Value of IoT estimated at $11 T yearly in 2025

Posted on November 03, 2015

THE POTENTIAL economic value of the Internet of Things (IoT) is estimated at up to $11 trillion yearly over the next 10 years, a study by the research arm of global management consulting firm McKinsey & Company showed.

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In its June 2015 report titled “The Internet of Things: Mapping the value beyond the hype,” McKinsey Global Institute reported that IoT applications have a total potential economic impact of $3.9 trillion to $11.1 trillion per year in 2025. This estimate, MGI said, is based on a range of IoT adoption rates, economic and demographic trends, and the likely evolution of technology over the next 10 years.

MGI defined “the Internet of Things” as sensors and actuators connected by networks to computing systems.”

To estimate the potential economic impact of IoT across economies, MGI measured its applications in nine settings, namely: human (devices that monitor and maintain human health and wellness); home (home controllers and security systems); retail environments (stores, banks, restaurants -- anywhere consumers consider and buy); self-checkout (in-store offers, inventory optimization); offices (energy management and security in office buildings); factories (places with repetitive work routines, including hospitals and farms); worksites (mining, oil and gas, construction); vehicles (car, trucks, ships, etc.); cities (public spaces and infrastructure in urban settings); outside (railroad tracks, autonomous vehicles and flight navigation).

Of these settings, the study showed that factories are likely to have the greatest potential impact from IoT use -- as much as $3.7 trillion per year. Cities are the next largest, with value of up to $1.7 trillion per year, followed by human, with potential value of as much as $1.6 trillion per year. The smallest setting, in terms of potential value, is offices, which could generate benefits worth up to $150 billion per year.

“We estimate impact by examining applications that exist today, are evolving, or are likely to have significant adoption in 2025,” MGI said in the report.

The report measured both direct financial impact, such as potential savings from improved machine utilization, and non-financial factors, such as consumer time saved or improved health. It translated these non-financial impacts into economic value by gauging the value of time saved, improved health, extended life spans, etc.

The research firm however noted that these estimates “do not represent GDP contributions or the value of revenue generated by sales of IoT products and services; they are estimates of potential economic impact, including consumer surplus.”

Additionally, it said that relative sizes of impact by settings should not be considered rankings, since sizing is not comprehensive.

The report also excluded systems in which all of the IoT sensors’ primary purpose is to receive intentional human input, such as smartphone apps where the data input comes primarily through a touch screen, or other networked computer software where the sensors consist of the standard keyboard and mouse.

“For the IoT to have the maximum impact on economies and society, large-scale adoption is necessary,” the report read.

MGI cited five types of “enablers” for maximum IoT impact: software and hardware technology, interoperability, intellectual property, business organization, and public policy.

“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,” the report read.