What Is The Internet Of Things?

Everyone’s talking about it and it’s the hottest topic in the world of technology, but what exactly is ‘the Internet of Things’?  

Put simply, the Internet of Things — IoT for short — is the term for enabling everyday objects like fridges, telephones, cars, microwaves and even front doors, to communicate with one another.

One of the more creative uses of IoT technology is an an Internet-powered tray, called the Egg Minder. The tray contains sensors that tell users the exact number of eggs left in the refrigerator and for how long each one has been sitting there.

Traditionally, this is known as machine-to-machine (M2M) communication and has been around for some time. However, recent technological advances have made this technology more accessible. 

The potential size of this market is huge and not to be underestimated. For example, there are 50 billion devices set to be connected to the internet by 2020. US technology giant, Cisco believes that the market could be worth in excess of $14bn by 2022.

Getting in on the action

Vodafone (LSE: VOD) (NASDAQ:VOD.US), ARM (LSE: ARM)BT (LSE: BT.A) and Quindell (LSE: QPP) are four companies that are all trying to get in on the action here in the UK. 

BT for example is working to devise a service using information from a number of different traffic-related sources. The company plans to build transport applications that will be able to accurately estimate your journey time based on what’s happening on the road right now.

This technology could also be used by emergency services to deal with accidents, or hold-ups, and enable them to get traffic moving more quickly.

Head to head

Meanwhile, Quindell is targeting the insurance telematics industry. The installation of telematics devices in cars will allow insurance companies to monitor driver habits. Companies will then be able to use data to build up a detailed profile of  someone’s driving behaviour, allowing to calculate insurance premiums more accurately.

Vodafone is actually going head-to-head with Quindell in the telematics market. Last week Vodafone acquired Cobra Automotive Technologies, an Italian telematics groups. (I covered the acquisition in an earlier article.) However, this is not Vodafone’s only foray into the IoT market. 

Indeed, Vodafone has a whole division, employing over 200 people, that’s working on M2M communication. What’s more, the M2M division is set to benefit from a huge capital infusion as part of Vodafone’s “Project Spring” development plan.

Elsewhere, UK chip technology company ARM is targeting the IoT hardware market. The firm has reported that its customers are signing licences with a view to designing ARM technology into an increasingly wide range of M2M markets, from servers and supercomputers, to embedded sensors and enterprise networking applications.

ARM’s technology is perfect for this use. The company’s microchips are renowned for their light weight, low power consumption and high performance and fulfil all the criteria for a small hand-held IoT enabled device. Or an egg tray.

Government funding 

While the private sector is ploughing cash into the M2M market, the UK government has also pledged its support. David Cameron has pledged £73m in funding for the industry, as part of efforts to make the UK a world leader in digital technology. 

A huge opportunity

The Internet of Things will be a huge market and there is profit to be made for any company that can get in on the action.

However, if you think the IoT is still too risky to put your money into, analysts here at the Motley Fool have identified a share that we believe has the potential to nearly double profits within the next four years. So, if you're a keen growth investor looking for ideas, download this exclusive report entitled "The Motley Fool's Top Growth Stock For 2014".

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Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in ARM Holdings.