The Internet of Everything, or IoE, is arguably the Internet's next evolutionary phase. Everything from refrigerators to cars will be connected, capable of communicating and sharing data over the Internet. Tech companies, wireless carriers, and even automakers want in on this lucrative market. According to Forbes, GSMA predicts that by 2018, 35 million cars will be sold with embedded mobile connectivity. That equals a market worth roughly $50 billion.
The first noticeable inroads into the IoE
The lucrative market for connected cars hasn't gone unnoticed by the major wireless carriers. Last year, AT&T (NYSE:T) inked a deal to power an LTE app ecosystem for General Motors and OnStar, who switched from Verizon. The deal came after Verizon acquired Hughes Telematics for roughly $600 million in an expensive bet on connected cars.
AT&T is also partnering with Tesla Motors to further push the connected car concept. Tesla automobiles will be rigged with AT&T's wireless machine-to-machine, or M2M, solutions. The deal will allow Tesla "to enable two-way vehicle communications, remote engine diagnostics, and infotainment features" for its customers by utilizing 3G/HSPA+ connectivity provided by AT&T's networks. The technology will also come in handy if, for instance, a vehicle has been stolen and needs to be located or for live traffic and weather services.
Connected cars could be a much-needed source of growth for massive and maturing telecoms like AT&T going forward, as more data is used, shared, and collected from drivers. Cars becoming mobile hot-spots means more overall data use. That's why AT&T and Verizon want in early, because your car will soon be connected to the Internet just like your laptop or smartphone.
Smaller players are establishing themselves too
Sprint Nextel (NYSE:S) also realizes that cars are quickly evolving into Internet-connected information systems on wheels. With negative earnings and no dividend offered to investors, the company doesn't look very attractive (especially with AT&T shares trading at only 13 times forward earnings and yielding over 5%). Sprint, however, may have a major growth spurt coming in the next few years.
Sprint is only a fraction of the size of AT&T, but a recently announced partnership that will merge it's connected car platform with International Business Machines' (NYSE:IBM) data management expertise gives it big-time leverage. The new system, called Sprint Velocity Service Bus, will expand on the company's previous connected-car offerings that include navigation, weather, and music connectivity.
Cars in the cloud
The new service being offered by Sprint can send data in smaller packages on lower bandwidth, which requires less battery to be drained from the car. Utilizing cloud storage from IBM, owners of Sprint connected cars will be able to start the vehicle's engine with a smartphone and remotely activate climate controls. The cars will be able to remember things like temperature or music settings, and will even be able to transfer these settings between different vehicles.
IBM's integration with Sprint's platform will allow vast amounts of data to be transferred to and from vehicles through a cloud connection. According to Forbes, Sprint became the first wireless carrier to adopt IBM's MessageSight M2M solution. MessageSight also includes solutions for smart parking, thermostats, and even dishwashers, and its expansion with the IoE should give IBM some good growth going forward. It might even help soothe some of the pain the company has felt for the last six quarters with its eroding top line, and most recently, troubles in China.
The bottom line
Telecoms are testing the IoE waters by expanding their services into automobiles, and while they will profit from anything that involves data usage, technology firms entrenched in big data services will also benefit. IBM's MessageSight is still in its earliest inception, but appears to have big growth potential.
As Bob Johnson of Sprint said, "We want to go from an 'M-to-M' methodology to 'M-to-X' so it's whatever you want... You can have your phone talk to your home and your car, your car to the garage, and it can go well beyond automotive."
A partnership with Sprint gives IBM an inlet into further aspects of the IoE besides just cars, and there's no reason why the company couldn't partner with other firms later. Sprint will benefit tremendously in the meantime.
AT&T, a massive company with a market cap of around $184 billion, needs new sources of growth. Customers using and generating data every time they drive their cars will provide that. Sprint, with a market cap of only $25 billion, is the third-largest carrier behind AT&T and Verizon. Leveraging IBM's services, however, will allow it to step out of the shadows and compete with more dominant rivals. Massive connected-car growth could pop Sprint's earnings and possibly its share price, too.
Joseph Harry owns shares of International Business Machines and AT&T.; The Motley Fool owns shares of International Business Machines. 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.