The Best Play on the Internet of Things Trend
In 2011, venture capitalist Marc Andreessen famously declared in The Wall Street Journal, “Software is eating the world.”
By mid-2013, his colleague Benedict Evans alerted us to a changing of the guard, when he declared, “Mobile is eating the world.”
So what technology is going to “eat the world” next?
It’s a particularly pertinent question as we head into 2016.
I’m not going to get involved in the predictions game. Rather, I’ll turn it over to John Chambers – former CEO and Executive Chairman of Cisco Systems Inc. (CSCO).
He says it’s the Internet of Things (IoT).
While speaking at Fortune’s Global Forum last month, he predicted that 500 billion devices would be connected to the internet by 2025.
That’s an awfully big number.
Especially since it massively exceeds every other forecast.
Take BI Intelligence, for example, which estimates that the number of IoT devices will hit 34 billion by 2020.
Or tech research firm, Gartner, which conservatively pegs it at 21 billion devices.
So 500 billion is a particularly headline-grabbing number.
The question is: Who’s right?
Well, whether it’s 21 billion, 34 billion, or 500 billion, it doesn’t matter.
Either way, there are some key barriers to entry for the IoT before mass adoption can take hold.
And one in particular represents a timely investment opportunity.
IoT Barrier #1: Security
This is the big one – and the past year has been a hacker’s utopia for IoT devices.
From kids toys to connected cars, smart home devices, and medical devices, hackers have exploited critical vulnerabilities.
Part of the problem is that IoT devices tend to be relatively basic. That’s fine if they exist in isolation. But since they’re connected to the internet, hackers have easy access to exploit weak defenses.
We’ve warned about these vulnerabilities repeatedly.
But despite high-profile and alarming hacks, device manufacturers remain undeterred, focusing on profitability over security.
Case in point: A recent survey by online authentication provider Auth0 found that 85% of IoT developers admitted to being pressured to get a product to market before adequate security could be implemented.
This is reckless – and obviously needs to change.
The trouble is, even if that happens overnight, criminals always tend to be one step ahead.
Plus, cyber security threats come in so many forms that it’s impractical to expect a single cyber security firm to provide adequate defenses for every type of device.
It’s not that they’re bad companies – far from it. But trying to identify a single winner from this area is pointless.
A better strategy is to opt for a diversified investment – like the PureFunds ISE Cyber Security ETF (HACK).
(Oh, but that’s not the main investment opportunity I teased earlier. You’re welcome for the bonus!)
IoT Barrier #2: Privacy
Leading directly from security is privacy. After all, the reason why security is such a major barrier to mass IoT adoption is because a hacked device puts extremely personal info at risk.
Imagine if a connected speaker got hacked and started recording your conversations?
The list of potential and unthinkable privacy breaches is long. And no matter how convenient or cool the device is, consumers won’t blindly put their information at risk.
As it stands now, 52% of consumers and a whopping 90% of developers say they don’t believe IoT devices – and, by extension, their personal info – are secure enough, according to the Auth0 survey.
At the same time, even if a device is virtually hack-proof, consumers need to have ultimate control over collected data, including the option to delete it if they choose.
Without privacy assurances, wide-scale consumer adoption simply won’t happen.
IoT Barrier #3: Connectivity & Interoperability
With two billion or so smartphones already taxing network bandwidth across the world, connecting tens of billions of devices to the internet is only going to increase the burden.
But in relation to other IoT barriers, connectivity is a relatively easy problem to solve. All it takes is money and time to add more network capacity.
Unfortunately, the same can’t be said about getting billions of different types of devices to communicate with each other seamlessly.
A June 2015 McKinsey report estimates that 40% to 60% of the IoT’s total economic value per year won’t be realized unless interoperability challenges are solved.
That translates into over $6 trillion hanging in the balance each year. Talk about a strong economic incentive to motivate companies to work together on a solution!
IoT Barrier #4: Decipherability
“Imagine if everything in existence were connected to the internet! Think of all the data and conclusions we could draw.”
That’s the rallying cry for rapid IoT expansion.
The only problem? The capabilities don’t exist yet to slice, dice, and decipher that much data.
In case you’re wondering, we’re talking about 10 trillion gigabytes worth of data this year, growing to 40 trillion gigabytes by 2020, according to IDC.
Sam Yen, Chief Design Officer at SAP SE (SAP), says, “The bottleneck from that perspective is, what do you do with all that data being generated? How do you get the signal from the noise? How do you make real-time decisions and automate those real-time decisions?”
HP Inc. (HPQ), Dell, and Cisco all recently unveiled gateway devices geared towards collecting and analyzing data physically close to IoT devices. That’s great for quick-decision making, but it’s only half the battle, as other data will need to be sent back to the cloud for deeper analysis.
In the end, decipherability promises to influence adoption. The quicker companies can unlock useful data – and derive an economic benefit from it – the quicker they’ll deploy more devices.
IoT Barrier #5: Electricity
While those barriers above are all significant, they mean nothing without reliable electricity to power the 500 billion IoT devices that John Chambers says are coming.
Or as Energous Corp. (WATT) CEO, Steve Rizzone, said in a recent conference call, “IoT is becoming more and more of a dominant market consideration and to support IoT you need two functions, you need internet connectivity and you need power.”
So what’s the answer? Batteries?
Forget it. As I’ve pointed out before, advancements in battery density – and therefore, battery life – are woefully absent.
Or as one tech insider told Re/code’s Walt Mossberg, “There’s no regular cadence of breakthroughs.”
So the prospect of regularly changing batteries on billions of devices is daunting and highly impractical as a permanent solution, to say the least.
Hardwiring every IoT device isn’t feasible, either.
So what is the answer? I’m convinced it’s wireless power.
As my colleague, Tim Maverick, recently pointed out, a bevy of companies are working diligently to bring technologies to market that can transmit power at distance – upwards of 15 feet.
Mind you, doing so would be a step-change improvement over the current resonance- and inductive-based wireless charging solutions offered by chipmakers like Integrated Device Technology Inc. (IDTI) that only transmit power a few centimeters.
After monitoring the space for over three years, I can tell you that only three companies stand a reasonable chance of bringing an IoT solution to market anytime soon – Energous, Ossia, and uBeam.
Of the three, Energous is the closest. Not only has it already attracted a Tier 1 partner, rumored to be Samsung or possibly Apple, it’s only a few months away from having a commercially ready chipset to be incorporated into wearables, IoT, and mobile devices.
What’s more, management is telegraphing announcements, specifically related to the IoT market…
“We expect to announce additional agreements likely in the IoT business segment before the end of 2015 and anticipate further momentum on this front as we enter CES and move into 2016,” said Rizzone.
From a purely market-ready and investment perspective, Ossia and uBeam are still working on prototypes and have no meaningful partnerships to accelerate market adoption. Not to mention, they both have much less patent protection (in terms of grants and applications) and are private companies anyway, so there’s no way for average investors to own shares.
On the other hand, Energous is publicly traded and could be months away from overcoming the most critical barrier to IoT mass adoption.
Ahead of the tape,