International Business Machines Corp. (IBM) is making all the right moves to grab a big chunk of the Internet of Things market, which is expected to grow to a $4 trillion to $11 trillion market by 2025, and companies all around the world will battle for their piece of the pie.
IBM’s recent moves paint a clear picture for both IBM’s IoT strategy and how that strategy can pay off for IBM stock.
IoT is all about data, collecting data and then using data to make machines and “things” work more efficiently in ways never before seen.
Therefore, the process of collecting data, selling data or using data to make “things” work more efficiently is a big opportunity. Notably, there are 25 billion connected devices today, and that number will grow to 50 billion by 2020.
Already, that’s more devices connected to the IoT than there are people.
Data Is Key to IBM’s IoT Success
What IBM is doing is buying and investing in assets that collect loads of data in various industries related to IoT. Earlier this week IBM confirmed that it is buying The Weather Channel’s business-to-business, mobile, and cloud-based properties, a deal valued at more than $2 billion.
While weather may seem like an odd investment for IBM, keep in mind that The Weather Company’s mobile and web properties handle seven times more volume than Google’s search engine, and has more than 80 million monthly users according to IBM.
This along with the fact that the Weather Channel analyzes data from three billion weather forecast points, more than 40 million smartphones and 50,000 airplanes per day make it a very valuable asset in IoT.
These are all huge numbers, but what it comes down to is data and the ability to use it to serve IBM’s 5,000 clients in the media, energy, aviation and insurance industries.
IBM has the means to collect this data and now has the connections to all of those customers in key IoT industries.
IBM Is Setting the Stage for Success in IoT
With that said, TWC was a complimentary move in addition to several others that IBM has made over the last year in preparation of IoT, all of which have centered around data.
For example, IBM recently bought two companies, Phytel and Explorys. The former allows IBM to analyze the data it gathers from Explorys’s healthcare database with 315 billion data points. The two acquisitions are healthcare focused, but collecting such data along with having the means to analyze that data is technology that can be used in any industry.
Furthermore, IBM has partnered with several companies for the same purpose of collecting data. The most notable are Medtronic (MDT) and Johnson & Johnson (JNJ).
IBM will collect data from the medical devices owned by both Medtronic and J&J to assist companies, hospitals, insurance companies, patients, etc., in how to better treat diseases and perform certain procedures.
With the healthcare analytics market expected to top $20 billion by 2020, this is a big opportunity for IBM. But perhaps even more important is IBM’s capability to collect such data and then provide actionable analysis, something that is useful in all industries of the global economy. Big Data technology and services market as a whole is expected to grow to a $40 billion market by 2018.
How Does IoT Impact IBM Stock?
Nevertheless, the next year will be big for IoT, as 75% of market makers in the industry plan to either deploy or have already deployed IoT systems during this span. IBM is setting itself up well to succeed in this arena via acquisitions and also with partnerships, such as with Apple (AAPL).
Albeit, IBM is an enormous company and its IoT initiatives are fairly recent. Much like IBM did with cloud infrastructure services, it is forming partnerships and making acquisitions that can drive the future of IBM forward, but these moves aren’t necessarily going to have a material impact near-term. The good news is that with IBM recently creating a new Internet of Things business segment, investors will get to see its process.
Much like Amazon.com (AMZN) built a huge lead in the cloud with AWS, IBM is doing the same with analytics in IoT. This is a move that could create many billions in annual revenue long-term for IBM, and much like AWS is for AMZN stock, become a huge driver for IBM stock in the years to come.
It’s this opportunity in IoT, along with IBM’s ongoing growth in the cloud that should encourage IBM stock investors, and suggests that IBM is making moves to turn its bad fortunes around.
As of this writing, Brian Nichols was long AAPL.
