12 Facts About the Internet of Things Every Investor Should Know

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The Internet of Things is one of those buzzwords you hear everywhere, but nobody ever bothers to explain what it is. The concept is expected to fuel a staggering $3 trillion market by 2020, just four short years from now.

So I'm here to help. You should know these 12 facts about the Internet of Things right now:

  1. The Internet of Things (IoT) may seem new and unfamiliar, but it already exists and you use it all the time.
  2. ATMs started networking in an IoT-like way long before the public internet was a thing. In the 1970s, Carnegie Mellon University followed up with the world's first soda machine equipped with remote inventory monitoring. These were important baby steps in the direction of what we now think of as the Internet of Things.
  3. Current examples popular with consumers include wearable fitness bands, smartwatches, smart TV sets, connected cars, and remote health monitors. Whenever your gadgets are sending data to a central processing hub, you're taking part in the IoT.
  4. In the industrial sector, you'll find IoT systems at work in controlling manufacturing equipment, managing energy use and production, and monitoring airplane engine performance. Sensors collect data, while remote systems process the massive information flows. Companies use the resulting analysis to drive business decisions, flag equipment for maintenance, and much more.
  5. The IoT sector is consolidating quickly. In 2014, NXP Semiconductors (NASDAQ: NXPI) made a massive bet on automotive computing and the IoT with the $11.8 billion acquisition of rival Freescale Semiconductor. Less than a year later, NXP became the target in an even larger IoT deal, as industry giant Qualcomm (NASDAQ: QCOM) launched a $47 billion bid for the Netherlands-based chipmaker.
  6. When used correctly, IoT systems can open up new business opportunities and enhance existing processes. Some of the magic lies in collecting the right data, and the rest springs from running the numbers through intelligent analysis tools.
  7. The IoT requires strict security policies and powerful shields from malicious hacking attempts. This was always obvious, but the need for even more protection is a lesson still being learned the hard way. In October, an automated network attack based on insecure IoT cameras, network routers, and digital video recorders brought down some of the biggest online household names for several hours. IoT security is a serious sub-market of its own with the potential to support many billion-dollar specialists.
  8. The IoT is actually not terribly well-known yet. According to a recent Harris Interactive poll, only 13% of consumers in the U.K. would call themselves very familiar with the IoT, and 48% were at least aware of the concept. That leaves a lot of ground left to cover before the IoT becomes as recognizable as refrigerators and bicycles.
  9. However, nuggets from the industry have made it into the mainstream, even though they aren't always seen as examples of the IoT. Harris found that 99% of its poll respondents were aware of smart devices, which is pretty much the same thing under a different name. Fitness trackers fall in this category.
  10. Proof that it's high time everyone learned what the concept is all about: There have been more IoT devices than people in the world since 2008, according to global networking reports by Cisco Systems (NASDAQ: CSCO).
  11. Even so, the vast majority of connectable things are still not properly integrated into IoT. In a whitepaper published in 2011, Cisco said that only 0.06% of all connectable devices were networked, leaving 99.94% of devices on the sidelines. Later Cisco reports have lifted the proportion of IoT-active devices to roughly 0.5%, which still leaves room for a 2,000-fold explosion of smart, connected gadgets.
  12. Lucky break or inevitable progress? You be the judge: The IoT explosion dovetails neatly with the evolution of 4G and 5G wireless networking standards, enabling far more connected devices than the old 2G and 3G platforms. Moreover, the IoT eruption would not be possible without the IPv6 network address standard, which in theory provides enough addresses to connect every atom on our planet. We have officially been out of addresses under the previous IPv4 standard since 2011, making do with workarounds and recycled addresses.

We're already on our way toward the Internet of Things revolution, but there is a lot of growth and development left to be done. Researchers and businesses are still figuring out how to run this tantalizing megasystem, so stay tuned for improvements and new investing angles.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NXP Semiconductors and Qualcomm. The Motley Fool also recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days.

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