How the Internet of Everything Will Turn
Some High-Fliers on Wall Street Upside-Down
Last week, the Federal Communications Commission voted to move to what is called “Net Neutrality,” which treats the Internet like a utility and therefore makes it subject to government regulation.
There is plenty of debate about whether this move equalizes Internet access or discourages providers like Verizon (VZ), AT&T (T) and Comcast (CMCSA) from building more-powerful networks.
But one thing none of us can deny is that something called the Internet of Everything (IoE) will change the world we live in.
That’s because everything from cars, appliances, televisions and thermostats will soon be connected to the Internet.
And this universal connectivity creates tremendous conveniences for the consumer … and potentially unlimited efficiencies for businesses.
What is not discussed — beyond the fear of robots replacing human labor and the possible horizon of human obsolescence — is how the Internet of Everything will fundamentally change the world’s economy.
While this revolution will bring about tremendous opportunities, there are also several sectors that will be rendered obsolete.
Today, we’ll talk about both.
The Internet of Everything
Is Popping Up Everywhere …
To understand what I mean, let’s begin with self-driving cars.
Right now, high-flying companies like Google (GOOG), Amazon (AMZN), BMW, Mercedes-Benz, GM (GM), Ford (F) and many others are testing driverless automated vehicles.
Breakthrough technology companies like Mobileye N.V. (MBLY) are actually manufacturing the hardware and delivering the incredibly elaborate software that allows computers to see.
This unique technology is being pursued by several companies around the world — that until recently was only the stuff of science fiction.
This technology is already being employed by Volvo, Cadillac, Mercedes and Subaru. It features featuring “Crash Avoidance Systems” that can effectively prevent crashes.
The concept is simple — a computer can interpret danger much faster and react much quicker than any human driver.
The not-for-profit Insurance Institute for Highway Safety is now testing this Crash Avoidance technology.
But as amazing as this new technology is to us today, in 10 to 15 years it will likely become the automotive standard.
I expect we’ll see tens of millions of self-driving cars navigating to perfection on America’s roads, highways and bridges.
The “driverless” aspect is only one feature under development.
Not only will tomorrow’s cars be able to see, but they will also have the capability to think.
Imagine having a car that can analyze the weather, speed, location and surrounding traffic!
That’s right, you’ll be able to tell your car verbally where you want to go — and rely on the car to take you there safely and quickly.
Meanwhile, you will be able to converse with fellow passengers, read, listen to music or even watch TV till you arrive at your destination.
You’ve already seen self-parking cars that need little direction from the driver.
That’s only the tip of this technology iceberg.
A completely automated car would drop passengers off at the door of their chosen destination.
The empty car would go on to self-park or even circle a destination in the absence of a parking spot.
Then, it would return to the drop-off location, to collect you and your fellow travelers when it is time to go home.
This technology isn’t part of some far-off tomorrow.
Mercedes-Benz has already introduced a self-driving concept car — the F015. It clearly represents the kind of technology format that will be used by every car maker in the world — and become an everyday reality in the next decade for commuters.
Imagine being able to request your car anytime or anywhere via a few words of command to your wristwatch…
Much in the way the Lone Ranger would whistle for Silver, his horse, to come for him is the same way you could have your vehicle come to you.
So how does a technology threaten to turn so many of Wall Street’s businesses upside-down?
A World Without Fender-Benders …
Good for Us, Bad for Insurers!
Let’s start with the automotive insurers. This industry has steadily attracted investors throughout the last century-plus.
The latest numbers available (from 2013) show the auto-insurance industry collected at least $180 billion in total premiums.
Meanwhile, the Coalition Against Insurance Fraud puts the cost of fraudulent claims at about $80 billion annually.
Self-driving, Internet-connected cars would likely suffer significantly fewer collisions/car accidents every year — eventually making fender-benders a thing of the past.
Dramatically lower auto accidents means fewer insurance claims. For auto insurance companies, those $80 billion in claims could possibly drop by 90% even 95%.
A plummet in accident and injury claims would turn the economics of the auto insurance industry upside-down.
That’s because it would slash the rates car insurance companies will be able to charge.
