Don't let the weird name distract you. Think of the Internet of Things (or IoT) as a way for your house to tell you when your kids have come home after school, or for your car to tell another car that it's getting too close, or for your coffee maker to tell you that you need more coffee beans.

The idea behind IoT is that formerly non-smart things (like cars, shipping containers, wind turbines, houses, etc.) gather their own data about themselves and then communicate it to other devices that need that information, or send it to people who need to know it.

Sometimes the Internet of Things goes by other monikers like the Internet of Everything, machine-to-machine (M2M) communication, the Industrial Internet, or others. 

Cisco Iot

Parts of the Internet of Things' recent advancements come as the price of sensors has dropped significantly, allowing small, inexpensive sensors to be placed in all sorts of objects. Last month the semiconductor company Broadcom launched an IoT device with a gyroscope and accelerometer for motion-tracking, a barometer and altimeter, electric compass, and humidity and temperature sensors -- all for just $20. The goal of the device is to make it easy to create new Internet of Things functions without paying for expensive prototypes.

So why should you care about IoT?

In short, because it's a technology that's going to work for you in the background, so you can get on with your life.

Already at work
If there was ever a sector that over promises and under delivers, it's technology. So instead of listing a host of ideas that IoT could do, let's take a look at what IoT is already doing.

To get a good example of the Internet of Things, we need to look no further than your home, or maybe your neighbors' home. A company called Nest Labs, which was purchased by Google (NASDAQ:GOOG) (NASDAQ:GOOGL) earlier this year, makes a smart thermostat that's controlled by a smartphone app and learns a person's sleep patterns, when they leave and come home, and what temperature setting they prefer. While this by itself isn't part of the Internet of Things, Nest Labs has a software platform that allows other 'things' to communicate with it.

Specifically, Mercedes-Benz teamed up with Nest so that a drivers' home will heat up or cool down automatically, when the car leaves or comes home. Mercedes integrated the car's infotainment system with the Works with Nest platform so the Mercedes vehicles can tell the thermostat when it anticipates being home and adjusts the temperature to pre-set levels.

Workswithnest
Source: Nest Labs.

The Works with Nest platform also allows new Whirlpool washers and dryers to communicate to the thermostat when they're running, so the temperature can be adjusted to conserve energy.

But home automation is only part of IoT's potential.

General Electric (NYSE:GE) created its own Internet of Things software called, Predix, to make apps for connected devices and taps into machine-to-machine communication sensors. The software is used by a Brazilian airline to make flights more efficient and save fuel. GE also has software that communicates with wind turbine sensors, determines how the they should function based on wind speed or air pressure, and then allows one turbine to tell the others they should do the same.

San Jose Iot

San Jose is working with Intel to create an IoT-powered city. Source: City of San Jose.

Cities are tapping the Internet of Things as well. The City of San Jose teamed up with Intel recently to use sensors to measure air pollutants, improve traffic flow, improve water quality, and save energy throughout the city.

Though the US and Europe are making great strides in the Internet of Things, China is outpacing both of them. The country's government works with the three major wireless carriers to monitor air pollution, emergency rescue, forest fires, public transportation, and other M2M systems. Between 2010 and 2020, China is expected to spend $603 billion on machine-to-machine technologies for its cities.

A 50 billion opportunity
With all this growth, and more technology in the pipeline, research firm Gartner estimates devices connected to the Internet of Things could reach 26 billion by 2020. For its part, Cisco Systems believes the number of devices could reach 50 billion by 2020. To put that in perspective, in six years there will be just 7.3 billion PCs, tablets and smartphones around the globe.  

In order for IoT to reach its full potential, companies need to expand their innovation and consumers and businesses will need to adopt the technology. But the Internet of Things isn't some far flung reality, it is already here and the opportunity is massive.

 

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, Gartner, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Apple, General Electric Company, Google (A shares), Google (C shares), and Intel. 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.