Late last month, IBM (NYSE:IBM) officially threw its weight behind the Internet of Things (IoT). Though it's not an entirely new space for the company, the announcement of a new Internet of Things unit and a $3 billion commitment to IoT now makes IBM a big player in the space.
IBM's betting that its IoT cloud services and analytics are exactly what companies need to save money and anticipate better ways to do business. And it's probably right. According to Accenture, 73% of businesses have yet to invest in Internet of Things to make their companies more efficient, mainly because they don't know how. That's where IBM comes in.
What this means for businesses
The company is building a new cloud-based open platform for businesses to create Internet of Things applications, as well as providing tools to analyze IoT data. IBM says this can be used by insurance companies to extract data from Internet-connected vehicles and adapt premiums based on drivers' habits, a practice known as usage-based insurance.
The company is also integrating IoT solutions into its existing Bluemix platform-as-a-service. IBM says this will allow businesses to add real-time IoT data into their current asset management, facility management, and other software to automate processes and increase efficiency.
But one of the company's biggest opportunities for businesses comes from IBM's new partnership with The Weather Company (TWC), parent company of The Weather Channel.
TWC is moving its weather-related cloud data from Amazon's cloud over to IBM, to be used with IBM's analytics and cloud services. For example, IBM will use its Watson Analytics in combination with TWC's 100,000 weather sensors, aircraft, and buildings, and millions of smartphones, to provide businesses with real-time weather solutions to help insurance companies save money on weather-related claims, help grocery chains order the right amount of food at the right time before a storm hits, and help utility companies know when a spike in energy usage is about to come.
"Weather is perhaps the single largest external swing factor in business performance -- responsible for an annual economic impact of nearly half a trillion dollars in the U.S. alone," IBM said in a statement.
IBM says more than $1 billion in hail damage claims are made to insurance companies each year, and some of that money could be saved if drivers are warned in real-time of potential hazards. The company also said that a five-degree temperature difference during Texas summers can mean $25 million more in energy costs per day for a utility company. IBM is hoping it can sell businesses on the idea that more weather-related data and analytics will save them money.
What this means for IBM
At the company's annual investor meeting back in February, IBM CEO Ginni Rometty said that by 2018, IBM expects to generate $40 billion from its cloud, big data, and security businesses, and that the company will spend $4 billion to get there. If IBM hits that $40 billion mark, it'll represent about 40% of the company's estimated 2018 revenue.
Considering we now know that $3 billion will go toward Internet of Things solutions alone, it's clear that IBM is making its IoT cloud and data strategy a big part of its business going forward.
IBM's currently on a rampage of strategic changes, as it's partnered with Apple in the enterprise business, has teamed up with Twitter for data services, and is now making a big push into the Internet of Things and weather-related analytics.
I think IBM is making these changes -- particularly its new IoT focus -- at the right time. Cisco Systems projects the Internet of Things will generate combined cost-savings and new revenue of $19 trillion over the next decade, and more conservative estimates from IDC still put the market opportunity at $7 trillion.
IBM's IoT angle is in helping businesses better analyze the data they're collecting so companies can save money and be more efficient. If IBM's multi-billion dollar Internet of Things strategy pays off, investors will be glad the company's starting to shed its old hardware skin and becoming the cloud-based IoT force it has the potential to be.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Cisco Systems, and Twitter. The Motley Fool owns shares of Amazon.com, Apple, International Business Machines, and Twitter. 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.