In 20 years, as self-driving cars become perfected, the number of auto accidents could drop to as little as 1% to 3% of the number that took place in 2014.
For investors, a longer-term bet on the auto insurance sector may not be a good one.
Here’s another way that insurers will lose out …
Even before self-driving cars become widely available, the Internet of Everything will help reduce successful car thefts.
Cars are now being tagged with what may eventually become hundreds of microchips that identify the car and are just as traceable as a digital phone.
That’s right. Even if a car gets chopped up, its parts will still be able to throw off a signal to let you know where they are.
More Companies That Will Crumble
in the Self-Driving Car Revolution
The effect of self-driving, Internet-linked cars goes beyond the auto insurance industry.
Consider dealerships, car-parts manufacturers and auto-repair firms both public and private.
If they’re not banged-up and mechanically abused by human drivers, cars would last a great deal longer.
So, it is natural to expect that cars that are capable of seeing and responding to road dangers and hazards will last longer.
Think about it. Self-driving cars will operate with virtually flawless safety records. In turn, this will mean a dramatically smaller auto collision industry. Consolidation of public players in the current supply and service chain is very likely.
And when your automated car does need service, it will tell you!
In fact, you should expect new cars to come with a text, e-mail and phone call notification when service is needed or repairs made. We could see this technology arrive within the next four years.
Better service, virtually no collisions, and longer life cycles means larger inventories of well-cared-for automated cars.
Economics are at work when a breakthrough technology creates dramatically improved efficiencies. These lengthened product cycles should result in tighter margins, few profits and industry-specific consolidation.
Mom-and-pop auto repair businesses throughout the United States are headed toward the same fate Main Street suffered when malls became a craze in the 1970s through the ’90s.
In similar fashion, consider how many publicly traded companies in this business are heavily weighted and dependent on earnings from car repairs, body work and used car sales.
They are going to suffer harshly from the maturation of the Internet of Everything and self-driving cars.
Consider how Uber is fast-becoming a taxicab-killer … driverless cars could cause that entire industry to roll over!
If you’re a taxi driver, you had better start looking for a new profession.
Within 10 years, “on call” taxicabs and private delivery services will blossom … no humans needed!
Trust me — anyone who has had their ear bent off by a nosy cab driver will understand why driverless cars are going to be very appealing.
Self-driving autos may be the future of Uber. You already don’t have to hand the driver any money — soon, you won’t need a driver at all!
The Internet of Everything will also drive similarly dramatic changes in the economics and daily efficiencies in dozens of other industries.
Communications, farming, manufacturing, entertainment and medicine are just some of the many industries the IoE is starting to transform. And they won’t be the last!
If you’re above age 50, chances are you’re following the innovations in medicine like a hawk. If not, you should be staying up-to-date on the breakthroughs that can extend your life. The Internet of Everything will be a big factor in your medical care.
It’s why I always laugh when I hear analysts and reporters doing stories on the new Apple Watches and whether they will catch on.
There have been an abundance of predictions that Apple (AAPL) and its Watch will fail.
I don’t agree.
Within a few years, these high-tech Apple timepieces will not only monitor your health 24/7. They will also become virtual computer assistants that steer your eating, exercise and sleep for optimal health.
These watches will report anything of concern directly to your physician(s) … and, if needed, they could summon an ambulance and notify family and friends of your emergency.
In short, Apple’s technology will replace the wireless “non-thinking” alarm necklaces that older people have been buying like hotcakes the last few years from late-night infomercials.
As the current batch of health-monitoring tools become obsolete, Apple and its competitors are creating a highly advanced multibillion-dollar monitoring and personal-assistant business.
I’ve only scratched the surface of the changes the Internet of Everything will bring to your life and to Wall Street.
We’re about to see the kind of efficiencies in our everyday lives dramatically improved in the very same way we saw computer efficiencies drive economic growth in our country during the 1990s.
As an investor, I recommend you don’t bet against the acceleration of changes about to take place.
Instead, bet on publicly listed companies that stand to profit from the Internet of Everything and bet against those that will see their businesses go the way of the buggy whip!
Always Watching Your Chickens,