milksplash

The Internet of Everything

How to make money when your refrigerator orders milk

The U.S. Department of Transportation (DOT) wants cars to talk to nearby cars to aid in safety and maybe target traffic congestion.  As of the end of 2011, according to DOT, there were 253 million registered vehicles in the U.S. – that’s a lot!  My Nike Fuel Band talks to my phone and my laptop and one of my friends has a smart house where basically every piece of information that’s even remotely relevant gets measured, transmitted and stored.  So his refrigerator is complaining to his microwave that the embedded music system never plays Perry Como, because it’s fixated on Katy Perry.

When we look to make investments in real estate stocks we are drawn to companies that possess certain characteristics.  We look for businesses that operate in sectors that have but a few competitors, where the real estate they own is in markets with very high barriers to entry, where the tenants have practical, locational or physical issues that prevent them from moving, and lastly where the tenants or users are experiencing strong secular growth.  Data centers and cell phone tower operators fit the bill for these characteristics and are part of our portfolio.

But in particular, the internet of everything, in our opinion, is a massive secular demand driver for these companies.  The possibilities are nearly endless. Some trivial, like my Nike Fuel Band or my refrigerator telling me I am out of soy milk (don’t even ask) and some really important, like medical devices chatting with one another and updating the health status of the population of a nursing home or hospital.  Wearable computing.  Google Glass for instance, is likely to be as ubiquitous as cell phones are today and the sheer amount of data these items will gather, store, share and access boggles the mind.

While this is in some ways a blinding glimpse of the obvious, we don’t think it’s actually baked in to the numbers.  Each time available bandwidth has increased, previously unimagined applications pop up to absorb that bandwidth.  No one would have predicted five years ago that kids would have Facebook’s mobile app open on a smartphone 14 hours a day running in the background.

You take this to its logical conclusion and huge quantities of what is now inert stuff becomes talking, communicating, bandwidth-eating stuff.   All this stuff stores its stuff in data centers and transmits that stuff to data centers through cell towers and other wireless networks.    Cisco’s expectation for wireless bandwidth is that global mobile traffic will grow 11 fold between 2013 and 2018.  We like this.