Five hundred devices. According to research firm Gartner, by 2022 -- a mere seven years away -- the typical family home could contain 500 smart devices. Obviously, that's a huge opportunity for investors who position themselves correctly. Here's a primer on this next big thing in tech -- what you should know going forward about the upcoming "Internet of Things" revolution.
What is the Internet of Things?
The Internet of things is one of the biggest yet most misunderstood trends in technology today. McKinsey Global Institute reports that Internet of Things businesses will provide $6.2 trillion in revenue by 2025.
Essentially, the Internet of Things is about connections, specifically items not previously connected. An example of such an evolution is the change from old cell phones without Internet connectivity to the current smartphone market. The Internet of Things seeks to bring that connectivity to other home systems like your home's thermostat, refrigerator, television, and electrical grid. That's a small segment of things that could benefit from what Internet of Things analysts call machine-to-machine, or M2M, connections.
For investors, it appears that there will be few "new" consumer-based products from this revolution. Rather, products incorporating monitoring, uploading, and decoding software will replace formerly Internet-incapable ones.
Google and Apple are on board
It appears some of the most forward-thinking companies are on board. Lost in talk of Google's "moonshots" -- delivery drones, self-driving cars, and near-sentient robots -- is the company's Nest acquisition. But let's not understate its importance.
Nest, the home automation company, currently specializes in thermostats and smoke detectors that are self-learning, programmable, and integrated into the Internet of Things. And that's important, because heating and cooling one's home is the largest contributor to electrical bills -- at nearly half. A recent report backs up Nest's savings: A study using home data in Southern California found that Nest Thermostats saved customers 11.3% of AC-related energy usage, on average.
Apple's looking at getting in on the Internet of Things as well, but this time it appears to be following the approach that Microsoft's taken in PCs and Google in smartphones: It seems to want to remain on the software side of things rather than its normal hardware focus. The company recently announced its HomeKit platform, tools designed to control your home through its iOS platform.
Two companies providing end-to-end solutions
For the Internet of Things, three steps are present in the process: data ingestion, data harvesting, and analytics. A few companies are providing full solutions for the Internet of Things. Sierra Wireless (NASDAQ:SWIR) is on the forefront of M2M solutions. By providing end-to-end wireless and data solutions for a host of industries -- automotive, transportation, and energy, among others -- the company is on the forefront of Internet of Things expansion.
Another, perhaps lower-risk, play is Cisco Systems (NASDAQ:CSCO), which has high hopes for what it calls the "Internet of Everything" -- a world with machine-to-machine, person-to-person, and machine-to-person connections through the Internet. The company pegs its "Value at Stake" figure -- a term denoting lower costs or higher revenue created from the Internet of Everything -- at $14.4 trillion between 2013 and 2022.
This figure is higher than McKinsey's total because it includes money saved as well as differing metrics. For what it's worth, the company estimates that 99.4% of all objects that could be part of the Internet of Everything are still unconnected. Cisco is busy working on end-to-end Internet of Everything solutions as well, to complement its core router and switches business to take advantage of what it calls a "huge opportunity for the company."
The Internet of Things is the "next big thing" in tech, and for good reason. Very rarely does an opportunity like this come along. M2M communication has the potential to change the way we produce and consume goods, travel and commute, and innovate. Investors would be wise to closely follow any developments in the Internet of Things.
Jamal Carnette owns shares of Sierra Wireless. The Motley Fool recommends Apple, Cisco Systems, Ford, Gartner, Google (A and C shares), Sierra Wireless, and Tesla Motors and owns shares of Apple, Ford, Google (A and C shares), Microsoft, Sierra Wireless, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.