The Internet Of Things Is Really All About Software

The Internet Of Things Is Really All About Software

The Internet Of Things Is Really All About Software

The number of devices getting connected to the internet is accelerating, and investors are jumping on board. Much of the buzz is about the hardware and the smart devices themselves, such as watches, lightbulbs, and thermostats, but as the Internet of Things (IoT) expands, the longer-term opportunity is in the software and services that run those devices.

An oft-cited study from tech researcherGartner shows the number of IoT devices more than tripling in the next few years. By the end of this year, the estimate is for 6.4 billion devices to be in use. That swells to nearly 21 billion by 2020. Other estimates put the figures even higher than that.

The thought of billions of new devices coming online in the next few years has increased interest in many of the companies that sell those products to consumers. Though some of these companies stand to continue growing in the years ahead, investor interest has driven some valuations sky-high. Take smartwatch and connected fitness device maker Fitbit (NYSE: FIT) as an example.

Even after a big tumble in share price at the beginning of the year, the price-to-earnings ratio for the past 12 months' worth of profits are stillon the high end for Fitbit, near 29. The market is pricing in massive profitability growth in the year ahead, as indicated by a significantly lower one-year-forward price-to-earnings ratio of only 9.6. It remains to be seen whether the device maker can pull that figure off and reward investors' high hopes, but the numbers illustrate the lofty expectations many have for the hardware side of the IoT.

Read Also:
How IBM Is Using Artificial Intelligence to Provide Cybersecurity

However, one fact often missing from the IoT discussion is that, while the number of devices is expected to triple in the next few years, spending on the IoT is expected to only double over the same period of time. That implies two things: (1) The cost for the average connected device will fall over time and (2) device sales will eventually slow down. With all the rage in IoTsurrounding the hardware, the real point of the IoT is getting overlooked: the convergence of the real world with the software world.

At some point, the number of new connected devices will start to level out. This scenario is played out again and again in technology, from the PC to the smartphone to the tablet. As has been the case in the past, when hardware sales slow, the software that runs the machines becomes the important focus.

So, which software companies should investors home in on for the long-term shift to software? Two obvious places to look would be software-as-a-service juggernauts Oracleand salesforce.com. Both companies provide software for businesses and enterprises.

Read Also:
3 ways psychological schemas can improve your data visualization

Not to be overlooked, though, are the hardware suppliers and designers that sell the devices and chipsets that connect the devices to the internet. Besides earning revenue from the sale of the chips, many of these companies have developed or are developing platforms to make software developers' lives easier. Many of these platforms get sold as software as a service, providing a stable income source long after the device itself has been sold.

The thinking behind these platforms is that whichever company can provide the cleanest-looking total package -- the internet-connection-enabling hardware together with the software-developing platform that makes the device run -- will be the winner in the long term. This recurring service revenue is still a small portion of many suppliers' total revenue, but that stands to change as more devices get connected. Here are a few examples of companies worth a look.

 



Data Science Congress 2017

5
Jun
2017
Data Science Congress 2017

20% off with code 7wdata_DSC2017

Read Also:
Where’s the innovation gone in big data?
Read Also:
A New Way for Entrepreneurs to Think About IT

AI Paris

6
Jun
2017
AI Paris

20% off with code AIP17-7WDATA-20

Read Also:
The rise of self-learning software

Chief Data Officer Summit San Francisco

7
Jun
2017
Chief Data Officer Summit San Francisco

$200 off with code DATA200

Read Also:
How One Startup Built Better Health Insurance With the Magic of Data

Customer Analytics Innovation Summit Chicago

7
Jun
2017
Customer Analytics Innovation Summit Chicago

$200 off with code DATA200

Read Also:
How data analytics is stepping up coaches' game in track cycling

HR & Workforce Analytics Innovation Summit 2017 London

12
Jun
2017
HR & Workforce Analytics Innovation Summit 2017 London

$200 off with code DATA200

Read Also:
At Stitch Fix, data scientists and A.I. become personal stylists

Leave a Reply

Your email address will not be published. Required fields are marked *