Internet Of Things Freescale
This tiny chip could connect people directly to the Internet of Things. Source: Freescale.

Technology is exhausting. The draw is that it's constantly evolving and bringing new benefits, but that unending change is what prevents so many of us from keeping up with technology's breakneck pace.

Take the Internet of Things, or IoT, for example. It's a weird phrase, to be honest. It gives us no clue as to what it means, and feels just as distant as Einstein's Theory of Everything. But over the next decade IoT could change the way you turn the lights on in your home, how you drive your car to work, and even how you purchase groceries. 

Two of the most influential companies on the planet, Google (NASDAQ:GOOGL) and General Electric (NYSE:GE), are both diving head first into the Internet of Things. The companies are using their technology and industrial know-how to bring IoT devices into homes and change how businesses use industrial equipment. 

But for those of us who are still a little unsure about this new trend, let's take a quick minute to find out exactly what the Internet of Things is and why it could change how we do everyday tasks.

Defining IoT
The term Internet of Things is sometimes used interchangeably with Machine-to-Machine Technology, the Industrial Internet, Internet of Everything, and probably a few other phrases. While there can be slight differences between the phrases, we'll use Internet of Things as an umbrella term for all of them. Technology research company Gartner says the Internet of Things "is the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment."

Did you get that? I think that's sort of a boring explanation (sorry, Gartner!). So let's edit it a little bit.

Internet of Things: A network of physical objects (refrigerators!) that contain embedded technology (like sensors and Wi-Fi) to communicate and sense or interact with their internal states or the external environment (that tell your smartphone when you've run out of milk)."

Think of the Internet of Things as a way for everyday objects to talk to each other, and to talk to you.


Nest's thermostat app. Source: Nest.

Home automation
Yes, in the IoT world, your refrigerator will tell you that you've run out of milk. How? Sensors. Think of a simple home security system as an example. It has a sensor at the front door that tells the system when the door is open or closed. Now imagine sensors embedded in objects all around your home, from the refrigerator, to the lighting, and even to the heating and cooling system. In the Internet of Things, those devices send signals to each other and to you, to make them more easily managed and efficient.

Google is trying its hand at the Internet of Things via its $3.2 billion purchase in January of a company called Nest Labs. Nest makes a smart thermostat that has light, humidity, and activity sensors that learn a user's sleeping and waking patterns, and temperature preferences. The device then programs itself (set it and forget it!) to be the most efficient based on the user's comfort level. It can also be controlled with an app on smart devices.

The Internet of Things will allow automated control of devices like this, as well as smoke detectors, lighting, security systems, and ultimately nearly any device in the home. By 2018, the majority of homes are expected to have about 200 devices hooked into the Internet of Things.

Moving out of the home
The Internet of Things extends far beyond the home, though. New vehicle-to-vehicle communication systems will soon allow cars to send information about themselves -- like speed, direction, and location -- to other vehicles. Imagine a car breaking down on the side of the road, and telling other cars the equivalent of, "I've fallen and I can't get up!" That information could then be relayed to a driver even before they see the disabled vehicle. This tech will reduce accidents and help usher in self-driving vehicles.

Vehicles that communicate with each other will reduce accidents. Source: NHTSA.

General Electric is also tapping the Internet of Things, in what they call the Industrial Internet. GE developed a software platform, Predix, which is used create apps for machines and connected devices that tap into information gathered from sensors. Gol, a Brazilian airline, is saving $90 million over the next five years by using GE's system to analyze flight routes and fuel use. Other companies are using GE's Industrial Internet technology by adding sensors and software to wind turbines so they can collect and analyze data and decide the best time to supply power.

Ge Wind Farm

The Internet of Things can be put to work on wind farms. Source: GE.

The company believes the Industrial Internet could add $10 to $15 trillion to the global GDP over the next two decades.

We're just getting started
Aside from home connectivity, transportation, and industrial automation, the Internet of Things is expected to bring big changes to other industries as well. In the medical field, a company called Freescale has created a chip so small it can be swallowed. Chips like this could track our heart rates and blood sugar levels, and even dispense medication. It sounds like science fiction, and maybe even a little bit creepy, but it's closer than you think.

Recent data from Gartner projects that the number of Internet of Things devices could hit 26 billion by 2020, excluding tablets and smartphones. Those numbers have a lot of potential for companies, and their investors, looking to profit from the adoption of IoT. Six years from now, global revenue from the Internet of Things is estimated to reach $8.9 trillion .

So the next time you hear something about the Internet of Things, think about how formerly simple objects will be connected to each other, and you, and how much we can benefit from it. And then explain it to your friends.

How to invest in the Internet of Things
Now that we know just a little more about what the Internet of Things is, one of the next steps for investors is to find a great company that will benefit from it as soon as possible. To help you get started, The Motley Fool's put together a free report on one small-cap company that's poised to be a big player in the IoT industry. Click here now to get the full story.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Gartner and Google. The Motley Fool owns shares of General Electric Company and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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