The Internet of Things: The Next Big Thing?

When people discuss “smart” technology, they are often referring to devices that make their lives easier, such as the now ubiquitous smart phone. Within a few years, the smart phone had rapidly evolved. People now had a limitless technology in their hands that made their lives easier in many ways, from finding their way around a new city, to finding a new place to eat near their home. Since the swift onset of the smartphone, technology companies, and their millions of customers, have been searching for another brilliant new device. Could the next such paradigm shifting technology be something so bizarre as smart fridges? Or, more specifically, could the next transcendent innovation be a network by which various household appliances can communicate with one another? Perhaps the idea is not as far-fetched or trivial as it seems.

Often, the “next big thing” is a buzz phrase commonly used to advertise or pitch an attempt to prove the imminent usefulness of a newly discovered technology or device. However, the Internet of Things is the “next big thing” in more than just the idiomatic form of the expression; it is quite literally a limitless network that has already begun to permeate the everyday lives of people around the country.

So what exactly is this Internet of Things? According to Daniel Burrus, the CEO of Burrus Research, the Internet of Things describes a network of machine to machine communications that enables immense opportunities for efficiency and optimization by collecting data and adapting appropriately. However, in order to maximize the effectiveness of a network of smart machines, all machines need to adapt the technology at the same rate, leading to the rapid development of technology. This doesn’t mean that appliance companies are suddenly a wonderful investment opportunity. Rather, companies that develop the sensor and cloud technology used in smart technologies will become an intriguing future investment opportunity as all machines quickly adapt this new technology to avoid falling behind.

Decades ago, Joseph Schumpeter coined the idea of “creative destruction” as an essential facet of capitalism—the process by which the onset of new technology rapidly displaces old technology, and companies that are unable to keep up with the technological advances fail. According to Schumpeter, creative destruction was a double-edged sword. It was vital in providing entrepreneurs the ability to pierce previously impenetrable barriers of entry. However, the erosion of the market power of previously monopolistic companies could serve to destabilize a capitalist economy; hence the term creative destruction. Nowhere is this phenomena better evidenced than by the speed with which smartphones displaced other kinds of non-smart cell phones, and the resulting realignment of market power among cell phone companies and carriers.

So how about potential investment opportunities in this paradigm-shifting new technology? One prime example of smart technologies that learn and adapt to user experiences is Nest Labs’ premier product, the Nest Learning Thermostat, which adapts to user settings so that homeowners can drastically reduce the amount of time that they spend fiddling with the thermostat to find their ambient temperature for any particular time of day or season.

According to Daniel Kurt of Investopedia, Fitbit is another popular “learning technology” product, perhaps best known for the highly popular wearable health and fitness tracking devices. However, Fitbit has already seen major companies begin to slice into its market share, with technology titans such as Microsoft and Apple developing devices and software well equipped to streamline data about user health and fitness, and even craft healthy diet and workout plans for them based on their preferences and behaviors.

Given the volatility of the market for smart learning technology and devices that “talk” to one another, perhaps a worthwhile investment to make for the future may be in traditional technology companies with all-encompassing product lines, such as General Electric (GE) and Samsung Electronics. GE recently invested in a new 1 billion dollar enterprise called Current, through which they aim to target a rapid implementation of the Internet of Things. The hope at GE is that Current will integrate with homes seamlessly and manage both energy costs and energy conservation simultaneously, through smart analytics. Expectations are high—GE expects Current to reach five billion dollars in revenue by 2020, and the platform already has 500 million dollars of financing available for customers, according to Stacey Higginbotham of Fortune.

Companies such as GE and Samsung are spread broadly and are present in more realms than hardware and software stalwarts such as Apple and Microsoft. As a result, they are more likely to invest in technology to develop networks between their series of device lines in order to simultaneously enhance customer experiences and encourage them to purchase a large number of devices from a single company rather than look for the best or cheapest devices from a variety of companies. For example, why buy a fridge from GE and a thermostat from another appliance company when your fridge and your thermostat can communicate with one another to ensure your perishables are kept at the right temperature based on the temperature of the surrounding house?

Lastly, one way to take advantage of the coming investing of things bubble, which, with the potential to be the most expansive network since the internet, figures to have a large impact on consumers, would be to avoid investing in traditional hardware development companies, such as Qualcomm and IBM. Both of these companies are still world renowned for chip manufacturing. However, companies that invest in the software infrastructure necessary to maintain the Internet of Things will be far more viable options than the hardware developers themselves. As customers grow accustomed to smart devices which require less frequent setting changes, hardware companies that are as of yet unable to provide network services for their appliances will be forced to obtain the service from contractors with the necessary technology, even at a high cost, or face losing sales.

According to industry expert John Greenough, the Internet of Things figures to rapidly become the world’s most massive device market and should not be underestimated. According to the Business Insider Intelligence Report, the Internet of Things will become the largest device market in the world by 2019. Additionally, this market will add over 1.7 trillion dollars in value to the global economy in 2019. Device shipments will also reach 6.7 billion dollars by 2019, with over 90 percent of the revenues flowing to the companies who have invested in the software and infrastructure necessary to maintain such a massive network.

There are a few who maintain qualms about the Internet of Things, citing a lack of security and privacy. However, the multitude of uses of the Internet of Things should mitigate most concerns. Similar to how sensitive data is not stored in the cloud, networks where security is of tantamount importance will continue to “hardwire” their operation. However, many services with a myriad of user interactions would benefit from streamlining those user interactions, especially where secure user information is not accessible to begin with.

Ultimately, investing in the Internet of things is an early proposition, although it is certainly worthwhile. Smart communicating machines are already beginning to shape consumer lives. When extrapolated to a larger scale, such as the development of smart cities that eliminate the hassle of transportation malfunctions, the Internet of Things could set off a ripple effect that drastically changes the ways cities utilize technology to make citizens happy.