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Agriculture is about to be transformed by smart devices. Image source: TumblingRun/Flickr

The Internet of Things has become a hot investing topic lately as consumers dream of the day that their coffee makers text them when it's time for a deep clean. Of course, there's more value creation to look forward to than one sarcastic example; the potential savings that could be derived from efficiency gains alone are worth the media hype. However, despite the enormous potential for nonhousehold applications, consumer-facing technology companies have been handed the majority of the limelight. Investors would be wise to consider all of the potential avenues.

For instance, General Electric believes that the industrial Internet could add roughly $10 trillion to $15 trillion to global GDP -- the equivalent of another China or United States -- by 2035. That would put talking coffee makers to shame. Yet while it's not difficult to see how General Electric could become a leading Internet of Things stock, you may have more difficulty believing Monsanto (NYSE:MON) could do the same. Take a closer look into one of the company's newest platforms, however, and you'll be forced to reconsider.

Why is Monsanto interested in the Internet of Things?
Monsanto believes the future of agriculture will be increasingly driven by technology and data. Perhaps nothing makes that point as powerfully as the following graphs:

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Image source: Monsanto quarterly presentation.

In other words, in the last five years farmers have realized a substantial amount of new production gains from a combination of improved yields and increased acreage. The next five years will be substantially different, as farmers will become increasingly dependent on technology-driven improvements in yield instead of simple acreage additions.

Think about it: offering even the most advanced seeds is an indirect way of making farming one-size-fits-all when reality is much, much different. Climates, soils, pests, and access to labor differ from country to country, region to region, field to field, and even within the same field! What if farmers could more accurately characterize and minimize risks to make more informed day-to-day decisions about planting, irrigating, fertilizing, and pesticide spraying?

It's much easier to see the problem than to develop a solution, but Monsanto has been determined and ambitious in its efforts -- and for good reason. By developing data-driven solutions for agriculture through freemium and premium software products, the company can optimize its value to not just the black box labeled "farmers", but to individual farmers, thus optimizing operational efficiency across the company.

The more specific the data collected and received, the more accurate the recommendations to individual farmers will be year after year and the more value that can be created for the individual farmer. Better data (not to be confused with more data) also helps the company boost the value created through its own research and development efforts to breed more robust seeds for specific applications and regions, creating a positive feedback loop for the company and investors. Few tech companies can leverage the same advantages.

What is Monsanto doing with The Internet of Things?
Monsanto completed the nearly $1 billion acquisition of data science expert The Climate Corporation in October 2013 to complement its internally developed Integrated Farming Systems research platform, powered by FieldScripts software. The platform makes field-by-field recommendations for maximizing yield and managing risk by integrating seed science, agronomy (science of producing plants), data analysis, and precision agriculture equipment.

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The Integrated Farming Systems platform uses data to drive yields and create value for individual farmers. Image source: Monsanto.

The platform will eventually be used for various crops and multiple practices, but let's consider an example where a farmer growing corn needs to decide which hybrid variety will perform best in her field and how much to plant in each section of the field (this was the first commercial product offered by the platform).

To start, she'll visit her certified seed dealer to provide metrics about her field, such as boundaries and yield data. The dealer will submit the data to Monsanto, which will leverage its expertise in hybrid performance in various environments to provide a seed recommendation. Additionally, Monsanto will analyze soil, climate, and weather data to make variable rate planting recommendations for the farmer's specific field, or a protocol for how many seeds to plant per acre in specific sections of the field.

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Precision planting enabled by the Internet of Things. Image source: Monsanto.

Several sections of a field may be able to support more production than others, and vice versa, so why not plant seeds more intelligently to enable the most profitable harvests possible? Monsanto sends the completed protocol to the dealer, who sends it to the farmer through the FieldView mobile app (a virtual representation of a farmer's field), who uploads it to her integrated planter (i.e., tractor), which executes the script automatically. Planters are integrated with the broader software platform through device upgrades to the Seed Sense 20/20 monitor with simple add-ons such as this:

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Image source: Monsanto IOT/ Twitter.

A similar approach can be used to optimize irrigation, fertilizer usage, and pesticide applications on a field-by-field basis. It allows Monsanto to continue executing on its mission to grow more with less. And that doesn't just mean less land, it also means less pesticides, fertilizers, and seeds -- all of which will enable more sustainable and environmentally friendly agriculture despite potentially lowering the company's sales in each area.

What is Monsanto's potential as an Internet of Things stock?
The Climate Corporation platform (the name Monsanto is rolling with) will use the tried-and-true freemium software business model. The company offers Climate Basic, a free Web-based product open to all farmers intended as the gateway tool, and Climate Pro, a premium product offered on a subscription basis. As with any successful software platform, The Climate Platform is easy to use and provides visible value, which helped it smash expectations in its first year (Monsanto's fiscal year 2014 ended in October).

 Dimension

Expectation, Early 2014

Result, October 2014

Acres covered, Climate Basic

>20 million

50 million

Acres covered, Climate Pro

Hundreds of thousands

>1 million

Active-users

12 million

30 million

Source: Monsanto quarterly presentations.

Monsanto successfully laid the foundation for its integrated software platform in 2014. In fact, the company estimates that it now covers more than 1 in 5 acres of total corn and soybeans crops in the United States. That's after a single year, mind you. More interesting is the end-goal: to cover 1 billion acres with The Climate Corporation platform. That's 20 times more acres than today!

The goal for 2015 is to cultivate user engagement, or making sure farmers that download the app and attempt to leverage Climate Basic tools do so on a daily or weekly basis by understanding the offerings. That can be done with cleaner interfaces, easier to interpret data, and more tools -- similar to how social media companies encourage engagement and user growth. Then, of course, Monsanto will need to convert Climate Basic users to premium products, such as Climate Pro, which will become a focus in 2016. 

What does it mean for investors?
Investors should become acquainted with the new platforms that will power much of Monsanto's growth by the end of the decade. We recently looked at the Microbials platform being developed with Novozymes, which will significantly improve agricultural yields without requiring any change in behavior from farmers. The Climate Corporation will play a similarly crucial role in future growth for investors and global agriculture in general.

The Climate Corporation will allow Monsanto to optimize its value potential for individual farmers while simultaneously leveraging the data collected for its internal research and development of traits, seeds, and other agricultural products. Good luck generating that much companywide value from talking coffee makers eyed by other Internet of Things stocks.

Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolioCAPS pageprevious writing for The Motley Fool, and follow him on Twitter to keep up with developments in the synthetic biology field.

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