6 reasons why the IoT’s true value remains untapped

The Internet of Things could generate up to $11.1 trillion a year in economic value by 2025, McKinsey report says.

As if you hadn’t heard enough of the hype surrounding the Internet of Things, in comes McKinsey Global Institute’s 142-page report that reveals quite the opposite of some other analysts. In fact, the firm believes that we’re underestimating the potential impact of a more connected, much smarter world. By 2025, McKinsey says that the potential economic influence of the IoT, or what it defines as “having sensors and actuators connected by networks to computing systems,” could be anywhere from $3.9 to $11.1 trillion annually. This includes profits to device makers, efficiencies, new businesses and savings to consumers from better-run products.

(Source: McKinsey Global Institute,

(Source: McKinsey Global Institute / “Unlocking the potential of the Internet of Things”)

The biggest gains will be made by companies that can successfully figure out how to adapt to the next-gen technology, whether that’s more autonomous oil-drilling platforms or intelligent city traffic lights. Whatever the case, McKinsey notes that the economic opportunity created by the ever-growing IoT has barely been scratched. Here are six reasons why:

1. Only 1% of the data constantly being sent by sensors and RFID tags is being utilized. That’s because this information is used mostly to detect and control anomalies, not for optimization and prediction, which provide the greatest value.

2. Only focusing only on industries, not “settings. Instead of focusing on various verticals, McKinsey delves deeper into the changes taking place in nine different physical “settings” where the IoT can actually be deployed, such as the home, retail stores, offices, factories, industrial sites, inside vehicles, health and wellness, logistics and navigation, as well as cities. Of that $11 trillion in economic value, four of the nine settings top out at over $1 trillion in projected economic value – factories ($3.7 trillion), cities ($1.7 trillion), health and fitness ($1.6 trillion) and retail ($1.2 trillion). 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.

(Source: McKinsey Global Institute /

(Source: McKinsey Global Institute / “Unlocking the potential of the Internet of Things”)

3. Only thinking about B2C applications, not B2B. Ironically, B2B use cases will probably capture nearly 70% of the value than consumer use cases, although consumer applications like wearable fitness monitors and self-driving cars garner the most mainstream attention and can create significant value as well.

4. Ignoring the fact that “interoperability” could be the new “synergy,” in that it can increase the world without increasing the sum of the parts. According to McKinsey, approximately 40% of the total economic value of the IoT is driven by the ability of all the physical devices to talk to each other via computers. Adopting open standards is one way to accomplish interoperability, while the study points out that it can also be achieved by implementing systems or platforms that enable different IoT systems to communicate with one another. If machines can’t talk to each other, the report highlights that the market may only be a $3.9 trillion opportunity.

5. Underestimating the affect on developing economies. In terms of economic impact, there will be approximately a 60:40 split between economic gains for developed economies and developing economies. What’s more, McKinsey believes some of the greatest gains will be in developing nations, contingent upon setting, industry, and application. In other cases, these nations will be able to “leapfrog” others in IoT implementation given that there is no retrofitting of existing equipment or infrastructure. Nevertheless, the firm estimates that 62% of the potential annual economic impact of IoT applications in 2025 will be in advanced economies and that 38% will be in developing economies. As the values in developing economy markets rise, as will the economic impact associated with IoT.

(Source: McKinsey Global Institute /

(Source: McKinsey Global Institute / “Unlocking the potential of the Internet of Things”)

6. Forgetting about the new business models that will be formed. As in other technology waves, both incumbents and new players have opportunities. It’s not just that the Internet of Things will lead to efficiencies and cost savings, but it will lead to entirely new ways of doing business, too. Digitization blurs the lines between technology and other types of companies, like makers of industrial machinery, who are creating new business models by using IoT links and data to sell products-as-services.

“The digitization of machines, vehicles, and other elements of the physical world is a powerful idea. Even at this early stage, the IoT is starting to have a real impact by changing how goods are made and distributed, how products are serviced and refined, and how doctors and patients manage health and wellness,” McKinsey writes. “But capturing the full potential of IoT applications will require innovation in technologies and business models, as well as investment in new capabilities and talent. With policy actions to encourage interoperability, ensure security, and protect privacy and property rights, the Internet of Things can begin to reach its full potential—especially if leaders truly embrace data-driven decision making.”

Want to download the entire report? You can find it here.

2 thoughts on “6 reasons why the IoT’s true value remains untapped

  1. Pingback: 6 reasons why the IoT’s true value remains untapped - Internet of Things | Wearables | Smart Home | M2M

  2. Pingback: 6 Ways the Value of IOT Remains Untapped [INFOGRAPHIC] - Thinglogix

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