Remember the companies that made huge profits during the last industrial revolution? No worries; neither do I. But guess what? The next industrial revolution is happening right before our eyes. And it might not be too late to grab the gains—through a pick like Amazon.com, Inc. (NASDAQ:AMZN) stock.
I’m not talking about Amazon’s gigantic e-commerce business or its ambition to build a delivery network that controls the flows of goods around the globe. I’m looking at the “Internet of Things,” or IoT.
Want to take a guess at how big of an industry the Internet of Things can become? Well, according to a report from the McKinsey Global Institute, the market for IoT could reach $11.0 trillion by 2015. (Source: “Unlocking the Potential of the Internet of Things,” McKinsey & Company, June 2015.)
When you talk about the Internet of Things, you might be thinking of a smart thermostat or a smartphone that can work as a TV remote. But guess who’s going to provide the infrastructure that could manage billions of connected devices? Yep, it’s the company that was once only an online bookstore.
AMZN Stock: Building Infrastructure for IoT
Amazon is not offering smart home systems like what Alphabet Inc (NASDAQ:GOOG) is doing with its “Google Nest.” Rather, Amazon is concentrating its efforts in something that all IoT products rely on—the cloud.
Last October, Amazon made its official entrance into the Internet of Things space. The company introduced its IoT platform for “Amazon Web Services” (AWS), its cloud computing arm. (Source: “Amazon Web Services Announces AWS IoT,” Amazon.com, Inc., October 8, 2015.)
The AWS IoT platform “makes it easy for devices—cars, turbines, sensor grids, light bulbs, and more—to connect to AWS services so that companies can store, process, analyze, and act on the volumes of data generated by connected devices on a global scale.”
The platform will be able to support billions of devices and trillions of messages. It will integrate with “Amazon Kinesis,” “Amazon S3,” and “Amazon Machine Learning” to build IoT applications, analyze data, and manage infrastructure.
Note that AWS is already a fast-growing and profitable segment for Amazon. In 2015, AWS brought in $7.88 billion in net sales, a 69.8% increase from the previous year. The segment also generated $1.86 billion in operating income, nearly triple the amount in 2014. (Source: “Amazon.com Announces Fourth Quarter Sales up 22% to $35.7 Billion,” Amazon.com, Inc., January 28, 2016.)
At this point, you might think that what Amazon plans to do is quite abstract. Is there a more concrete way for us to experience the company’s vision of connected devices?
As it turns out, Amazon offers a 26.9-ounce connected device that is also voice-controlled. It’s called the “Echo,” a tube-shaped speaker that gives users access to Amazon’s cloud-based voice service, “Alexa.”
The device turned out to be a surprise success, since its launch in 2014. Echo can read audiobooks and the news, report traffic and weather, and even control the lights in smart homes. Instead of pulling out your smartphone to switch a light on, you can just talk to Echo.
Now, Amazon can also help you control the temperature in your home. The company is partnering with “Ecobee,” a smart thermostat-maker based in Toronto, Canada. (Source: “Ecobee Announces Integration with Amazon Echo,” Ecobee Inc., February 12, 2016.)
Ecobee makes the second-best-selling smart thermostat in the U.S. and captures 24% of the market. (Source: “Thermostat Wars: With Help From Apple HomeKit, Ecobee Takes Number Two Place Behind nest,” Forbes, September 28, 2015.) By partnering with Ecobee, Amazon Echo users can set the temperature in their homes just by saying “Alexa, set my thermostat to 72.”
The Bottom Line on AMZN Stock
There you have it. Amazon is not only building the massive infrastructure for the Internet of Things, but it also offers hardware products for consumers to enjoy the platform. As the IoT revolution takes place, billions of devices could get connected to Amazon’s cloud infrastructure and the company stands to make big money. The question now is this: can you afford not to take a look at AMZN stock?