Like many technological advances, the Internet of Things (IoT) has been long in coming. Ubiquitous or Pervasive Computing dates back to the 1990s, when neither the necessary low-cost devices nor ubiquitous wireless networking were anywhere near ready. But IoT has now reached an inflection point, with over 10 billion interconnected smart devices already out there, a number that’s expected to rapidly expand to 10s of billions by 2025 and to 100s of billions in the decades ahead.
“The myriad possibilities that arise from the ability to monitor and control things in the physical world electronically have inspired a surge of innovation and enthusiasm,” writes McKinsey in a June, 2015 report - The Internet of Things: Mapping the Value Beyond the Hype. The report analyzes the long term economic potential of IoT, and uses this analysis to estimate the economic value of several IoT-based solutions by 2025. Given the breadth and complex nature of IoT-based solutions, quantifying their potential value is very difficult indeed, especially since such smart solutions, - e.g., smart cities, smart homes, smart healthcare, - are still in the very early stages of development.
The McKinsey study introduces an innovative approach for estimating IoT’s future impact and economic value. In addition, it identifies the key enablers required to realize this value and generates a broad set of findings on the likely evolution of IoT over time. Details of the study can be found in the comprehensive 144-page report, whose key points I will summarize below.
Settings-based Economic Value
The study is based on a careful analysis of over 150 concrete IoT applications across the global economy. It applied a bottom-up modeling methodology to estimate the potential economic value of these various applications, including productivity improvements, time savings, better asset utilization and reduced accidents.
After reviewing the results of their analysis, the study concluded that looking at IoT through the lens of individual applications and industries was inadequate. Instead, IoT should be viewed through the lens of so-called settings, - the physical environments in which these various systems and applications are deployed, - which better captures the overall value created for all parties in each setting, - e.g., companies, government, consumers and workers. 9 such distinct settings were defined, along with the major applications that apply in each.