Why IBM Bet $3 Billion on The Internet of Things

Last week, “Big Blue” announced the creation of their Internet of Things (IoT) unit with a $3 Billion investment over the next 4 years. Think of IoT as the “Industrial Internet”, a network of devices and sensors with data and applications for specific verticals. For example, IBM also announced a partnership with The Weather Company (owns the Weather Channel) to enable a new platform that can be combined with an unlimited number of networks and applications.

Together, IBM and The Weather Company could package data and applications to alert auto insurance customers about hail storms (insurers pay more than $1 billion in claims every year for vehicles damaged by hail.) For entrepreneurs, IBM and The Weather Co will also make their data available through Cloud and Mobile App developer tools; the aim being to enable a community of developers and businesses.

What is enabling the trend? Goldman Sachs outlined the following key enablers in a report from September, 2014:

Cheap Sensors: Sensor prices have dropped to an average 60 cents from $1.30 in the past 10 years
Cheap bandwidth — The cost of bandwidth has also declined, by a factor of nearly 40X over the past 10 years.
Cheap processing — Similarly, processing costs have declined by nearly 60X over the past 10 years, enabling more devices to be not just connected, but smart enough to know what to do with all the new data they are generating or receiving.
Smartphones — Smartphones are now becoming the personal gateway to the IoT, serving as a remote control or hub for the connected home, connected car, or the health and fitness devices consumers are increasingly starting to wear.
Ubiquitous wireless coverage — With Wi-Fi coverage now ubiquitous, wireless connectivity is available for free or at a very low cost, given Wi-Fi utilizes unlicensed spectrum and thus does not require monthly access fees to a carrier.
Big data — As the IoT will by definition generate voluminous amounts of unstructured data, the availability of big data analytics is a key enabler.
IPv6 — Most networking equipment now supports IPv6, the newest version of the Internet Protocol (IP) standard that is intended to replace IPv4. IPv4 supports 32-bit addresses, which translates to about 4.3 billion addresses — a number that has become largely exhausted by all the connected devices globally. In contrast, IPv6 can support 128-bit addresses, translating to approximately 3.4 x 1038 addresses — an almost limitless number that can amply handle all conceivable IoT devices.

The value of course is new types of revenue streams. Automobile makers are already equipping new models with built-in wifi at about $10/month subscriptions. Verizon has reported to save 55 million kWh of electricity through their IoT network (That’s a reduction of 66 million pounds of greenhouse gases per year!) Google, Cisco, and even Facebook are building their IoT playbooks. Don’t forget Apple either. Will be an interesting year to see how we innovate beyond just Smart Homes as IoT makes it way into the enterprise.

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