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What Is the Internet of Things?

By Chris Neiger – Mar 18, 2017 at 9:21AM

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The purpose of the Internet of Things is to track and manage data from devices and equipment -- but the IoT moniker stands for far more than just gadgets.

Defining the Internet of Things (IoT) can be simplified down to the connection of everyday things -- like homes, industrial equipment, watches, etc. -- to the internet, for the purpose of collecting data, tracking usage, and automating systems. While it encompasses many technological devices, it's important to remember that the Internet of Things spans across all major sectors. The amount of connected IoT objects will reach 50 billion by 2020 and will be worth $7.1 trillion by that same year.  

Now that you know a little more about what the IoT is, let's take a look at how companies are using the IoT right now, and a few IoT examples you might not know about.

Picture of a plane, a truck, and industrial equipment connected to each other.

Image source: Getty Images.

You've probably already seen the IoT in action

If you've ever seen an Apple (AAPL -3.00%) Watch or an internet-connected Fitbit fitness tracker, then you're familiar with the Internet of Things. These devices fall into the broader wearable technology market and they're what many people think of when they think of the IoT. 

Or perhaps you've heard of a Nest programmable thermostat. Alphabet (GOOG -1.98%) (GOOGL -1.82%) owns Nest, which makes internet-connected thermostats that you can control via a smartphone or tablet, and learns your heating and cooling preferences the more you use it. 

Both Alphabet and Amazon (AMZN -1.57%) are also pushing the Internet of Things into homes with their smart home hubs, like Google Home and the Amazon Echo. Both devices use virtual assistants to answer questions, order things online, or connect to door locks, lights, and home security systems. Connected homes are a major part of the consumer side of the IoT, and will bring in $14 billion in revenue this year in the U.S.

Smartwatches, internet-connected fitness trackers, and smart home connections are just a few examples of how companies are investing in the IoT. While there are lots of companies betting on the Internet of Things, here's a quick list of some of the biggest players.

Company IoT FocusMarket Cap
Apple Smartwatches $729 billion
Alphabet Smartwatches, Nest, Android Things, Google Home, Weave platform, Google Cloud IoT services $590 billion
Amazon Alexa-powered devices, AWS IoT $406 billion
General Electric (GE -1.31%) Predix software, Asset Performance Management software, Brilliant Manufacturing software, and IoT security monitoring $257 billion
Verizon Communications
(VZ -1.73%)
Smart city connections, ThingSpace platform, asset tracking and management, smart device monitoring, 5G wireless $201 billion 

Here's what you might not know

While much of the IoT may seem like it's focused on consumer devices, most of the growth with come from the enterprise market. Research from BI Intelligence shows that enterprise devices will account for 40% of all 23.3 billion IoT devices by 2019. 

Agricultural-equipment maker Deere & Company uses internet-connected field equipment, along with sensors, analytics software, and cloud services to track the efficiency of seed planting. This type of agricultural technology is transforming how food is grown and how farmers manage their fields and equipment. 

Many other non-tech companies are also jumping into the IoT as well. General Electric, the 125-year-old conglomerate, has developed its own analytics software for industrial equipment. GE uses its software to help its customers manage their equipment more efficiently and anticipate when it needs to be fixed. Scottish and Southern Energy uses GE's Reliability Management software to track its equipment and maintain uptime, which saves the company an estimated $3.6 million dollars every year. 

What the Internet of Things needs to grow

In order for more devices, equipment, and services to be added to the IoT, new and more sophisticated wireless networks are being developed. Verizon is at the forefront of this change and said last year that its upcoming 5G network will help address the IoT's network needs. Verizon will roll out pilot tests of its 5G network in 11 cities across the U.S. in the first half of this year.

While there's often a lot of hype around new technologies, it's clear that companies are already taking the IoT seriously and finding ways to use connected devices and software to offer better products and services. And if this year is any indicator, it appears that now is one of the best times for investors to consider getting on board with this technological 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), Amazon, Apple, Fitbit, and Verizon Communications. The Motley Fool owns shares of General Electric and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$95.65 (-1.82%) $-1.77
Alphabet Inc. Stock Quote
Alphabet Inc.
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Apple Inc. Stock Quote
Apple Inc.
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General Electric Company Stock Quote
General Electric Company
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Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$37.97 (-1.73%) $0.67, Inc. Stock Quote, Inc.
$113.00 (-1.57%) $-1.80

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