Investments in the Internet of Things (IoT) market reached $14.3 billion in 2014, according to a study by 451 Research, which tracks technology-related mergers and acquisitions. Last year alone, 60 technology companies were acquired by larger firms, more than triple the number of mergers and acquisitions that were reported in 2013.
IoT-related M&A activity was split almost evenly between horizontal infrastructure companies and those with vertical applications, 451 Research's study found. "What [companies] are doing in one way or another, is either consolidating their positions horizontally...or vertically," says Brian Partridge, vice president of 451 Research's mobility team.
The big wave was set off when Google bought Nest Labs—a home automation company that produces Internet-savvy thermostats and smoke detectors—in January 2014 for $3.2 billion. "A lot of people think [Google's acquisition of Nest Labs was] a tipping point," says Barton Goldenberg, founder and president of ISM, Inc. "That's a huge investment, and there's a huge company behind it."
And as notable players such as Samsung and Cisco Systems made strides to incorporate IoT into their corporate strategies, others have followed suit. This is "position-taking for what is expected to be a long and prosperous growth cycle for the market," Partridge says. "Almost everyone has some sort of strategy in place right now."
But the boom wasn't all Google's doing. Analysts suggest a number of other contributing factors to the increased spending on IoT. One is a growing openness by consumers to the idea of sharing and receiving personal information via the cloud. "There's a lot of commercial time [being] focused on helping people think about what is possible in this world," Partridge says.
Indeed, smart devices do have implications for many industries in providing insights about customers. The most notable use to date has been in fitness, Goldenberg notes, with apps available to help people track their heart rates or how many steps they've taken over a day.
As people start to have higher expectations for smart devices, other industries will be affected. In the future, more customers will want to [use them to] check, for instance, if a door is locked or if the heat is off at home. "Rightly or wrongly," Goldenberg says, "a lot of consumers enjoy convenience."
Of course, convenience is not all that the new connectivity will provide. The most prominent industry singled out by analysts is healthcare, which has more consequential ramifications when considering the customer. "If you look at the medical side, that's really important," Goldenberg says. When smart objects can be the difference between life and death, their necessity will be inarguable. Objects that can automatically inject a patient's medicine or locate an elderly person with dementia can be seen as indispensable.
This will also improve the level of service businesses are able to provide their customers. If the objects that track vital information about customers are connected to the cloud, more information about those customers will be available for professionals to review.
Helping to propel the market forward is the drop in the price of Internet connectivity. "To get a Wi-Fi module into something that you would connect around your house is ten dollars today, and we expect that to move to one dollar in the next two to three years," Partridge says.
However, there are still security concerns. "When you have a bunch of connected products out there with your label on them, your attack surface grows exponentially, and now you have more potential to be attacked," Partridge says. "That's the number one challenge to overcome."
These challenges, analysts agree, are not insurmountable. For one thing, Goldenberg anticipates that security will be a waning concern as the Millennial generation's worldview takes a stronger hold. But Partridge also anticipates that complications will be addressed as they come, with larger companies leading the way.