The Internet of Things (IoT), a network of easily deployed sensors and smart devices, combined with advanced analytics platforms and cloud services, has the potential to disrupt and strengthen products and services across multiple industries.
IoT is the convergence of more reliable and secure high-speed broadband networks, universal wireless internet, cloud computing, and sensor technologies that can collect and share data via the internet, and the emergence of big data analytics to store and dissect that data.
Any standalone internet connected device that can be monitored and/or controlled from a remote location is considered an IoT, or “smart,” device. With the development of cheaper and more powerful sensor chips, virtually any product can be transformed into a smart device. Advances in sensor technology have enabled data collection from everyday consumer products (for example, watches and cars) and industrial items (for example, factory equipment or utility grids). This information is centralized on networks which support platforms used to enhance productivity and support new business services or applications to help secure health, safety, or environmental benefits for consumers and corporations.
Cloud computing is the delivery of elastic, on-demand computing power and data storage over the internet.
This emerging technology is in the early stages of development, and the number of potential applications could be tremendous.
Today, consumer applications like Garmin’s fitness monitors and Amazon’s Alexa smart speaker may attract the majority of the public’s attention, but we believe industrial and commercial uses could be another powerful growth driver (Chart 1). Future consumer applications will likely focus on efficiency in everyday life and replace many of the more mundane tasks such as grocery shopping, preparing meals, landscaping, or automatically optimizing home heating and cooling based on current energy pricing. Together, consumer and industrial IoT-related sales are forecast to reach $1.6 trillion by 2025.
Evolution of IoT Consumer Applications
A few years ago, one would be hard pressed to predict how fast the consumer preference for smart speakers, one of the earlier innovations of sensor technology, would grow. But demand has skyrocketed, with consumers estimated to have purchased more than 56 million smart speakers from companies including Google and Amazon through 2018. Smartphones increasingly are becoming the personal gateway to IoT, serving as a remote control for the connected home, automobile, or even the fitness trackers popular among millennials.
The ownership rate of smart devices is expected to climb, particularly in the realm of home automation to help reduce energy costs and improve security, for example. With wifi coverage available worldwide, wireless connectivity has become relatively inexpensive, helping to fuel the expanding usage in smart devices.
In health care, smart medical devices have focused on improving patient outcomes and reducing costs by reducing the time spent in a hospital and by promoting preventive care. Technology designed to help the elderly live at home longer has become more relevant as the baby boom generation ages. Smart technology has the potential to drastically reduce the workload and stress for health care providers by allowing them to remotely monitor a patient’s health while he or she is recovering at home and take quick action in the event of any major changes in the patient’s readings.
The health care consumer trend is also being encouraged by millennial interest in staying healthy through the use of wearable fitness trackers. While these consumer products currently measure exercise, heart rate, diet, sleep patterns, and other factors, we believe they could eventually be used to relay information to health care providers, employers, or insurers.
Industrial/Commercial IoT Applications
Multiple industries worldwide have been implementing smart technology into their manufacturing processes. Industrial/commercial applications, including customer engagement and performance tracking, comprise the largest percentage of global IoT-related spending. Through the use of sensor technology and data analytics, there is potential to automate business and manufacturing processes, remotely monitor and control operations, optimize supply chains, and conserve resources.
According to Intel Corporation, “the business benefit of integrating an IoT sensor system are as varied as the industries that deploy these systems….sensors can monitor cooling systems to enable more efficient operation and reduce energy costs, collect air samples to help maintain ideal environments, and detect variations in a motor’s vibration to reduce failure.”
Consequently, we have seen a jump in fixed capital investment in software as opposed to traditional capital goods equipment, which has resulted in new business models that can integrate hardware and software offerings, stronger revenue streams, and enhanced customer retention.
We believe smart devices and the technologies supporting their application will help companies:
- prolong the life of assets;
- evaluate and enhance financial performance;
- boost operational efficiency; and
- act as a real-time data analytics platform to help steer long-term business strategies.
Advancements in big data analytics have helped spur the rapid growth of IoT-related applications—database technology powered by specialized platforms and cloud software that can manage larger unstructured data sets more efficiently, quicker, and at less cost than traditional databases.
Big data analytics is the process of breaking down large and diverse datasets to reveal major market trends, unknown patterns, obscured correlations, customer penchants, and other valuable information to help organizations make “smarter” strategic moves.
Big data analytics has been especially constructive for corporations in highlighting such factors as new revenue streams, more effective marketing strategies, enhanced customer service, improved operational efficiency, and increased competitive advantages relative to industry peers.
We expect further investments in powerful analytical technologies as more companies worldwide migrate toward implementing smart device sensor technology in their day-to-day operations and long-term strategic plans.
This is a summary of the paper Thematic Investment Opportunity – The Internet of Things. To learn more about this topic, download the complete article or contact a Hawthorn Investment Advisor.