The IoT as the Third Wave of the Internet

Published on04 SEP 2014

We think that companies’ ability to adapt and thrive in this new era of the Internet of Things is very likely to determine who the next set of winners and laggards will be in this new connected age.

- Simona Jankowski

Simona Jankowski
Senior Equity Research Analyst, Global Investment Research, Goldman Sachs

Simona Jankowski, Goldman Sachs Global Investment Research
12 August 2014

Video transcript:

In Global Investment Research at Goldman Sachs, one of the interesting themes that we’ve been spending a lot of time on in the last few months is the Internet of Things, or IoT. This is really in our view the third big wave of the Internet. As technology analysts, we think that this is going to have very significant implications across the tech industry. But interestingly, working with our colleagues across the research department, we actually have found that this would have profound implications across a range of industries, even outside of technology.

To put this in perspective, the fixed Internet, which is really what we mostly thought about back in the 1990s, connected about a billion users to the Internet, primarily via their desktops. In the 2000s, we had the second wave, which connected about two billion people to the Internet via their mobile devices. What we’re talking about now with the Internet of Things is connecting about 20 billion or more things to the Internet in the course of the next decade. And if you think about what kinds of things really should be connected, or why would we connect them, it's anything from things in your home, like your smoke alarm or thermostat or security camera, to things on the manufacturing floor, like heavy industrial equipment, to cars and trains and wearable devices.

The Internet of Things is really being adopted for both economic reasons, but also for some societal reasons. From an economic perspective, companies are looking to both generate new revenue opportunities here, but also save costs. So just to give you some examples: from a revenue-generating perspective, you can now have your phone company effectively offer you a new service for connecting your car to the Internet. Obviously this will have a significant but positive benefit to the safety and the maintenance of that vehicle, where things can be monitored remotely, and in many cases updated remotely, saving a trip to the dealership. But also there is entertainment value for passengers in the backseat, for example, or providing functions like telematics navigation, et cetera. And there's also examples that we can point to from a cost-saving perspective.

You're seeing now companies that are running significant manufacturing operations using temperature sensors throughout the manufacturing floor to effectively reduce and manage their power use. Or also using some of these connected devices throughout to automate a lot of processes that are previously done manually.

While all these possibilities are very exciting, we certainly can't lose track of the challenges here. And I would say that at the top of that list, I would put things like security and privacy. Now, these have obviously been significant challenges in the Internet as we know it. But here the stakes are really much higher. We’re not so much concerned about someone hacking into your email, but we would be obviously very concerned about someone compromising something like the smart grid.

Even with these challenges, we think the Internet of Things will be a transformational trend over the next five to ten years. And we think that companies’ abilities to adapt and thrive in this new era of the Internet of Things is very likely to determine who the next set of winners and laggards will be in this new connected age. But if you step back and look at this from the overall perspective of our society as a whole, we also think that there's going to be significant benefits to human safety, to our health, and to the environment.