The Internet of Things: Mapping the value beyond the hype

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Arguably the world’s most esteemed management consulting firm, McKinsey & Company ( funds the McKinsey Global Institute which undertook research to evaluate the merits of the excitement around how the Internet of Things can realise tangible fiscal benefits.  The study provides an impressive insight into the potential of IoT to deliver economic gains that are even greater than what has been touted and explains the main challenges business face in achieving these rewards.

  • Possible global economic effect of IoT applications (incorporating the consumer surplus) across 9 settings reaching $11.1 trillion annually by the year 2025.
  • The ability to exchange and properly make use of information will be important for 40% to 60% of all IoT applications in order to capture the maximum value.
  • A site with 30,000 sensors currently may only be utilising 1% of the data captured and this is almost exclusively used for fault finding and damage control.  Greatest value will be achieved when using the additional data being captured for optimization.
  • Close to 70% of the benefits from digitising the world through IoT will be realised in Business-to-Business (B2B) actions with the rest going to consumer applications such as autonomous vehicles and health monitoring.
  • Highly developed economies have the largest value-per-use potential inside the next 10 years, however, up to 40% of value could be secured by developing economies.
  • 90% of advantages will likely flow to customers; businesses and consumers.  An example provided is $1.1 trillion annually by 2025 in health monitoring of patients with chronic diseases.
  • IoT has the power to create its own industry where the penetration of digitisation brings manufacturers and technology firms closer together and the value of traditional goods is redefined in a new business model where the data from links and IoT is offered as a service.

Technology needs to continue evolving for the full benefits of IoT applications to be achieved including the development of powerful data analytics.  The value of IoT is likely only going to be gained if leaders seriously harness the data provided and use this to govern their decision making.

The 9 settings that were used when determining potential impact of IoT and the values are as follows:

  1. Human (health and fitness): $170 billion to $1.6 trillion
  2. Home (chore automation and security): $200 billion to $350 billion
  3. Retail Environments (automated checkout): $410 billion to $1.2 trillion
  4. Offices (security and energy): $70 billion to $150 billion
  5. Factories (operations and equipment optimisation): $1.2 trillion to $3.7 trillion
  6. Worksites (operations optimisation / health and safety): $160 billion to $930 billion
  7. Vehicles (autonomous vehicles and condition-based maintenance): $210 billion to $740 billion
  8. Cities (public health and transportation): $930 billion to $1.7 trillion
  9. Outside (logistics and navigation): $560 billion to $850 billion

The figures above show a potential of between $3.9 trillion and $11.1 trillion per year in 2025.  Working off the World Bank’s projection of global GDP in 2025 at $99.5 trillion annually the high end of $11.1 trillion is the equivalent to around 11% of the entire world’s economy.  It is predicted that in order to maximise IoT value it will take companies time to change their business models and there is likely to be a lag between investment and productivity gains (ROI) when seen at macroeconomic level.