We all know about the promise of the “Internet of Things” or IoT which is the vision of every object around us being connected to “the cloud“, from our cars to our phones to our homes. That notion makes sense until we came across the term “Industrial Internet of Things” or IIoT which is presumably IoT applied to industry. It’s actually far more interesting than that and it all starts with the term “Industrial Internet” which was coined by a well known American company called General Electric (NYSE:GE). The last thing we remember about GE is their stock price getting the isht kicked out of it in 2008 because of their exposure to the finance sector. Fast forward to today and it turns out that GE may be the most compelling investment there is today in the IoT or IIoT space. Here’s why.
What is the Industrial Internet?
The “Industrial Internet” is a term coined by GE and it can be best described as the third wave of innovation. The first wave was the industrial revolution which was a period of innovation that spanned a period of 150 years between 1750 and 1900 where we made significant advances in transportation, manufacturing, and energy production. The second wave was the Internet revolution which started in the 1950s with the invention of mainframe computers and has culminated in the Internet we know today which is now a permanent fixture in our lives. The third wave is the “Industrial Internet” which is intelligent devices, intelligent systems, and intelligent decision making. It looks something like the following:
We have to be very careful now because it’s easy to start throwing around lots of big words and making everything sound much more complicated than it actually is. When you’re in a boardroom trying to convince a room full of C-level executives to spend 10s of millions of dollars on your solution, the last thing you’re going to say is “people, this stuff is actually really simple”. The truth is, the “Industrial Internet” value proposition is really quite simple. Take a look at the below diagram:
If you use IoT sensors to connect all the pieces and parts of your systems to collect big data, you can then analyze that big data and make smarter decisions. If you can save just 1% by optimizing your systems, these savings add up to billions of dollars over time. GE refers to this as augmenting physical machines with digital intelligence and that idea is simple to understand and makes a whole lot of sense. Where this starts to really become appealing for investors is when you look at just how big a market GE wants to address:
The potential opportunity that GE is looking to address with their “Industrial Internet of Things” platform is 46% of the global economy today. This isn’t just some IoT startup creating their own nomenclature and claiming that they can address a multi-billion dollar market, it’s one of the top-ten biggest companies in the world saying with a straight face that they have a total addressable market of over 30 trillion dollars. The next time you look at the value proposition for an IoT startup, keep in mind just how big this opportunity is. GE is likely to not only pursue organic growth but growth via acquisition as well. This bodes well for IoT startups everywhere.
Is GE a Good Investment?
As investors, we can’t see a good reason not to accumulate a position in GE through dollar cost averaging. It’s not like we’re taking a punt on some $1 billion company that just had an IPO and claims to be addressing a multi-billion dollar market. We’re talking about a $265 billion dollar company with over 330,000 employees that’s been around for 124 years and has a legacy of great leaders like Jack Welch. GE has become a forward thinking company that has retooled itself and wants to become the leader of the “Industrial Internet of Things” along with other leading edge technologies like 3D printing. Just about 3 years ago we wrote about GE’s focus on 3D printing and just recently GE confirmed a continuation of this focus by announcing plans to acquire Arcam and Concept Laser. Not only are you getting some great exposure to IoT/IIoT but you’re getting some exposure to 3D Printing as well.
Industrial Internet vs. IoT vs. Industrial IoT
Just before we wrap this up, let’s make sure we have all these terms straight. The “Industrial Internet” is a $32 trillion dollar opportunity to optimize industrial processes. The “Industrial Internet of Things” is all the devices/sensors/beacons that provide the big data we need to optimize industrial processes. The “Internet of Things” sits over the top of all this as the idea that eventually the world will be entirely connected, and the big data that we get as a result will allow up to make everything more efficient. Now that’s something we’d like to invest in.
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