Please ensure Javascript is enabled for purposes of website accessibility

2 Things I've Gotten Wrong About the Internet of Things

By Chris Neiger – Jul 19, 2016 at 4:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Internet of Things is primarily an industrial play, not a technology one -- and it's about the enterprise market, not consumers.

Image Source: Getty Images

I've written a lot about the Internet of Things over the past few years. Much of it, I hope, has helped investors understand the massive size of this growing technology trend (between 24 billion to 50 billion connected things online by 2020) and the market size that companies are chasing after (nearly $7.1 trillion by IDC's estimates). 

But while some of those articles revolved around Alphabet's opportunities,'s (AMZN -0.77%) growing dominance in the connected home space, or Intel's big bet on the IoT, there are two things I've missed along the way.

The technology sector is just a small part

First and foremost, the IoT is an industrial play. It's easy to get caught up in it as a major technology play, but it's the manufacturing sector that's benefiting the most. 

New research from BI Intelligence shows that the top industry that experienced revenue gains of more than 30% from the IoT in 2014 was industrial manufacturing. Industrial manufacturers were significantly ahead of the next three segments: banking and financial services, telecoms, and energy.

General Electric (GE 0.31%) has been trumpeting the benefits of connected industrial equipment (which it calls the Industrial Internet) for years now. The 124 year-old company has moved itself to the forefront of the IoT by focusing its attention on how it can make industrial equipment and processes more efficient with software, sensors, and analytics. 

GE believes the Industrial Internet could add $10 trillion to $15 trillion to the global GDP over the next 20 years. The company has already put hundreds of sensors into airplane engines to measure their efficiency and usage. GE says that its precision navigation, flight data analytics, and fuel management data are saving the AirAsia airline between $30 million and $50 million a year.  

The conglomerate is involved in more than just producing turbine engines, of course, and it believes its Predix Industrial Internet software and analytics could bring in $10 billion in revenue by 2020. The company brought in about $6 billion from its software last year, so it's well on its way. 

The IoT isn't about selling consumer goods

I've written before about how IoT devices will become prevalent in our homes and cities, changing how we drive and even making us healthier. And while that's true, the IoT is transforming the enterprise sector first.

Businesses will invest nearly $4 trillion in the Internet of Things globally between 2015 and 2020. Governments worldwide will spend less than $2 trillion, and in third place will be consumers at less than $1 trillion, according to BI Intelligence.

Enterprise IoT devices are expected to make up 40% of all the IoT connected devices by 2019. And enterprise IoT software will be worth $43.9 billion, compared to IoT hardware of just $2.3 billion, according to BI Intelligence. 

Companies will use IoT software and analytics to improve their assembly lines, make farming more efficient, improve healthcare services, and much more. At the core of all of these services are web-based software solutions -- and they're growing quickly.   

That's one of the reasons why Amazon has been expanding its IoT software within its Amazon Web Service (AWS) cloud computing platform. Amazon is coming close to earning $10 billion a year from AWS. 

As businesses look more to IoT software solutions, the IoT enterprise software market is expected to grow to $16.35 billion over the next four years, according to Markets and Markets, up from just $4.85 billion last year. 

Investor takeaway

While GE may seem an unlikely play in the IoT space at first blush, I'm consistently drawn to the company's shift into the market and its focus on growing its software revenue. Technology companies big and small are focusing their attention on adding recurring software revenue through the IoT, and GE's already benefiting from it.

GE is poised to continue to see growth, as more industrial companies bring the IoT into their manufacturing processes to track equipment and predict maintenance issues. As CEO Jeff Immelt said last year, "On our current trajectory, GE is on track to be a top 10 software company." Considering that the IoT is turning out the be the perfect blend of the industrial and technology sectors, I'd say the company is in a unique position to gain from this shift.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and The Motley Fool owns shares of General Electric. The Motley Fool recommends Intel. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Stock Quote
General Electric
$88.14 (0.31%) $0.27
Amazon Stock Quote
$93.41 (-0.77%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.