How You Can Profit from the "Internet of Things"

In investing, the phrase “The trend is your friend” is common, but seldom is this basic idea more important than with technology investments.

An innovative tech company well situated to profit at the start of a technological mega trend can generate incredible profits for its investors.

Cisco is a great example of that. Back in 1991, Cisco Systems was trading at just 10 cents per share. But by early 2000, the company’s share price had zoomed to $79, making many early investors fabulously wealthy.

We’re going to leverage the Internet in ways we never have before, and it’s going to change everything…

Of course, we all know the primary driver behind that meteoric rise…

Cisco’s historical specialty is computer networking equipment, and the 1990s were a great time to enter that business, since that’s when this small market took off.

Previously, the Internet was a relatively unknown suite of technologies, interconnecting academic centers for the most part and not much else.

The network’s growth was steady, but that began to change in the 1990s when the number of connected computers started skyrocketing. The main driver was private parties and commercial enterprises linking into the global network and using it for a wide variety of new, previously unheard-of, applications.

But by becoming the leading supplier of the technology needed to connect computers — and the world itself — Cisco not only profited from the trend, it also helped enable it.

In the years since, the words “Web page,” and “email” have become familiar. But more recently, the Internet entered a second growth phase, one that’s been even faster than the first.

It’s the smartphone revolution.

Smartphones only started to become widely available about five years ago, but they’ve come to dwarf PCs as Internet connection devices — and now we have another Net-enabled term to add to the language: “apps.”

Stack of PC Components and HardwareThe PC, along with all its hardware, is dying

We’ve found many ways in which the global network is useful, and it’s driven increasing technology adoption over the past 20 years.

But it’s the tip of the iceberg compared with what’s coming.

We’re going to leverage the Internet in ways we never have before, and it’s going to change everything while driving new growth and profits.

The Internet is now setting up for another explosive phase in its growth: the rise of the machines.

Specifically, the terms used to describe this new market are machine-to-machine (M2M) communications, also called the “Internet of Things” (IoT).

Just as “Internet 1.0” with PCs and “Internet 2.0” with smartphones changed the way we do everything, the new Internet will also change the way we live.

This Internet of Things will add the kind of intelligence we associate with traditional computers to just about everything we use, and it will do so by connecting them to that network of networks, the Internet.

In doing so, it will improve our ability to interact and manage everything we own — from our homes and appliances to our cars and much more.

It will even help us manage our health!

It will transform our health care system, allowing us to monitor our bodies in real-time so that we can do something about a health problem before it becomes dangerous.

Coupled with improved at-home diagnostic technology, we could constantly keep an eye on our changing health status, enabling us to act fast as soon as something troubling appears. We will even have wearable devices with biometric functions that will be with us wherever we go.

Doctors could keep closer tabs on us, rather than a just a period snapshot taken during a visit. We could spot that heart attack before it happens, and first responders could know when an elderly person alone at home falls down. Early detection without having to go to a physician’s office will save money and lives, helping cushion the health care crisis that is afflicting many advanced and aging economies.

How about energy?

The Internet of Things will also improve the energy efficiency of our products, as well as the quality of service they provide for us.

Eventually, every device that can benefit from an Internet connection will become an Internet-connected device.

Smart meters are already widely used in some areas, allowing electrical utilities to read consumption without having to send a meter reader out to the customer’s premises.

That saves money. Alternative energy sources, such as solar panels, are also being connected for optimal management and efficiency.

Internet-connected streetlights, for example, will be more efficient than the traditional dumb ones. They can stay off at night, saving electricity, turning on when they sense cars coming down the road. We’ll reduce waste and pollution at the same time.

Speaking of those big, expensive, four-wheeled devices that take us from place to place…

They are getting smarter all the time. Cars are being connected to maintenance services, in order to help improve vehicle reliability. Tesla famously connects all of its amazing electric cars through a cellular modem, using it to alert drivers if something is wrong.

Even now, our automobiles are connecting to entertainment and information services to improve the experience for drivers and passengers.

But eventually, we’ll all be passengers, and the car itself will be the driver. Increased embedded intelligence and connectivity is enabling self-driving cars. The Internet of Things means you’ll be able to always have a designated driver when you’ve had a few drinks after work on a Friday night.

But cars are just one part of a large market of markets that will be connected to the network of networks.

Many everyday objects will be connected to the Internet. One good example is coffee makers. My Father’s Day gift this year was a nice one, an espresso machine. It makes a great cup of coffee, but it’s still a pretty dumb machine. Coffee machines, however, are now being connected to the Internet via a modem like the one in your smartphone.

This might sound like a trivial application for the new technology, but Nestle’s Nespresso coffee makers are now part of the emerging Internet of Things.

These coffee makers aren’t particularly expensive to buy, and Nestle doesn’t make much money, if any, on the machine. It’s a razor/razor blade business. Nestle makes its money on the coffee sales — and if a machine breaks down, it isn’t generating any sales! Keeping its Nespressos humming helps Nestle’s bottom line.

Furthermore, the coffee machine’s connection allows Nestle to tune it so that it can match a customer’s taste. Thanks to that little embedded computer and modem, Nestle knows exactly how you like your coffee, from the temperature to the water pressure used to spew the brew. It also knows what kind of coffee you like to drink, and it automatically reorders supplies so you aren’t out on a Monday morning when you really need your caffeine kick.

The bottom line — what you really need to know — is this:

Eventually, every device that can benefit from an Internet connection will become an Internet-connected device.

It’s that simple — and the number of newly connected devices will be simply staggering. The investment opportunity is correspondingly enormous.

You can’t afford to ignore it.

More to come tomorrow…

Ad lucrum per scientia (toward wealth through science),

Ray Blanco
for The Daily Reckoning

P.S. In last month’s issue of my entry-level tech newsletter, titled “The End of The Internet As We Know It,” I showed subscribers everything they needed to know about one company that’s emerged as a leader in the “Internet of Things” technology. In today’s issue of the FREE Tomorrow in Review email edition, I gave readers a unique chance to gain access to this report as well. These kinds of opportunities are available in every single issue. If you’re not getting the FREE Tomorrow in Review e-letter, you’re missing out on the full story. Don’t let that happen again. Sign up for FREE, right here.