The Internet of Things — digitizing the physical world — has received enormous attention. In this research, the McKinsey Global Institute set out to look beyond the hype to understand exactly how IoT technology can create real economic value. 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.
- Viewing IoT applications through the lens of the physical settings in which these systems will be deployed creates a broader view of potential benefits and challenges. Rather than just analyzing IoT uses in vertical industries, we also look at settings, such as cities and worksites. This shows how various IoT systems can maximize value, particularly when they interact. We estimate a potential economic impact—including consumer surplus—of as much as $11.1 trillion per year in 2025 for IoT applications in nine settings.
- Interoperability between IoT systems is critically important to capturing maximum value; on average, interoperability is required for 40 percent of potential value across IoT applications and by nearly 60 percent in some settings.
- Most IoT data are not used currently. For example, only 1 percent of data from an oil rig with 30,000 sensors is examined. The data that are used today are mostly for anomaly detection and control, not optimization and prediction, which provide the greatest value.
- Business-to-business (B2B) applications can create more value than pure consumer applications. While consumer applications such as fitness monitors and self-driving cars attract the most attention and can create significant value, we estimate that B2B uses can generate nearly 70 percent of potential value enabled by IoT.
- There is large potential for IoT in developing economies. Over the next ten years, we estimate higher potential value for IoT in advanced economies because of higher value per use. However, nearly 40 percent of value could be generated in developing economies.
- Customers will capture most of the benefits. We estimate that the users of IoT (businesses, other organizations, and consumers) could capture 90 percent of the value that IoT applications generate. For example, the value of improved health of chronic disease patients through remote monitoring could be as much as $1.1 trillion per year in 2025.
- A dynamic industry is evolving around IoT technology. Like other technology waves, there are opportunities for both incumbents and new players. Digitization blurs the lines between technology companies and other types of companies; makers of industrial machinery, for example, are creating new business models, by using IoT links and data to offer their products as a service.
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. And in most organizations, taking advantage of the IoT opportunity will require leaders to truly embrace data-driven decision making.
Where is the value potential of the Internet of Things?