The McKinsey Global Institute (MGI) has published what must surely be one of the most comprehensive assessments to date of the potential for IoT, putting an upper limit on its potential economic impact by 2025 of $US11.1 trillion, or about 11 percent of the World Bank’s estimate of value of the world economy by that time.
In its 144 page report The Internet of Things: Mapping the Value Beyond the Hype, McKinsey maps the future of IoT. It examines the impact of IoT across nine environments: homes, offices, factories, worksites (mining, oil and gas, and construction), retail environments, cities, vehicles, and the outdoors and includes a “human” setting for systems that attach to the human body and enable such health and wellness applications as monitoring chronic disease or exercise, and productivity-enhancing applications such as use of augmented-reality technology to guide workers in performing complex physical tasks.
Its very bullish predictions come with some significant caveats: “On average, interoperability is necessary to create 40 percent of the potential value that can be generated by the Internet of Things in various settings. We also see that making IoT applications interoperable—linking a patient’s home health monitor to the hospital’s health informatics system, for example—is a complex systems design challenge that requires coordination on many levels (technology, capital investment cycles, organisational change, and so forth).”
The study does not appear to give any estimate of the economic impact of IoT today, but clearly if it is to achieve an impact even at the lower end of MGI’s estimates ($3.9T) in just 10 years its impact will be enormous and the disruption created widespread: new disruptive startups are likely to come from nowhere to become global powerhouses and established industry giants wither.
Far reaching conclusions
MGI’s conclusions give some indication of what might happen and what actions are needed to anticipate and exploit the age of IoT.
It suggests: “Consumers will have the most to gain—perhaps years of life from IoT health applications and safer transportation, greater convenience and time savings, and less costly goods and services.” On the down side, “Consumers will have to balance potential benefits with privacy concerns. … [They will have to be discerning about how they engage with … information and with whom they share it.”
To build competitive advantage in the IoT market, technology suppliers will “need to create distinctive technology, distinctive data, software platforms, or end-to-end solutions,” it warns: “Those that fail to do so risk commoditisation and loss of business.”
Perhaps the greatest challenge will be to one of the slowest moving areas of society: governments. “Policy makers and governments will have to ensure that these new systems are safe and that IoT data are not being stolen or abused. … With vital infrastructure connected to the Internet, security threats will multiply, which governments will need to address. Policy makers also have an important role in enabling the Internet of Things by leading and encouraging standards that will make interoperability and widespread adoption possible.”
In trying to map the future of something in such an early stage of development and with such potentially disruptive impacts, MGI has taken on a huge challenge. No doubt many of its forecasts will prove to be wide of the mark, but the document should be read by just about anybody whose business could be disrupted by IoT or whose business could exploit IoT. In other words: everybody in business.