The Internet of Things (IoT): 9 Predictions and Facts

internet-of-thingsA number of new reports on the Internet of Things (IoT) provide a fresh look at the state of this hot market and forecasts for its future impact on the world’s economy.

IDC discussed The Internet of Things Mid-Year Review at a webinar on July 23, including findings from a survey of 3,566 companies in North America. IDC defines IoT as “a network of uniquely identifiable ‘things’ that communicate without human interaction using IP connectivity.” Tata Consulting Services (TCS) issued a report titled The Internet of Things: The Complete Reimaginative Force, based on a survey of 3,764 executives worldwide. TCS defines the IoT as “smart, connected products.” The McKinsey Global Institute (MGI) published The Internet of Things: Mapping the value beyond the hype. MGI defines IoT as “sensors and actuators connected by networks to computing systems” and excludes “systems in which all of the sensors’ primary purpose is to receive intentional human input, such as smartphone apps.” Finally, Business Insider (BI) issued The Smart City report on IoT initiatives in cities worldwide.

The economic impact of the IoT will re-shape the world’s economy

The IoT has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025. At the top end, that level of value—including the consumer surplus—would be equivalent to about 11 percent of the world economy (MGI). The Internet of Things (IoT) market will expand from $780 billion this year to $1.68 trillion in 2020, growing at a CAGR of 16.9%.  Sensors/modules and connectivity account for more than 50% of spending on IoT, followed by IT services at more than 25% and software at 15%. Traditional IT hardware accounts for less than 5% of total spending on IoT (IDC)

Investments in IoT technologies by cities worldwide will increase by $97 billion from 2015 to 2019. The cities’ IoT deployments will create $421 billion in economic value worldwide in 2019. That economic value will be derived from revenues from IoT device installations and sales and savings from efficiency gains in city services (BI).

There will be almost 30 billion of IoT devices in 2020

In 2015, 4,800 connected end points are added every minute. This number will grow to 7,900 by 2020. The installed base of the Internet of Things devices will grow from 10.3 billion devices in 2014 to 29.5 billion in 2020. 19 billion of these devices will be installed in North America in 2020 (IDC). The number of IoT devices installed in cities will increase by more than 5 billion in the next four years (BI).

The IoT will be primarily an enterprise market

In 2018, the IoT installed base will be split 70% in the enterprise and 30% in the consumer market, but enterprises will account for 90% of the spending (IDC). Business-to-business applications will probably capture more value—nearly 70 percent of it—than consumer uses, although consumer applications, such as fitness monitors and self-driving cars, attract the most attention and can create significant value, too (MGI).

Over the next few years, North America will still be the focal point for the IoT

The IoT has a large potential in developing economies, but it will have a higher overall value impact in advanced economies because of the higher value per use. However, developing economies could generate nearly 40 percent of the IoT’s value, and nearly half in some settings (MGI). 2020 will be a tipping point year for Asia, when it will become the geographical region with the largest installed base of IoT devices (IDC). North American companies will spend 0.45% of revenue this year on IoT initiatives, while European companies will spend 0.40%. Asia-Pacific companies will invest 0.34% of revenue in the IoT, and Latin American firms will spend 0.23% of revenue. North American and European companies are more frequently selling smart, connected products than are Asia-Pacific and Latin American companies (TCS).

The telecommunication industry leads other sectors in IoT investments

The Telecommunications, banking, utilities, and securities/investment services industries are the leading sectors investing in IoT in 2015 (IDC). In gaining benefits from the IoT, industrial manufacturers reported the largest average revenue increase from their IoT initiatives last year (29%), and they forecast they’d have the largest revenue increase from the IoT by 2018 (27% over 2015). Industrial manufacturers were also in the lead for using sensors and other digital technologies to monitor the products they sold to customers (with 40% of the companies doing so) (TCS).

IoT adoption is gaining momentum worldwide

36% of companies in North America have IoT initiatives in 2015 (IDC). 79% of companies worldwide already use IoT technologies, investing 0.4% of revenue on average. They expect their IoT budgets to rise by 20% by 2018 to $103 million (TCS).

Costs and customers are the key drivers of IoT investments

Lower operational costs and better customer service and support lead the list of significant drivers of current IoT initiatives. In large companies, business process efficiency/operations optimization and customer acquisition and/or retention also top the list (IDC). Companies with IoT programs in place reported an average revenue increase of 16% in 2014, in the areas of business where IoT initiatives were deployed. In addition, about 9% of firms had an average revenue increase of more than 60%.The biggest product and process improvements reported by companies were more customized offerings and tailored marketing campaigns, faster product improvements, and more effective customer service (TCS). Cities are adopting IoT technologies because they deliver a broad range of benefits for cities including reducing traffic congestion and air pollution, improving public safety, and providing new ways for governments to interact with their citizens (BI).

Security, culture change, determining priorities, and optimizing ROI are key IoT concerns

Security issues top the list of current barriers to IoT adoption (especially with larger companies), followed by funding the initial investment at the scale needed, determining the highest priority use cases, and changing business processes (IDC). identifying and pursuing new business and/or revenue opportunities that the IoT makes possible, and determining what data to collect, are key issues. Also important are getting managers and workers to change the way they think about customers, products, and processes, and having top executives who believe the IoT will have a profound impact and are willing to invest in it (TCS). Currently, most IoT data are not used. For example, on an oil rig that has 30,000 sensors, only 1 percent of the data are examined. That’s because this information is used mostly to detect and control anomalies—not for optimization and prediction, which provide the greatest value (MGI).

Microsoft leads the IoT market

The top 5 vendors mentioned as the IoT provider companies “plan to work with within the next 2 years” are: Microsoft, AT&T, Verizon, Cisco, and IBM. For large companies (more than 1000 employees), Microsoft and Cisco lead the list (IDC).

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