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Will Samsung’s $100 Million Internet of Things Strategy Pay Off?

By Chris Neiger - Jan 11, 2015 at 6:48AM

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Samsung just committed significant cash to help develop open IoT systems, but the company faces plenty of competition.

One of the most important aspects of the Internet of Things -- where formerly unconnected devices tap into the Internet -- is that all of the devices will easily communicate with each other. It's somewhat of a paradox then that so far, there are no definitive standards for these connected devices to do so. In fact, it seems nearly every major tech company is creating its own system.

That's what made the speech of Samsung's (NASDAQOTH: SSNLF) CEO, BK Yoon, at the Consumer Electronics Show earlier this week so interesting. In it, he pledged $100 million to Samsung's developer network to help create a truly open Internet of Things standard. 

BK Yoon at CES 2015. Source: Samsung

Samsung's open approach
This isn't Samsung's first play in the Internet of Things. The company purchased the home automation company, SmartThings, back in August. Samsung has also been a first-mover in the wearable tech space. 

But the commitment to help build an open Internet of Things systems means Samsung wants to be at the forefront of IoT standards.

"I've heard people say they want to create a single operating system for IoT, but these people only work with their own devices. We can deliver the benefits of IoT only if all sensors can talk to each other," Yoon said.

Samsung isn't just funding developers to create an open IoT system but also opening its devices up to the Internet of Things. In two years, 90% of Samsung devices will work within IoT ecosystems, with the remaining 10% coming online by 2020.

Yoon's keynote matches up with a move Samsung made earlier this year when it teamed up with Intel, General Electric, and others to create the Open Interconnect Consortium (OIC). One of the main goals of OIC is to create standards for IoT devices. On its website, the group says, "This standard will be an open specification that anyone can implement and is easy for developers to use."

Source: Open Interconnect Consortium

Samsung's $100 million developer commitment builds on a direction the company has been moving in since at least this past summer, but that doesn't mean its goal will be easily attainable.

The challenge
Many of the big tech companies are scrambling to gain a foothold in the consumer IoT space. Apple has HomeKit to control home automation systems, Google bought Nest and has the Works with Nest initiative, and Qualcomm (QCOM 2.34%) created the AllJoyn standard. 

Qualcomm's AllJoyn system. Source: Qualcomm

And there's good reason -- Juniper Research estimates that smart home automation revenue will top $71 billion by 2018. Of course, none of the open source systems will directly generate revenue for the companies, but they could give companies valuable leverage and influence to shape the IoT.

For example, Qualcomm's AllJoyn technically doesn't belong to the chipmaker any more -- it's open for all companies to use. However, the Qualcomm could still make money from selling chips that work very well with the system. That's why its even more important for Samsung to become an open IoT leader. The company wants its chips and devices to dominate the IoT space, and helping to create an Internet of Things standard is key to that goal.

It's going to take some time before we see which IoT system emerges as the dominant force -- and whether or not it's truly open -- but it appears Samsung's making the right moves during these early stages of development.

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

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