ByIrving Wladawsky-Berger
Like many technological advances, the Internet of Things 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 tens of billions by 2025 and to hundreds 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 & Co. 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,–smart cities, smart homes, http://www.[wsj-ticker%20ticker=/smart health care–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. This setup can better capture the overall value created for all parties in each setting–companies, government, consumers and workers. Nine such distinct settings were defined, along with the major applications that apply in each.
- Human - Monitor and promote improved health, wellness, fitness, and productivity using personal wearable devices and appliances
- Home - Energy management, security, safety, and automation of home chores
- Retail Spaces - Automated checkout, layout optimization, customer care, real-time personalized promotions
- Offices - Organizational and personal productivity, training, energy monitoring, building security
- Factories - Production and supply-chain optimization, quality control, predictive maintenance, inventory management, health and safety
- Outdoor Worksites - Optimization of custom operations, equipment maintenance, health and safety, worker productivity; includes construction, mining, oil and gas exploration and production
- Vehicles - Improved safety, condition-based maintenance, new service and business models, in-vehicle communications and entertainment; includes cars, trucks, ships, aircraft, trains
- Cities/Urban Spaces - infrastructure management, water and energy conservation, public safety and health, traffic control, environmental monitoring, quality-of-life services
- Outside/Other - Logistics routing, shipment tracking, operations optimization, real-time ship and flight navigation, railroad track monitoring
- Technology. This includes inexpensive, low power sensors and computing devices; ubiquitous, low-cost connectivity; and the ability to collect, analyze, distributed and store huge amounts of data.
- Interoperability. This is the most critical requirement for integrating and realizing the value of IoT systems and applications within each of the physical settings in which they are deployed; “without interoperability, at least 40 percent of potential benefits cannot be realized.” Interoperability requires both standardization in the technology stacks, and the ability to integrate systems and platforms across vendors.
- Privacy, Security, Confidentiality and IP. Data is absolutely essential to IoT systems. It’s what makes them smart. Providers of IoT products and services must establish trust with consumers and businesses to gain access to the necessary data. Similarly, trust must be established between the various companies collaborating in IoT settings, which includes respect for everyone’s IP and data ownership and rights.
- Business Organization and Culture. “Implementing IoT-based systems will require major organizational and behavioral shifts for businesses.” These include integrating IoT across just about all of a company’s operations and processes; embracing data-driven decision making; adopting new IoT business models when called for; and embracing a culture of collaboration and sharing with clients, business partners and consumers.
- Public Policy. The digitization of the physical world requires considerable support and actions from policy makers. These include policies to protect the privacy and rights of consumers and businesses; stronger security requirements for critical IoT devices and systems; incentives that promote fair data sharing across companies; and new regulations for autonomous vehicles and machinery.
- “Interoperability. “Interoperability is critical to maximizing the value of the Internet of Things. On average, 40 percent of the total value that can be unlocked requires different IoT systems to work together.”
- Data. “Most IoT data collected today are not used, and the data that are used are not fully exploited. A critical challenge is to use the flood of big data generated by IoT devices for prediction and optimization.”
- Advanced/developing economies. “Comparable amounts of value can be unlocked by IoT in advanced and developing economies. Over the next ten years, more value can be captured in advanced economies than in developing ones, although the volume of IoT deployments could be higher in developing economies.”
- B2B/B2C applications. “Even though consumer applications such as fitness devices garner the most attention, B2B applications offer far more potential economic impact than purely consumer applications. And even more value can be created when consumer devices are connected to B2B systems.”
- Value capture. “As in other technology markets, customers are likely to capture the most value (upward of 90 percent or more in IoT applications over time, we estimate). The remaining value will be divided among various players providing both broad-based technology and detailed knowledge of vertical markets.”
- New business models. “The Internet of Things will give rise to new business models and bases of competition, both for the companies that use IoT systems and for those that supply IoT technology.”
“Our central finding is that the hype may actually understate the full potential of the Internet of Things – but that capturing the maximum benefits will require an understanding of where real value can be created and successfully addressing a set of systems issues, including interoperability.”
Irving Wladawsky-Berger worked at IBM for 37 years and was then strategic advisor to Citigroup for 6 years. He is an advisor to MasterCard and HBO, is affiliated with MIT, NYU and Imperial College, and is a regular contributor to CIO Journal.
