What Is the Internet of Things?

What is the Internet of Things?

It's a term thrown around in a lot of tech stories these days, though it's often not well explained.

But the Internet of Things will play a major role in the future of technology. The Internet of Things will literally change how we live. And in the process, it will create countless ways to profit.

"Of all the technology trends that are taking place right now, perhaps the biggest one is the Internet of Things; it's the one that's going to give us the most disruption as well as the most opportunity over the next five years," futurist Daniel Burrus wrote on his website last November.

The Internet of Things has only just started to come of age, although the term was coined back in 1999.

Intel Corp. (Nasdaq: INTC) projects that the number of connected "things" - which includes everything from objects like appliances and autos to infrastructure like roads and the electrical grid to devices that monitor human health - will rise from 15 billion this year to 200 billion over the next five years alone.

Tech investingThat will translate to a lot of investment. Research firm IDC says the Internet of Things market will grow from $655.8 billion last year to $1.7 trillion by 2020. And the McKinsey Global Institute estimates that the annual economic impact of the Internet of Things could reach $11.1 trillion by 2025.

So that brings us back to the fundamental question, "What is the Internet of Things?"

In essence, the Internet of Things describes how just about everything we use will have embedded sensors that collect specific kinds of information. Each device will connect wirelessly to the Internet to transmit that information and "talk" to other devices.

Plus, much of that data will be gathered and analyzed by powerful cloud-based computers. This aspect of the Internet of Things will prove invaluable for solving "big picture" problems.

But what does that mean? To truly understand, you need to see a few real-world examples...

"What Is the Internet of Things?" Is Best Explained by Examples

Let's start with something personal - your health.

The Internet of Things has already made some headway here. Wearable tech like Fitbit Inc. (NYSE: FIT) bands and the Apple Inc. (Nasdaq: AAPL) Watch can keep track of a variety of personal metrics, such as the number of steps walked and the wearer's heart rate.

These devices link wirelessly to smartphones, computers, and the Internet, giving people a practical way to monitor their own health. But the Internet of Things makes them far more useful.

When that data can be collected (anonymously, of course, due to privacy laws) and aggregated, it opens doors to medical research. Data from thousands of volunteer patients make a disease easier to study - and to treat or cure.

Automobiles are another area destined for great change thanks to the Internet of Things. Sensors in roads will communicate with autos to help manage traffic and avoid accidents. Heck, a connected car could even signal your connected home to turn on the lights, adjust the thermostat, and pop open your garage door as you get closer to your house.

Tiny chips will be embedded in just about everything. In fact, that's given rise to a sister term, "Internet of Everything."

Such ubiquity will help factories and warehouses automate inventory, but will also help consumers. With the Internet of Things you'll be able to get complete product data from an item sitting on a store shelf - what it's made of, where it was manufactured, etc.

And when a product gets recalled, you won't have to wait for a letter in the mail or an alert on a TV newscast. In the connected home, you'll immediately get an alert on your smartphone.

But the truth is, the best uses for the Internet of Things are yet to come. Think of it as a platform for innovation, and we're only just in the early stages.

The incredible potential is why all the heavyweights of tech are making major investments in the Internet of Things.

And there will be plenty of ways to make money.

Finding the Profit Opportunities in the Internet of Things

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Chip companies will profit from selling sensors. Hardware companies will profit from selling connected devices. Companies focused on cloud computing and Big Data will profit from selling the services that will make sense of all the information.

That's why just about every tech heavyweight is investing in the Internet of Things.

Companies like Intel and Qualcomm Inc. (Nasdaq: QCOM) want to make the sensors and chips.

Cisco Systems Inc. (Nasdaq: CSCO), which made its name selling the equipment that formed the backbone of the Internet, has an "Internet of Things Systems and Software Group."

Apple, Google Inc. (Nasdaq: GOOG, GOOGL), and Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF) all want to sell devices and systems linked to the Internet of Things.

And companies like Microsoft Corp. (Nasdaq: MSFT) and International Business Machines Corp. (NYSE: IBM) are focused on the cloud and Big Data piece of the Internet of Things.

This is a game-changing development that will create fortunes over the next five to 10 years.

"It's not just going to be a technology investment thing," Deborah Koch, co-manager of Northern Trust's technology fund, told Fortune last December. "It'll be a productivity movement that will drive the entire economy."

The Bottom Line: The Internet of Things heralds a tech revolution that will rival the arrival of the Internet itself in the 1990s. Almost everything will have embedded sensors and be connected to the larger network. That will change how people live and open doors to innovation. And the companies that distinguish themselves in the new Internet of Things economy will reap major profits. 

Follow me on Twitter @DavidGZeiler.

Is Intel Stock a Buy? With the PC market in decline and a late-to-the-party mobile strategy, Intel has struggled in the past year or so. But INTC has invested heavily in designs for chips that run data centers and the Internet of Things. This is a transition that holds a lot of promise...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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