Remember the dot-com craze of the mid-1990s, when startups like Webvan Group, Inc. raised more than $1 billion for services that barely got off the ground? It’s all about to happen again.

The Internet of Things (IoT) is gearing up to inspire an investment craze like we haven’t seen in two decades. All the elements that existed in the early days of Web 1.0 are present: potentially vast applications, a little-understood set of technologies and unrealistic expectations about the speed of adoption. I’m not saying IoT isn’t important. It’s going to be huge in the long run. But we’ve got a gaping trough of disappointment ahead before we reach the slope of enlightenment.

What dazzles investors about IoT is its promise, in the same way that investors in early websites were awestruck by the potential of a global real-time network. Once those early dot-com dreamers ran up against the limitations of HTML, network latency and end-user literacy, however, the potential proved a lot tougher to realize.

What ultimately doomed most Web 1.0 startups, though, was human resistance to change. The technology worked but the need wasn’t there. PointCast was cool the first time you saw it, but it was a resource-draining pig a week later. The fact that no one saw a need to buy pet food online didn’t stop Pets.com from squandering $300 million in investment capital during its abbreviated lifespan.

Daunting obstacles

IoT faces even more formidable hurdles. There are few standards upon which to build. Device makers are each inventing new operating systems and management tools from scratch, which will lead to huge compatibility issues down the road. Numerous privacy chasms must be crossed. As far as security is concerned, don’t even go there.

This isn’t stopping investors from getting in early. The 10 companies cited in CIO’s 10 Hot Internet of Things Startups have collectively raised more than $80 million, and most are still at a very early stage. A lot of these hot startups are addressing nasty core infrastructure issues like compatibility, power and device management. They will do battle with other startups and with the major tech companies, each of which will have a play in these areas. The markets will be crowded and messy and most companies will fail.

Edison holding back investors, however, who are being egged on by stratospheric projections from respected research firms like Gartner, which predicts IoT will generate $300 billion in annual revenue by 2020. How anyone can forecast with confidence the future of the market that is in this embryonic a stage is beyond me.

The parallels to the dot-com craze are striking. Investors are betting big on solutions while paying scant attention to the underlying problems they solve. The fact that people can buy a sensor for running shoes that alerts them to potential knee injuries doesn’t mean they will.

There’s an underlying assumption about the trust people are willing to put in technology to perform as advertised without breaking down, exposing private information or making them sick. I never give investment advice, but if I was putting money on IoT I’d bet on industrial applications and devices that improve healthcare management. Neither is very sexy, but there’s a clear need and a well-defined ROI. When it comes to much of the consumer market, though, let the dust settle first.

photo credit: sclopit via photopin cc