Much like in the early days of the cloud, the Internet of Things (IoT) is making headlines heralding the possibilities and analysts are making big bets on its future. Global consulting firm McKinsey & Company is the latest to jump in with some bold predictions.
McKinsey Global Institute, the firm’s research arm, has concluded that the IoT hype may actually understate the technology’s full potential. That’s no small statement, given McKinsey is estimating IoT’s potential economic impact at as much as $11.1 trillion per year in 2025.
For the purpose of its research, the firm defines IoT as sensors and actuators connected by networks to computing systems. These systems can monitor or manage the health and actions of connected objects and machines. Connected sensors can also monitor the natural world, people, and animals.
“To realize the full potential from IoT applications, technology will need to continue to evolve, providing lower costs and more robust data analytics. In almost all settings, IoT systems raise questions about data security and privacy,” according to the “The Internet of Things: Mapping the Value Beyond the Hype," report. “And in most organizations, taking advantage of the IoT opportunity will require leaders to truly embrace data-driven decision making.”
Forcing New Business Models
McKinsey’s report doesn’t just look at the vertical industries in which IoT will be deployed, but also the physical settings, such as cities and work sites. Interoperability between IoT systems is critically important for maximizing value, according to the firm. On average, interoperability is required for 40 percent of potential value across IoT applications and by nearly 60 percent in some settings, the report noted.
McKinsey has identified nine settings, including homes, offices, factories, work sites (such as mining, oil and gas, and construction), retail environments, cities, vehicles, and the outdoors. The firm also identified a “human” setting for systems that attach to the human body and pave the way for health and wellness applications like monitoring chronic disease or exercise, and productivity-enhancing applications such as the use of augmented-reality technology to guide workers in performing complex physical tasks.
“The Internet of Things will enable -- and in some cases force -- new business models. For example, with the ability to monitor machines that are in use at customer sites, makers of industrial equipment can shift from selling capital goods to selling their products as services," according to the report. "Sensor data
will tell the manufacturer how much the machinery is used, enabling the manufacturer to charge by usage."
“Service and maintenance could be bundled into the hourly rate, or all services could be provided under an annual contract. The service might also include periodic upgrades (software downloads, for example)," according to the report. "Performance from the machinery can inform the design of new models and help the manufacturer cross-sell additional products and services. This 'as-a-service' approach can give the supplier a more intimate tie with customers that competitors would find difficult to disrupt.”
The Number Doesn’t Matter
We caught up with Zeus Kerravala, principal analyst at ZK Research, to get his thoughts on the report, and specifically that $11.1 trillion annual number. He told us he doesn’t think the exact number matters.
“It’s a little bit like back in 1990 if we tried to predict the economic impact of the Internet. Whatever we would have guessed would have been wrong because it has become so pervasive in our lives,” Kerravala said. “You can’t really put a number on it. The Internet is everything. There’s literally nothing in our lives that doesn’t involve the Internet today. The Internet of Things is similar.”
Right now, most people are thinking about IoT as a separate sector, but we should be looking at the possibilities it opens up, like the McKinsey report does, Kerravala said. In another five or six years, the concept of IoT will no longer be something we perceive as unusual, he said. It will be the status quo.
“There’s not going to be anything we do in our lives that doesn’t involve the analysis and connection of a bunch of things that traditionally weren’t connected,” Kerravala said. “The actual number doesn’t matter. It’s literally going to change the way we learn, work and live.”