The implications of the world around us becoming "connected," which is the Internet of Things (IoT) in a nutshell, and the impact of our cars, homes, and cities seamlessly communicating with each other are far-reaching, to say the least. Consumers around the world are already affected by IoT and its reach is only going to grow.
As of last year, nearly 30% of responding organizations had already implemented an IoT plan, according to a survey by research firm Gartner, and that figure is expected to jump considerably sooner rather than later. That's great news, albeit for different reasons, for shareholders of IBM (NYSE:IBM) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), to name just two, as they jockey to take their respective share of the huge IoT pie.
Just the facts
Though "only" 29% of today's organizations have embraced IoT, primarily to improve efficiencies and lower costs, that figure is expected to grow to 43% by the end of this year, according to Gartner. Another 21% of the organizations Gartner surveyed said they intend to deploy IoT-related technologies "after 2016." In total, almost two-thirds of companies either have, or soon will have, IoT as the backbone of their business.
Consumers may not be aware that IoT is already playing a role in their lives since the earliest adopters were primarily heavy industries, including oil and gas and manufacturing. To date, the focus of IoT has centered on "internal operational improvements over external customer-facing objectives," according to Gartner, but that niche opportunity is "poised for a marked shift in focus" to include IoT benefits that enhance the customer experience.
The expansion of IoT beyond the heavy industry markets is at least part of the reason Gartner expects there will be a whopping 6.4 billion connected "things" by the end of this year, a 30% jump from 2015's 4.9 billion. Widespread adoption across industries is likely behind the astronomical IoT market revenue estimates, too. One such estimate values the IoT market at $14.4 trillion by 2022.
What it means
The early adoption of IoT by the industrial sector bodes well for IBM's strategic plans. IBM has committed $3 billion to invest in its new-ish IoT unit, and its particular strengths are ideally suited to heavy industry. IBM's suite of IoT solutions are anchored by its Watson cognitive computing wonder and real-time data collection, security, and analytical capabilities that will make short work of improving manufacturing efficiencies.
IBM, like Alphabet, doesn't share revenue specifics of its IoT efforts. However, as part of CEO Ginni Rometty's "strategic imperatives" initiative, IoT played a part in the group's 26% jump in revenue -- after adjusting for currency -- to $28.9 billion in 2015. The largest piece of IBM's strategic imperatives is business analytics -- up 16% to $17.9 billion -- a key feature of Watson and critical to most any IoT solution.
Alphabet's Nest smart-home hub is at the core of its customer-facing IoT products, but it's not stopping in the home. Android Auto is already connecting the world's cars to the Internet, and its self-driving car tests continue to inch closer to becoming consumer-ready. A car equipped with Android, or some other operating system, is quickly becoming more than a nicety. According to a recent survey of U.S. and U.K. new-car buyers, consumers valued a car's infotainment system and capabilities more than its performance.
The biggest upside to Alphabet's IoT plans isn't how many Nest units it sells, though that may have helped boost Alphabet's "other revenues" up 24% to $2.1 billion in Q4. The most valuable aspect of IoT for Alphabet will be data.
The untold reams of user data Alphabet will amass, particularly as IoT expands beyond heavy industry, will give it more analytic possibilities than ever to do what it does best: drive its core advertising business. And for IBM, Alphabet, and the host of others betting big on IoT, this is the year investors could see those efforts begin paying off.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares). The Motley Fool recommends Gartner. 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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