What Is the ‘Internet of Things’ and Why Should I Care?

There is no lack of imagination when we talk about the future or the ‘next big thing’. We picture flying cars or life on the moon, and occasionally someone drops the expression Internet of Things. As opposed to the first two examples, the latter is actually becoming reality as we speak, and it could indeed be the ‘next big thing’.

Investors should pay close attention to these trends. At the end of the nineteenth century, railway companies dominated stock markets, while technology and internet did the same a hundred years later (and still counting). Anyone who would have anticipated these trends, would have made a small fortune.

The sectors that will dominate our stock market by the end of this century may not even exist yet, however, let’s take a step back and look at the upcoming decade. There is a big chance that the internet of things will be much bigger in 10 years than it is now.

But what is the ‘Internet of Things’?

The Internet of Things (“IoT”) refers to technology that enables physical objects or ‘things’ to collect and exchange data via the internet. These things can be connected with cloud platforms, other things or humans. Essentially, the internet of things aims to make every device ‘smart’ as sensors gather and analyse data and send signals to other objects or people.

While the IoT may sound futuristic, many people use it already on a daily basis. Athletes track activity and performance and smartphones connect with household items such as lights or heaters. To date, there is only little understanding of the potential that could arise when we combine sensors with networked intelligence.

Growth Estimates for IOT: US$1 trillion in revenue

Industry estimates for connected devices to the internet range from 20 to 100 billion, with a median average of around 50 billion devices that could be connected to the Internet by 2020. Certain studies suggest that IoT producers and service suppliers will generate revenue exceeding US$300 billion by 2020. Other estimates suggest revenue of more than US$1 Trillion.

The large discrepancy between the studies is an indication that we have yet to understand how big the IoT could become. However, all studies predict exponential growth as well as numerous investment and revenue opportunities. There is not a single study that suggests otherwise.

 Investor Watch: Don’t buy the hype; buy the facts

Major technology companies have already made significant investments in this space. Google acquired Nest Labs for US$3.2billion and Facebook bought Oculus for US$2billion. Other companies that have made significant IoT acquisitions include Cisco, Qualcomm or Cypress Semiconductor Corp.  While the largest technology corporations will likely set the tone for this movement, investors may struggle to see upside, as many of these companies trade already at high multiples.

In our domestic market, there is a small cap company called Xped Limited (ASX:XPE), an Australian technology company focused on Internet of Things technologies via its Auto Discovery Remote Control (“ADRC”) technology. The Company has established MOUs with a US listed tech giant, and a NASDAQ listed chip set manufacturer, amongst others. Supported by its recent $8million fund raising, Xped aims to generate initial revenues in 2016.

Investors should not believe everything they hear, nor should they ‘buy the hype’ for the sake of it. As for every investment, what matters most are the individual company fundamentals as well as the projected growth outlook. Just because a company uses the words ‘Internet of Things’, doesn’t mean they’re worth an investment.

internet, internet of things

Will our NBN be able to support this?

Feature image: MIT