The rise of ubiquitous machine-to-machine connectivity is just around the corner, creating opportunities and challenges for businesses and investors
Morgan Stanley Blue Papers, a product of our Research Division, involve collaboration from analysts, economists and strategists across the globe and address long-term, structural business changes that are reshaping the fundamentals of entire economies and industries around the globe.
The Internet of Things is the next revolution in computing. By connecting billions of everyday things to the Web, the IoT will collect enormous volumes of data that could reshape almost every aspect of our lives.
As it develops, the IoT has the power to transform the way we live and work, creating both opportunities and challenges for companies, governments and consumers across every industry. This next wave of technology will lead to profound changes in the real economy, enabling higher productivity and better efficiency, and ultimately lowering costs for businesses and consumers alike.
We have been living with the IoT for some time. It’s in our smartphones and other connected devices that we live with or carry around every day. It’s in the smart meters that measure when and how much we consume in electricity, water and heating fuels, and is integral to emerging wearables technology.
It’s not a new concept. For decades, futurists and visionaries have been describing a world where everything and everyone is connected. Only now have the necessary conditions converged to make this a reality. Semiconductor chips, true to predictions, have become tinier, more powerful and cheaper, to the point where we can attach them to virtually anything, anywhere. Telecommunications networks have created global webs of wired and wireless bandwidth to which these chips can connect at little to no cost. And Big Data analytics have evolved to collect, process and analyze all that information, trying to extract predictive truths about, not just people, but all the things we use in every place we live, work and play.
Where the regular Internet connects billions of people around the world through Websites, apps, and services, the IoT could interconnect some 50 billion devices by 2020, a tenfold increase from current machine-to-machine (M2M) connections, according to the Organization for Economic Cooperation and Development.
For the core industries of the IoT, this growth in volume is critical. Wireless providers, for example, are looking to the explosion in M2M connectivity to drive growth in wired and wireless networks as the market for mobile phones and devices and home broadband reaches saturation and maturity.
Connected cars are one of the more promising segments for telecom providers. These mobile networks can support continuous connectivity for autonomous cars, while doubling as hotspots for passengers consuming content. Both promise significant growth in demand for data bandwidth. Beyond transportation applications, telecom carriers are also expected to act as systems integrators in supporting the connected home or smart cities, but these opportunities will take time to scale.
Semiconductor makers who have watched their profit margins narrow for years, as chip prices dived, can look forward to bulk demand for processors, sensors, and communication chips for high-speed mobile, Wi-Fi and Bluetooth. “Cost reduction in this sector will continue as a result of increased standardization and integration of functions into a single chip, but the opportunity for investors is measured in tens of billions of units,” says Francois Meunier, Morgan Stanley’s head of telecom equipment and semiconductor research.
The real flood will be in data collection and aggregation. Most companies today are awash in more information than they can actually handle. Too much data is nearly as bad as too little if you can’t separate the signal from the noise. Big Data analytics expertise will be required to sort through the raw data, interpret what it means, and how to structure it into solutions for businesses.
As the IoT takes root and the data begins to accumulate, business demand will surge for new software that can take the analytics and make it actionable in real time. If a cluster of agricultural sensors picks up a sudden increase in rainfall, how is that data relevant for certain crop insurers or commodities markets? Big Data software could process the latest sales in real time from checkout machines, and find trends that inform inventory decisions or factory orders. The software could even place those orders directly. The IoT can accelerate, but maintain a smooth flow of market-relevant data and more efficient interaction and reaction downstream.
These opportunities have the potential to drive fundamental changes in business models. However, the IoT could also reduce the need for some blue collar jobs. Ubiquitous connectivity will also result in more devices and even greater concerns about privacy and security, which could create obstacles to adoption. We have only begun to explore the possibilities—and potential pitfalls—of the IoT.