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Highlights from McKinsey’s new IoT report

The Internet of Things (in short, the digitization of the physical world) has received tremendous hype in the past few years due, in great part, to its vast and seemingly unquantifiable potential. In a June 2015 report entitled, “The Internet of Things: Mapping the Value Beyond the Hype,” the McKinsey Global Institute analyzed where and how IoT technology will be able to create significant economic impact. Shockingly, to those that have experienced the hype surrounding all things IoT, the central finding of McKinsey’s research was “that the hype may actually understate the full potential of the Internet of Things”. So where then, can real value be created?

  • In a word, interoperability. Communication between systems multiplies potential value, which means that interoperability plays a crucial role in creating significant economic impact. McKinsey reports that 40 percent of the potential value of the IoT can be created through the interoperability of systems. In dollars, this number is more than 4 trillion per year in potential economic impact.
  • The full exploitation of Big Data. McKinsey reports that less than one percent of generated data on offshore oil rigs is used to make decisions. Rather, in most scenarios, big data is used simply to detect and control for anomalies. Additional value can be created through the exploitation of data for predictive decision making. To do this, more sophisticated IoT applications need to be deployed that can capture as well as utilize big data to optimize operating efficiency across multiple systems.
  • Comparable value between advanced and developing economies. The difference is that advanced economies will experience higher value per deployment, but the potential number of IoT uses will almost certainly be higher in developing economies. McKinsey estimates that 62 percent of the potential economic impact of IoT applications will come out of advanced economies versus 38 percent in developing economies.
  • B2B applications have greater potential economic value than B2C applications. McKinsey notes that even though consumer industries receive most of the hype around IoT applications (think, smart watches), the greatest economic impact will be seen in the less sexy B2B products such as worksite applications within the mining industry.
  • Users (as opposed to suppliers) of IoT technologies will receive the most benefit. Consistent with findings in other tech markets, the customer will capture the most value—McKinsey estimates up to 90 percent in this particular case. In terms of value opportunities for technology suppliers, McKinsey estimates that the largest share will go to software and services, and the remaining portion will go to hardware.
  • New Business Models. The rapid spread of IoT applications will facilitate, and sometimes even force the evolution of new business models. According to McKinsey, the “as-as-Service” trend is set to explode as suppliers of IoT technologies make the shift from selling products to selling their products as services. McKinsey research indicates a growing need for “end-to-end” IoT solutions, giving the savvy supplier the opportunity to up- and cross-sell to consumers who desire not only a solution’s implementation and regular maintenance, but additional customization.

 

Is your business ready to take on the challenges and potential posed by the Internet of Things? Did the findings of the McKinsey IoT report surprise you?

More fully, McKinsey defines the Internet of Things as “sensors and actuators connected by networks to computing systems,” McKinsey Global Institute, “The Internet of Things: Mapping the Value Beyond the Hype,” p. 11, Box E1. McKinsey Global Institute, Executive Summary, “The Internet of Things: Mapping the Value Beyond the Hype,” p.4.

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