Germany-based SAP is investing in the internet of things in a big way. The software company has announced plans to spend $2.5 billion over the next five years on technology that connects products to the internet.

The big announcement comes as the IoT industry has been growing rapidly. Since 2008, there have been more connected devices on this planet than people. By 2020, there’s expected to be 50 billion IoT devices of all shapes and sizes. SAP, no doubt, wants to ride this wave of growth.

“With billions of connected devices, we now have the potential to reshape society, the economy and the environment,” said CEO Bill McDermott, in a statement.

Of course, SAP also wants to carve out a piece of the lucrative IoT pie. Estimates vary from source by source, but some predict that the industry could be worth $6.2 trillion by 2025. SAP is mode modest with their predictions of $250 billion by 2020.

In light of the industry’s potential, SAP’s $2.5 billion investment is a drop in the bucket. However, it allows SAP to kick-start some intriguing initiatives.

The Big Plans

So what do billions of dollars in IoT investments look like? For starters, SAP plans to build development labs in China, Brazil, Germany and elsewhere, to build on an earlier purchase.

Earlier this year, SAP acquired Fedem Technology AS. This Norwegian company focused on engineering analysis hopes to replace the need for labor-intensive physical inspections with digital inspections conducted by a variety of sensors. The sensors, combined with IoT technology, would be able to predict the long-term wear and tear on whatever is being expected, while also accounting for rare one-off events.

The SAP investment will be spread out over five years, and much of the money will be used for further acquisitions to help bolster IoT capabilities. With the investment announcement, SAP revealed the acquisition of Plat.One. This company manages a platform that enables devices to communicate with each other.

With its existing portfolio and planned investment, SAP hopes to change how IoT technology is being used and help it proliferate to places where it previously didn’t exist. How far does SAP see IoT technology going? With its recent deal with car parts manufacturer Robert Bosch, SAP is willing to turn even screwdrivers into connected devices.

A Big Investment

SAP isn’t a household name in the U.S., but it’s one of the largest business software companies in the world, with annual revenue of more than $20 billion. As it’s not a consumer-facing company, it’s better known amongst businesses for enterprise solutions.

While SAP can carve out a big niche in the field of IoT, there’s plenty of room for other plays. So far, 40 percent of the industry is comprised of business and manufacturing solutions. The next biggest chunk is for healthcare, which is 30 percent of the IoT industry.

While the big money might be in business-related solutions, IoT has proven popular with everyday consumers. In the auto industry, only 35 percent of new cars were connected to the internet as of 2015, but 98 percent will be by 2020. Smart home technology is also proving lucrative, as this niche is expected to hit $490 billion in 2019.

More to Come

SAP’s plan is undoubtedly ambitious, but at the moment it remains to be seen what will come out of this long-range ambition. There will undoubtedly be more acquisitions on the horizon. The big question will be how they can bring all those investments together. Just a couple years of technological developments could bring enormous changes to the industry.

Image by Carlos Muza

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