Investing in IoT

Northeastern University-Silicon Valley estimates that the Internet of Things (IoT) investment market will reach $6 trillion dollars by 2020 (Northeastern University). That raises the question: what should an investor look for when contemplating an investment in IoT?

Leading Industries

The first thing an investor should consider is which industries appear to be best positioned for growth.

According to ZDNet.com (“The Five Industries Leading the IoT Revolution,” Alison DeNisco, February 1, 2017), the five leading IoT industries are:

  • Manufacturing
  • Transportation
  • Utilities
  • Healthcare
  • Consumer Electronics and Cars

 

Manufacturing: Internally, manufacturers are using IoT to optimize processes, to monitor equipment and for preventative/predictive maintenance on equipment. Outwardly, they use IoT devices to examine how their products are used, and then rely on that data to improve and adjust their products for greater efficiency.

Transportation: In both freight and public transportation vehicles, smart sensors are being used to help schedule maintenance, optimize fuel consumption and to train drivers to be more efficient. With the growing potential of automatization of both commercial and privately owned vehicles, this field is ripe for significant growth in the immediate future.

Utilities: Widely deployed Smart Grid meters are making utilities more efficient every year. The oil/gas industry utilizes sensors to improve the monitoring of their numerous pipes and valves, to prevent breakdowns and to repair malfunctions in a more timely fashion. Within power plants, sensors allow for predictive maintenance and additional safety oversight.

Healthcare: Among the voluminous applications in healthcare IoT sensors and devices: share images with patients and their caregivers; monitor and troubleshoot problems with medical equipment; track the need for and dispensation of medicine; track implants, prosthetics and wearables to provide real-time data to medical practitioners; reduce errors associated with pacemakers and other lifesaving devices; provide doctors and hospitals with instant data to improve diagnoses; and allow remote communication between care providers and patients from virtually anywhere in the world.

Consumer Electronics and Cars: Home and office automation systems (like Amazon’s Echo/Alexa and Google Home) are just beginning to get significant market penetration. As these devices become more popular, and both homes and business enterprises become “smarter,” there will be extraordinary growth in smart electronics (security systems, heating/cooling systems, appliances, entertainment centers, etc.). Additionally, connected autos will surely be one of the largest growth areas in the near future. Numerous automakers have begun to implement automated driving systems that will completely transform the driving experience and disrupt virtually all aspects of the conventional auto business.

The January, 2017 IDC report provides the following dollar figures:

  • Manufacturing ($178 billion invested in 2016);
  • Transportation ($78 billion invested in 2016);
  • Utilities ($69 billion invested in 2016, $58 billion specifically for Smart Grid electricity and gas);
  • Freight Monitoring ($56 billion invested in 2016);
  • Smart Home (will reach $63 billion by 2020).

 

IDC predicts that:

  • Investments related to connected vehicles and smart buildings will rank among the top segments by 2020;
  • Insurance, Consumer and Retail will experience the fastest growth;
  • Healthcare will experience extreme growth in telematics related to remote healthcare monitoring.

Things to Consider Before Investing

According to The Motley Fool (“5-Point Checklist for Investing in the Internet of Things,” Chris Neiger, Nov. 29, 2016), investors should consider the value of this rapidly growing market. Estimates range from a value of $7.1 trillion in 2020 to $19 trillion in 2025, showing that there is tremendous potential for an investor who gets into the market soon.

Secondly, investors must understand that there are inherent risks associated with any experimental field. For example, growth estimates are just that – estimates. Nobody knows for certain exactly how much, nor how quickly the IoT market will grow. Furthermore, the IoT field is subject to security and privacy issues. As was the case with the Mirai botnet attack of 2016, which adversely impacted The New York Times, PayPal, Twitter and Netflix; adding a significant number of connected devices necessarily increases the risk of security breaches.

Third, every potential investor must prioritize his or her choices, based not just on the list of industries detailed above, but on which entities in those subsectors to invest in. Some people have a higher tolerance for risk than others. The bigger, more established players (like Cisco, GE and IBM) will most likely offer greater investment security, but smaller players who may not be household names could show the most growth in the short term. Each investor much measure his/her own tolerance for the unpredictability of this emerging market.

Lastly, each investor must decide for him or herself whether the goal of an IoT investment right now is for the long term or the short term. Surely there will be IoT related companies that soar in the short term, but only time will tell whether rapid growth will be sustainable. Contrastly, there will also be companies in the IoT sector that experience slower but more consistent and sustainable growth over time.

Before investing, each individual should consider all of these factors. It would appear fairly certain that the profits and growth will come, but as with any investment, potential reward must be balanced against inherent risk.

 

About the Author

Richard Meyers is a former high school teacher in the SF Bay Area who has studied business and technology at Stanford and UC-Berkeley. He has a single-digit handicap in golf and is passionate about cooking, wine and rock-n-roll.

By | 2017-07-28T13:08:08+00:00 July 27th, 2017|Categories: Artificial Intelligence, IoT, Top Post|Tags: , , , , , , |0 Comments