Internet Of Things: Connecting (And Disrupting) Your Universe

The Internet of Things (IoT), as the name suggests, is the name given to the concept that everything should be connected through the Internet. Apart from gadgets and home appliances, people, animals, and even plants are part of this idea to be universally connected.

The notion of linking everything through the Internet is not novel in the tech industry, but the recent surge in smartphone usage, Internet penetration, data consumption, cloud computing, social media, and other tech trends have led to a rise in the IoT. IoT applications include attaching to a person a sensor that constantly monitors the user’s heart rate or blood pressure over time, for analysis through software or a mobile app.

Given the scope and scale of this trend, projections for IoT differ quite a bit. According to McKinsey, the IoT should have an economic value of $2.5-6.2 trillion annually by 2025. And according to Cisco Systems (CSCO), companies involved in the IoT will earn $19 trillion in profits annually within the next couple of years. Since the IoT can effectively be applied to everything, the potential overall profits are very high.

Previously, IoT applications were confined to machine-to-machine connections, which refer to a computer connected to a sensor or actuator. IoT is increasingly used in the industrials and manufacturing sectors, and its use has now extended to more consumer-oriented segments, too.

McKinsey’s report on disruptive technologies illustrates that the use of the IoT serves up cost savings as well as other benefits for several sectors. For example, using the IoT in manufacturing can lead to savings of 2.5-5% in operating costs by 2025, by which time the entire manufacturing sector will have a market of $47 trillion. In the healthcare industry, the IoT will allow for an 80-100% reduction in the counterfeiting of drugs.

Pretty much every company will benefit from the trend, but the main beneficiaries will be the corporations providing the basic framework for the IoT. This includes semiconductor companies, communication product makers, and app developers. The leading semiconductor manufacturer, Intel Corporation (INTC), has a segment dedicated solely to the IoT.

The tech giant’s IoT segment is already profitable, and includes microchips from its older segments such as those for smartwatches and thermostats. Intel also introduced the Quark chip for wearable technology, a growing arena that will complement the IoT. The Quark chip is one-fifth the size of Intel’s Atom processor, and consumes one-tenth the power. Other chipmakers include ARM Holdings (ARMH), Broadcom Corporation (BRCM), and NXP Semiconductors (NXPI).

One strong advocate of the IoT is the market leader in communication devices, Cisco. The legacy tech giant has readied its line of networking products that will let help the unconnected get connected. The company will be investing a lot in this arena in the coming years, and will also fund new startups.

Data analytics software companies such as Microsoft Corporation (MSFT) and SAP (SAP) are also beneficiaries, as they handle the data produced by each and every connected device. Previously, data production and transfer was limited, and so were analytics capabilities. With the surge in smartphone usage and Internet penetration, data flow has increased manifold, and will further rise once the IoT is firmly established. In addition, IPv6 allows the allocation of an IP address (think: internet fingerprint) to anything that is connected to the web. As Steve Leibson said, this new protocol will allow us to connect every atom on the surface of the Earth.

Tech giant Google Inc. (GOOG) recognizes the potential of the Internet of Things. It recently acquired Nest labs, which makes IoT products, smart thermostats and smoke alarms. As more tech giants get in on the action, the space is expected to mushroom.

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