Google seem to be behind in patents, with only one highly technical machine-to-machine patent showing up for Motorola Mobility, and none for Google. But as you'll soon see, the two companies might be hoping for a more open environment.

The open-source player: IBM
I've mentioned IBM's (NYSE: IBM  ) contribution to the Internet of things before, but it bears repeating. The venerable technology titan collaborated last year with Italy's Eurotech to develop an open-source machine-to-machine protocol, which was presented to open-source nonprofit (and IBM creation) the Eclipse Foundation. The foundation, which boasts a number of top technology firms -- including Google and Motorola -- on its membership roster, will disseminate the protocol by educating interested programmers.

Foolish final thoughts
Quick definition: All any of that means is that IBM sees the Internet of things as a source of growth, and it recognizes that the best way to capitalize is to make it easy to adopt. Keeping the underlying framework open-source will undoubtedly improve competition and encourage startups, much as the growth of the public Internet led to an explosion of newly public companies. Let's hope that the growth of this new industry isn't hampered by patents, but we should also be wary of any new bubbles that might inflate.

It might be a few years before the Internet of things becomes a big thing in the market, but there are plenty of high-growth opportunities to be found right now. Take a look at our brand-new free report on one of Fool co-founder David Gardner's best picks to play the technological revolution happening in hospitals across the nation. It's already been a multibagger for faithful Fools, and it's just getting started. Get your free copy.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Google, Apple, and IBM. Motley Fool newsletter services have recommended buying shares of Apple, Google, and InterDigital and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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