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3 Challenges the Internet of Things Is Facing That Few Investors Realize

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Every silver lining must have a cloud. What's holding the Internet of Things back from instant triumph?

The total economic impact of the Internet of Things should add up to $19 trillion by 2020, according to an oft-quoted report by Cisco Systems (CSCO 1.40%). That should include $1.7 trillion of direct, annual IoT sales opportunities at the end of that forecasting period, says analyst firm IDC.

If these forecasts are even in the right zip code, the IoT represents an astonishingly massive business opportunity. Getting in on the ground floor of the tiniest IoT niche will create lasting wealth.

But every silver lining must have a cloud. What roadblocks should IoT entrepreneurs expect to find up ahead? We asked a panel of Motley Fool contributors with serious tech know-how and they came back with their three top concerns.

Have a seat, grab some popcorn, and read on to learn more about issues of privacy, security, and standardization in the Internet of Things era.

Anders Bylund (Security): The benefits of connecting everything to a central network are pretty obvious. Unlock your front door with the fingerprint sensor on a smartphone. Collect sensor data from airplane engines, then analyze it to optimize performance and detect impending failures. Hook up your car to a nationwide control grid -- just like everyone else, someday -- and read the newspaper while the vehicle safely auto-navigates to work at 90 miles per hour with minimal stops. You know, the obvious stuff.

But the dangers are just as glaringly obvious.

When everything is connected to the Internet, every device also becomes a potential security hole. Maybe that's not a huge concern for your centrally managed coffee maker since the worst a hacker can do might be wasting your favorite single-serve coffee pods hours before you get home. That is until the same hacker uses that breach as a springboard further into your private network.

Suddenly, everything is at risk -- due to exactly the same hyperconnected networking that makes the Internet of Things so valuable in the first place.

It's not just your toaster and your A/C system, but also that camera-toting baby monitor, your alarm system, and maybe even the drive-by-wire brakes and accelerator in your electric car. On an industrial scale, that flight monitoring data could be distorted, exported into the wrong hands, maybe even hacked to control or shut down the engines. Or driving the city's power grid bonkers, or lifting control rods out of the nuclear reactor at the edge of town, or ...

You get my drift. Any security glitch can lead to terrifying complications.

Connecting everything to everything sure has its upsides, but you better make darn sure that every possible attack vector has been accounted for. Securing the data-collecting devices out in the field becomes just as important as locking down the data center, and every point in between matters just as much.

Nearly $30 billion of that $1.7 billion of upcoming annual business opportunity comes from selling specialized security products to protect the omnipresent network, argues market research firm MarketsandMarkets.

So, how can you invest in the massive, yet tightly focused, market for Internet of Things security services? The choices are many, but here are three of my best ideas:

  • Playing a central part in both global and local networking, Cisco obviously aims for a large slice of that enormous security pie.
  • Open-source computing veteran Red Hat (RHT) was dragged into the Internet of Things by nervous customers who had come to trust the company's security chops. Now that megatrend permeates everything Red Hat does.
  • Intel (INTC 2.46%) has developed a flexible Internet of Things platform, with ironclad security built right into the hardware.

Daniel B. Kline (Standardization): Consider it a new, much more confusing version of VHS versus Beta. The IoT has no clear standard and that creates a bit of a Wild West atmosphere. It also adds to consumer confusion and hesitance to buy because it's tough to make a decision to purchase expensive new technology that may not emerge as the long-term winner.

Nobody wants to be the guy who bet on Beta and invested in a large collection of tapes for that failed format. At least in those days, there were only two major players whereas the IoT has at least three with more potentially to come.

"Having all these different standards efforts practically ensures one thing: There's no way all of these devices will actually be able to all talk to each other until all this gets settled with either victory or a truce," wrote Re/Code's Ina Fried in an article that also made the Beta/VHS analogy and cited the more recent example of HD-DVD vs. Blu-ray.

There is hope, however, as IEEE, the world's largest professional organization dedicated to advancing technology for humanity, announced in August that the Industrial Internet Consortium and the IEEE Standards Association (IEEE-SA) are collaborating toward development of a comprehensive architecture for an interoperable Internet of Things around the world. Of course, two trade groups getting together does not guarantee that the factions pushing different standards will give in, but it at least gives a framework for the discussion.

"With IoT innovation already so rapidly paced around the world, cooperation and coordination among the leading global organizations in the space is required to ensure that momentum is not stalled and progress toward a robust and interoperable IoT is achieved as efficiently and cost-effectively as possible," said Oleg Logvinov, chair of the IEEE P2413 working group, in a press release.

That's not only a noble idea -- it may be essential to win over a so-far skeptical public.

Tim Brugger (Privacy): When Google (GOOG 4.16%) (GOOGL 4.20%) spent $3.2 billion on smart-home manufacturer Nest in early 2014, it was clear the search king had big plans to capture its piece of the Internet of Things pie. And what a pie IoT is expected to become.

But when it's all said and done, devices aren't where the real value lies; it's in the data collected from all those sensors and gadgets coming to our homes, cars, and even cities as IoT goes mainstream. Already, Internet and mobile phone users around the globe are becoming increasingly concerned with maintaining some semblance of privacy. Google's long-running fight with the European Commission (EU) is a testament to increasing privacy concerns as the world goes digital.

We know Google tracks Internet usage, and our smartphones and emails are hardly immune to being "watched." Why? One reason is that for advertising behemoths like Google, all that data is a virtual goldmine to develop detailed user profiles. Those in-depth profiles enable Google to better target ads, which in turn translates to higher fees. Now, toss IoT into the mix. Soon, marketers -- thanks to collecting reams of IoT-driven data -- will know where you are driving, when you get home, even the restaurant nearest you. It will happen whether you're comfortable with that or not.

You can rest assured that IoT folks like Google will update their respective privacy policies to try and appease consumers. But make no mistake: The volume of data collected on us is already a bit frightening -- and it pales in comparison to what's coming.

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