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Unlocking the Potential of the Internet of Things
The Internet of Things IoT, which encompasses interconnected sensors, actuators, and computing systems linked by networks, has garnered significant attention over the last five years. The McKinsey Global Institute's report The Internet of Things: Mapping the Value Beyond Hype eavors to assess the actual potential for real economic value that IoT technologies can generate.
Our core is that while the hype might underestimate the full potential, capturing this value requires a clear understanding of where genuine benefits can be realized and a concerted effort to address system issues like interoperability.
To gn a comprehensive view on IoT's potential advantages across the global economy, we analyzed over 150 use cases, ranging from individuals monitoring their health with wearable devices to manufacturers leveraging sensors to optimize equipment mntenance and worker safety Figure. This bottom-up approach estimates that IoT could generate total economic impact up to $3.9 trillion to $11.1 trillion annually by 2025-a figure equivalent to about 11 of the global economy at the upper estimate.
Achieving this level of value would hinge on specific conditions being met, notably overcoming technical, organizational, and regulatory obstacles. Here are our key findings:
Interoperability is crucial for IoT system effectiveness. On average, interoperability facilitates approximately 40 of total potential economic value created by IoT applications, while in certn contexts it accounts for nearly 60.
Currently, most IoT data are unused. For example, on an oil rig with 30,000 sensors, only a tiny fraction is analyzed. This information is mnly used to detect and control anomalies rather than for optimization and prediction, which offer the greatest value.
Business-to-business applications are expected to capture around 70 of the IoT's total value compared to consumer uses. While consumer applications like fitness trackers and autonomous vehicles garner much attention due to their potential for significant impact, they also have high value generation capacity.
IoT has substantial potential in developing economies. Despite this, our estimations suggest that advanced economies could see higher per-application values because of the greater economic output per unit of technology deployment. Yet, developing economies are forecasted to generate nearly 40 of the IoT's total value and nearly half in certn scenarios.
Users-be they businesses, organizations, or consumers-are poised to capture most benefits from IoT applications 90 according to our estimates. For instance, remote monitoring could create up to $1.1 trillion annually by improving health outcomes for patients with chronic conditions by 2025.
A dynamic industry is reshaping around IoT technology as in other waves of innovation. Established players and newcomers alike have opportunities, with the blurring of traditional boundaries between tech companies and other sectors e.g., manufacturers offering products-as-a-service.
The transformative potential of digitizing s, vehicles, and physical elements promises to reshape manufacturing, service delivery, healthcare management, among others. However, realizing this potential requires technological innovation, business model evolution, strategic investments in new capabilities, and talent.
Policies that promote interoperability, ensure security, and safeguard privacy and property rights can enable the Internet of Things' full potential. Moreover, a culture embracing data-driven decision-making is essential for unleashing IoT's potential benefits.
AUTHORS
James Manyika, Lola Woetzel, and Richard Dobbs are directors at the McKinsey Global Institute MGI, with Michael Chui as a partner. Peter Bisson leads MGI's Stamford office, Jacques Bughin oversees the Brussels office, while Dan Aharon contributes from the New York office.
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