The Internet of Things market, by many estimates, is expected to explode. According to a report issued at the Trillion Sensors Summit, held last October at Stanford University, the number of connected machines and devices will be about 1 trillion by the year 2022. The ability to put an IP address on very small devices has created almost endless opportunities for innovation not seen since the early days of the Internet. Many times when the financial market experiences an era of hyper-innovation, we also see increased mergers and acquisitions (M&A) activity as companies and investors seek to take advantage of the new growth opportunities. The question is, though, where will we see increased M&A activity in the IoT market?
Ultimately some segments of the IoT will be more profitable than others, and those are going to be attractive targets. The biggest profit potential of the IoT may not be in the things themselves, but in the data they can provide and additional services that they can enable. Examples of such services include:
- Advertising: Our devices know a lot about us, including where we go, whom we interact with, what we e-mail and text message about, and what products and services we search for.
- Usage information: Devices can report metrics to manufacturers about which features are being used, and which are not. The data can then be analyzed to improve the products and ultimately sell more of them.
- Cost control: Companies can save money by collecting more details about energy usage, as well as inventory and asset management. Individuals could save money on health care by using medical devices that help them eliminate a visit to the doctor.
- Mobile security: Companies and government agencies can limit risks to their networks by increasing security features in IoT devices, which is becoming exponentially more important as hackers seek to exploit weaknesses through vulnerable entry points. The pressure is increasing for chipset and mobile device manufacturers to include better security in their platforms.
- Public safety: The potential for smart networked devices to improve public safety is limitless. Smart networked sensors can reduce vehicle collisions, improve traffic flow, or better analyze a video feed showing a criminal suspect or suspicious behavior.
Opportunities also exist for suppliers that need to expand their offerings in order to compete. Examples abound in the semiconductor and embedded software space where consolidation may occur. Typical candidates would include suppliers that want to expand into areas that are changing quickly, are highly differentiated, and difficult to build from scratch. A good example of this is security technology, either in silicon IP or software. The stakes of failure are high, the adversaries (hackers) in many cases are extremely sophisticated and adapting quickly, and the technology is difficult to develop without significant expertise.
Despite the potential in the IoT market, not all technology companies routinely pursue acquisitions. Some simply rely on internal research and development while others outsource it by acquiring companies.
An astounding amount of cash sits on the balance sheets of many top software and semiconductor companies, some of which will undoubtedly be used to fuel acquisitions. The leaders in this area in terms of cash and short-term investments include Microsoft at US $76 billion, Google at $57 billion, Samsung at $52 billion, Oracle at $32 billion, and Intel at $20 billion. A total of 52 companies in this market exceed the $1 billion mark, according to S&P Capital IQ, a financial information provider in New York City.
Another good predictor of future acquisitions is past history. In the last two years, the semiconductor and software companies making the most acquisitions include Google with 42, Intel with 21, Samsung with 20, Oracle with 19, and IBM with 15. Many of these companies can be expected to be active participants in the M&A market for the IoT.
The Internet of Things will drive a great deal of innovation and economic activity in the decades to come, and with that will come more M&A deals. We can expect most of those deals to come from areas where money can be made, where current suppliers need to vertically integrate, and from companies that have the money and desire to grow through acquisition.
Brent Lorenz is an IEEE member and a vice president with The McLean Group. He got his start as a technical sales engineer for Texas Instruments.