MarketWatch reports that neither Apple (NASDAQ:AAPL) nor Google (NASDAQ:GOOG) (NASDAQ:GOOGL) made Goldman Sachs’s (NYSE:GS) list of companies best positioned to lead the innovation that will drive the development of the Internet of Things, a far-reaching network of everyday devices, which Goldman Sachs projects will connect 28 billion devices to the Internet by 2020.
Both Apple and Google have made moves toward building out successful mobile ecosystems — iOS for Apple and Android for Google — into hubs for innovation for Internet of Things fixtures, particularly smart homes. Google acquired Nest Labs, which then opened its Nest Developer Program to make its smart home platform an open-source hub through which third-party manufacturers’ devices and outside developers’ apps can communicate. Apple’s HomeKit, similarly, is being developed as a framework for the communication and control of smart home devices.
MarketWatch reports that Goldman Sachs cites two categories of technology as particularly crucial to the Internet of Things revolution. Those are “communications technology” — like Wi-Fi, cellular service, and “fog” computing — and hardware, like sensors, connectivity devices, and microcontrollers. It’s widely expected that Wi-Fi connectivity, rather than cellular connectivity, will drive the Internet of Things, and Goldman Sachs expects manufacturers of Wi-Fi chips, like Qualcomm (NASDAQ:QCOM), plus hardware manufacturers, like Cisco (NASDAQ:CSCO) and Ruckus (NYSE:RKUS), to benefit.
Qualcomm, Cisco, and Ruckus all landed on Goldman Sachs’ list of companies best positioned for the Internet of Things revolution, each earning a “Buy” rating. They were also joined by Samsung (SSNLF.PK), which Goldman Sachs notes has the “widest hardware reach” of companies that have moved toward Internet of Things development. According to Investors Business Daily, Goldman Sachs also expects that car-based technologies will be the biggest driver of cellular Internet of Things connectivity, since for most other purposes, Wi-Fi will eventually be more efficient.
But the fact that Apple and Google didn’t make it to the Goldman Sachs list doesn’t mean that they won’t benefit or make a huge impression on the space. It’s not hard to imagine that Google could leverage Android’s status as an open-source platform — plus its acquisitions of hardware, software, analytics, and robotics companies — to push innovation forward, with a version of its operating system as a central hub. The company could alternatively enable Nest to take center stage as an open, accessible ecosystem. Nest already has working smart home devices, and right now is the logical entrance for manufacturers and app developers looking to create smart home products and services.
Apple’s unveiling of iOS revealed broader integrations with third-party devices and a bigger focus on far-reaching platforms like HealthKit. With HomeKit, a framework that will allow devices like microwaves, locks, and thermostats to communicate with each other through a common platform, Apple could replicate its success with iOS and build a platform that, while not the most widely used operating system available, gathers a large amount of market share and becomes a premier platform for app developers.
AppleInsider also reports on rumors that Apple will expand the HomeKit concept to also manufacture connected light bulbs and locks, making the logical jump to get started on the ecosystem of accessories that will accompany its platform, provided both by Apple and by third-party manufacturers kept under the company’s watchful eye.
One of Google’s biggest advantages is that it’s in the business of data, and gathers information on scores of users. That capacity will only increase if it builds a platform that allows cars, phones, thermostats, computers, refrigerators, and smoke alarms to communicate with each other. Google’s wide ability to collect user data could allow its eventual Internet of Things platform to be the most effective at learning, predicting, and adapting to users’ behavior.
Chip manufacturers and Wi-Fi service and hardware providers absolutely stand to gain from the development of the Internet of Things, but as Tech Insider points out, the prices that companies will be able to demand for components will go down as their popularity and eventually their competition increase. It won’t be the manufacturers of the pieces that go into smart home devices or networking hubs who make huge profits on those products. It will be the brand that designs the device and develops each new generation of features that stands to make substantial gains from the shift to the Internet of Things.
At least in the short-term, it seems unlikely that other companies will be able to usurp Google and Apple as the supplier of the devices (or at least the operating systems of the devices) that consumers use everyday. Especially at the beginning of the Internet of Things revolution, consumers will want to be able to control and communicate with their smart home devices from their phones. For that reason alone, smart home platforms that run (or are at least launch apps for) Android or iOS will be the standard, and Google and Apple have a vested interest in building the superior smart home platform — because the winner will sell more mobile phones and tablets that are compatible with the platform.
The smart home and, more broadly, the Internet of Things, will depend on software to control and manage communications among devices.The underlying network and infrastructure, a largely Wi-Fi based system, will bring revenue to the companies who manufacture components and provide Wi-Fi and cellular connectivity. While innovations in hardware and developments in software can and often do go hand in hand, pieces like advanced sensors won’t stand on their own as a revenue draw until they’re placed in a device or a system, either created by the same manufacturer or by another company.
It’s interesting to note that Samsung — the most successful manufacturer of phones and tablets running Google’s Android — did make it onto the Goldman Sachs list. Samsung recently announced a significant shift from its usual Android tact, developing its own platform for wearable devices, the Tizen operating system. The company is clearly looking to distance itself from Android to compete with iOS and Android in the Internet of Things realm, and could possibly become a big supplier of both devices and a platform that could connect and control devices.
So while Google and Apple don’t appear on the Goldman Sachs list (yet), it would be very short-sighted to dismiss the potential of the systems that they’re developing. Their absence on the list doesn’t mean that the companies aren’t poised to innovate and profit from huge upcoming changes; it just means that what it has to offer is less clear than what chip makers and Wi-Fi providers have on the table. It’s impossible to tell yet who will lead the Internet of Things revolution — but it’s platform creators like Google, Apple, and possibly Samsung who already have the very visible upper hand before the space is even fully defined.
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