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It's easy to be skeptical about new tech trends. Every emerging technology is seemingly touted as the "next big thing," which leaves consumers and investors to wonder which new thing is truly the next big thing, and what's just hype.
So I understand why there's some skepticism among investors about the Internet of Things (even though I think it could be one of the best years to invest in this market).But if you doubt that the IoT has staying power, or worry that it can't live up to the hype, or that it's just a fad, let me challenge that thinking by explaining what the IoT is, and more importantly, what it is isn't.
The IoT is a technological shift, not a trend
The Internet of Things is a different way of creating communication between devices, computers, and industrial equipment, allowing us to collect data from the things around us and interact with them in a way we never have before.
That's a pretty bold statement, so let me give an example. General Electric (NYSE: GE) uses sensors and analytics software in jet engines so that the equipment can communicate about how an engine is being used, and even predict when it needs to be serviced, before it actually breaks.
GE's sensors and software have determined that airplane engines in the Middle East and China are sometimes less efficient because they get dirtier faster. Based on that, the company recommended a simple solution of washing the engines more often to minimize the need for repairs. The result of using the engine analytics to fix that simple problem will save GE's engine customers about $7 million annually by reducing jet fuel consumption and increasing engine lifespans.
Tech trends are just preferences that device makers or consumers have (like wanting a bigger smartphone screen instead of a smaller one). But technological shifts like the IoT change how companies do business.
It's primarily about the enterprise market, not consumer devices
With the arrival of smart home hubs like Amazon.com's Echo and Google Home, and wearable devices like the Apple Watch, it's easy to understand why some people think that the IoT is mostly about consumer products. But in reality, the enterprise market is fueling the IoT's growth.
According to BI Intelligence, enterprise devices will account for 40% of all 23.3 billion IoT devices by 2019. And the enterprise market will be the largest of all the IoT segments, followed by home (consumer market) and government.
Verizon Communications (NYSE: VZ) is a good example. While gadgets will certainly spur IoT growth, Verizon is selling new network services to businesses and governments that want to bring new IoT systems online. Smart cities will have smog sensors and street lights than need cellular connectivity, while fleet companies will need network connections for the IOT devices that track shipments and vehicles.
Verizon is already offering IoT services, and last quarter itsIoT revenue grew by 24% to $217 million. That's a small percentage of its overall revenue, but as the number of connected IoT devices grows so will Verizon's IoT revenue.
The IoT isn't coming, it's already here
Two facts that I often cite about the IoT is that it'll be worth $7.1 trillion annually by 2020 and that there will be about 50 billion IoT devices by that same year. But while we're only three years away from those predictions, their scope can seem intangible.
So here are few examples proving that the IoT isn't some hazy opportunity, but rather a concrete market that companies are already building:
Deere & Company(NYSE: DE) is a leader in agricultural precision planting, because it builds IoT-related technologies into its farming equipment, or offers than as add-ons for older models. Some of the company's tractors are equipped with sensors and wireless communication (both Wi-Fi and cellular) and can track where seeds are planted, how far apart they're placed, and even measure the amount of pressure that was used to put them in the ground -- all through an iPad app.
Deere also allows farmers to store field data in its cloud service, and keep track of how well their equipment is performing as well. The company even offers some self-driving capabilities in some of its tractors that use the software and sensors to deliver precise seed planting. Remember, this isn't a hypothetical IoT use case -- these sensors, connections, and analytics software are already being used in the agricultural industry.
Then there's the automotive industry. Connected cars are already a part of the IoT, and Qualcomm (NASDAQ: QCOM) is leading the pack. Its cellular chips allow cars to receive over-the-air updates, gather telematics data that can be analyzed by dealers and owners, and allow the vehicles to communicate with other vehicles (called V2V) and the infrastructure around them (V2I).
Qualcomm bolstered its position in the connected car market recently when it purchased NXP Semiconductors (NASDAQ: NXPI) for $39 billion. NXP is one of the leading automotive semiconductor makers and is developing its own off-the-shelf semi-autonomous driving software. With this technology, Qualcomm could become a leader in the connected-car space by supplying both the connectivity chips and some of the software for semi-autonomous vehicles.
Of course, the IoT isn't just impacting the agricultural and automotive sectors. The industrial, healthcare, and energy industries (and many others) are already seeing benefits as well.
The point of all this is that the IoT isn't just a hype term for new technologies, and it's not a hypothetical situation. Companies from across all major sectors are implementing IoT tech in order to improve their businesses and create new services that didn't exist before. These companies are already firm believers in the IoT -- and their investors should be too.
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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Apple, and Qualcomm. The Motley Fool owns shares of General Electric and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends NXP Semiconductors and Verizon Communications. The Motley Fool has a disclosure policy.