In June of 2015, the McKinsey Global Institute published a report on the Internet of Things (IoT). The report analyzed the long term economic potential of IoT by examining over one hundred use cases and the IoT-based solutions in which they were generally deployed such as factories, homes, offices, and cities. It then estimated that the economic potential of IoT by 2025 would be approximately $3.9 trillion to $11.1 trillion per year.
The estimate was based on the likely evolution of technology and the rate of adoption of IoT solutions between 2015 and 2025, as well as economic and demographic trends. The estimated range was so wide because there were so many unknowns at that early stage in IoT’s development, including the costs of technology, the rate of development and deployment of these highly complex solutions, their level of acceptance by consumers and workers, and the policies and regulations enacted by governments.
Six years later McKinsey published a new report, The Internet of Things: Catching up to an accelerating opportunity, which updated the 2015 analysis. The recent report evaluated how much of its projected value in the earlier report had been captured and estimated the IoT’s economic potential through 2030, as well as the key headwinds slowing its progress and the key tailwinds propelling it forward.
“While the potential economic value from the IoT is large and growing, capturing this value has proved challenging,” said the recent report. “Our latest research shows that the total value captured in 2020 ($1.6 trillion) is at the lower end of the range of the scenarios we mapped out in 2015. We have updated our estimates for 2025 and beyond by adjusting for current conditions, and we have developed scenarios that account for the range of various uncertainties. In aggregate, both the low- and high-end scenarios are lower than the original 2015 estimates: around $2.8 trillion to $6.3 trillion in potential IoT economic value in 2025, compared with around $3.9 trillion to $11.1 trillion from the 2015 work.”
“The revisions reflect a world that has changed significantly since 2015,” explained the report, citing five key factors that have dampened the adoption of IoT solutions:
- Change management. Companies and governments have treated IoT as a technology project without the proper regard for the required changes in governance processes, talent, and performance management.
- Interoperability. IoT solutions require common standards and operating framework to overcome proprietary, walled architectures and other system barriers.
- Installation. Complex, costly installations are one of the biggest issues in the deployment of IoT solutions. “Almost every at-scale deployment requires customization, if not an entirely bespoke solution.”
- Cybersecurity. Security must be built in through every layer of an IoT solution to address the increasing cybersecurity concerns of consumers, firms, and governments.
- Privacy. Companies are grappling with how to respond to the increasing privacy concerns of consumers.
The new McKinsey report estimates that by 2030 IoT could enable $5.5 trillion to $12.6 trillion in global economic value. The report breaks down its economic estimates by IoT-based solutions and by use-case clusters. Let me summarize the key findings in each dimension.
IoT-based Solutions
As was the case in the 2015 report, McKinsey analyzed 9 different IoT-based solutions or settings. Let me discuss the four solutions with the largest potential.
Factories, - defined as dedicated, standardized production environments, - have the greatest economic potential: around $1.4 trillion to $3.3 trillion per year by 2030. Operations management in manufacturing is the top use case, accounting for 32% to 39% of the total estimate. It’s followed by predictive maintenance and food production in farms.
Human health applications have the second largest IoT potential at around $0.55 trillion to $1.8 trillion per year by 2030. Health applications include monitoring patients with chronic illnesses like diabetes and heart diseases, and improving the overall well-being of individuals, such as keeping track of their physical activity. Health information may also be provided to insurers and governments to be used for improving patient outcomes. “The COVID-19 pandemic has potentially accelerated the use of IoT solutions in healthcare, as the world wrestles with both virus containment and a safe return to the workplace.”
Work sites, - defined as custom production environments, - is another large application area with an economic potential of $.40 trillion to $1.73 trillion per year by 2030. Top uses cases include construction, oil and gas exploration, and mining. Work in these areas is constantly changing, unpredictable, and sometimes dangerous. Since no two sites or project are the same, each presents unique challenges making it difficult to streamline operations.
Cities have an economic potential of $1.0 trillion to $1.7 trillion per year by 2030. The largest use case in cities is centralized and adaptive traffic control, whose value comes from reducing the time spent in traffic and the corresponding CO2 reduction. The use of IoT in smart and autonomous vehicles is another very important use case, with the potential to significantly reduce the number of vehicle accidents resulting in death or serious injuries as well as property damage.
Use-case clusters
Use-case clusters are another way to analyze the economic value of IoT. The report assessed over 120 use cases across the 9 different IoT solutions and grouped them into 11 different use-case clusters.
The use-case clusters with the highest economic potential in 2030 are operations optimization (41% of the total), human-productivity (15%), health (15%), and condition-based maintenance (12%).
The report also estimated the growth rate of each use-case cluster between 2020 and 2030. Although its total economic potential is relatively small, smart and autonomous vehicles technologies have the fastest growth potential (37% CGR between 2020 and 2030). It’s followed by human productivity (27% CGR), condition-based maintenance (26%), inventory management (25%), safety and security (24%), sales enablement (24%), and operations optimization (23%).
The same factors, cited above, that dampened the adoption of IoT solutions between 2015 and 2020 could continue to do so through 2030. Let me conclude by listing the three major tailwinds that, according to the report, could materially accelerate the adoption of IoT solutions:
Perceived value proposition. “Customers see real value in deploying the IoT, a significant step forward compared with our findings in 2015. The IoT is a core enabler of the digital transformations and sustainability drives under way in companies and public institutions around the world. The $1.6 trillion in economic value generated from IoT solutions in 2020 exemplifies the technology’s ability to deliver value at scale.”
Technology. “The past five years have seen remarkable advances in technology. For the vast majority of IoT use cases, affordable technology exists that enables deployment at scale. Sensors now cover the entire spectrum, from visual to acoustic and everything in between; computing is more than fast enough; storage is ubiquitous; battery power has improved. Progress in hardware has been matched by significant developments in advanced analytics, AI, and machine learning that enable faster, more granular insights and automated decision making from data provided by sensors.”
Networks. “Networks act as the backbone that bring the IoT to life and make it all possible. Telecom companies’ fourth-generation (4G) networks have spread to cover more people at higher performance, and 5G networks are rapidly being deployed. Matched with improvements in other network protocols, customers have a wide range of connectivity options that can meet their requirements, be they associated with capacity, speed, latency, or reliability”
What I posted on FB
There is a fundamental disconnect between creating value in an IoT [sic] that uses the common facilities and trying to capture that value inside a network. Historically the facilities were a cost center to sell services like phone calls. Now that those services are apps, the old model makes no sense - no wonder deploying broadband is deemed costly -- it is funded as per the old model, which sees VoIP and streaming as competition.
I get more into this in https://rmf.vc/InternetPublicGood and https://rmf.vc/CIPPI, as well as other writings.
Posted by: Bob Frankston | August 25, 2022 at 08:21 AM