Ten trends shaping the Internet of Things business landscape
Experience working on the Internet of Things
indicates where the value lies.
Company
level
1. IoT is a business opportunity, not just a tech opportunity
In the past, IoT has often been viewed as
mostly a technology challenge, and we’ve found that a company’s CIO is most
frequently the leader of its IoT efforts. But we see time and again that
maximizing the economic impact of an IoT effort requires a broad set of changes
to business practices as well. Connecting a wind turbine to the Internet, for
example, means that it can send data to managers about when it needs to be
serviced or that an optimization opportunity exists. But if the necessary
management and maintenance business processes are not in place—for example, the
supply chain isn’t able to deliver a replacement part—then the benefits can’t
be realized.
2. Disciplined execution across multiple use cases is the path
to value
Several clients have asked us to help them
find the “killer app” for IoT. Given hundreds of IoT applications with a range
of potential value, we typically suggest that clients begin any IoT effort with
a clear vision and thoughtful reconceptualization of the business. We have
found both at clients and through independent research that the most IoT value (in terms of improvement to the bottom line)
comes from trying multiple use cases, each grounded on a
clear business case tied to the strategy, and executing them with discipline,
rather than the more common approach where the “sexiest” idea wins. The
greatest impact comes from following a learning curve that builds across use
cases (Exhibit 1).
Exhibit 1 IN THE ORIGINAL ARTICLE
3. IoT is gradually enabling more subscription business models,
but consumers are resistant
“Power by the hour” is a concept that has
been around in highly complex, expensive machinery such as aircraft engines for
decades. But connected assets of lesser complexity and value can now also be
sold by the hour or year. Instead of a fixed capital cost plus a maintenance
fee, manufacturers are increasingly offering “water pump by the hour” or
“compressed air by the hour” services, which can be financial win-wins for
sellers and buyers. On the household side, while nonconnected lower-value
products such as food and toiletries have long been available by subscription,
connected higher-value product subscriptions (for example, appliances and
computers) have become available but have so far trailed expectations. We
believe this is because these assets have a shorter life span compared with
industrial assets, leasing can achieve a similar benefit, and predictive
maintenance may be nonexistent, with replacement or warranty still preferred by
consumers.
Market
level
4. Favorable winds are blowing in heavy industrial sectors
The “industrial Internet” is real. We see clients gaining meaningful traction in oil and
gas, mining, utilities, and agriculture, while
impact is developing quickly in advanced industries such as automotive, complex
machinery, and discrete manufacturing. Whether connecting products that they
manufacture and sell or combining connected products into a more efficient
value chain, companies in these heavier industries lead the way in getting
value from IoT.
A top ten global energy company has used
IoT applications as part of a broader process- and technology-upgrade program
to reduce unit production costs by 33 percent over five years. In the last
three years, it has saved more than $9 billion in capital costs. Applying
IoT-enabled analytics to drilling-well data has also helped the company
increase the yield of mature oil wells.
5. Amazon and Google have hit critical mass in connected homes
The connected home has been a commercially
available concept for more than 25 years but has always failed to live up to
its hype. This is finally changing. Alexa and Google Assistant have achieved
critical mass and, despite some security and privacy concerns, are increasingly
integrated into how we operate things in our homes. Both are establishing a
position as the “control point” for the home, where previous attempts, by
comparison, were too expensive, too complicated, and less future-proof.
Consumers, especially younger ones, use these devices to initiate shopping,
control entertainment, adjust the thermostat and lighting, and even make
coffee. This has significant implications for IoT strategy as manufacturers and
retailers position their products and services to integrate with connected
homes.
6. Chinese IoT firms are winning locally and starting to gain
ground globally
Many Western start-ups and large companies
alike want to capture a small piece of the impressively large IoT market
opportunity in China. However, at nearly every turn, a credible Chinese company
has emerged to compete—for example, BAT (Baidu, Alibaba, Tencent) in native
cloud infrastructure as a service (IaaS), Xiaomi in wearables and smartphones,
Ayla in connected HVAC and appliances, or Lifesmart or Landing in smart home.
The Chinese IoT ecosystem appears to have the inside track regionally, and many
Western companies are finding it more challenging than expected. Also, these
Chinese IoT firms have global aspirations and are following Chinese industrial
companies that are globalizing and also moving into Belt &
Road initiative countries.
Technology
and data
7. Conflicts over data access are delaying business impact
For years, it was rarely a senior-level
decision to give the data created by a factory or a device to anyone making a
reasonable case to see it. But asset owners have become savvy and are
increasingly placing restrictions on who is allowed to view and use data coming
from their machines. Moreover, many governments have implemented strict data
sovereignty and privacy regulations, often for good reasons, but in practice
are creating further restrictions and complications. The company owning the
data-producing asset, for example, may not be the company best positioned to
leverage the data. Disputes and legal wrangling over data ownership and access
can delay value creation. We believe two basic scenarios will emerge: (1)
companies will be open to sharing data with OEMs, since this provides more
value to the operator than going it alone (for example, aircraft engines); or
(2) operators will keep control of data to differentiate performance (for
example, mining trucks, where the operating conditions are highly variable).
8. Cost pressures are determining whether the cloud or the
‘edge’ environment wins out as the IoT host environment
A common assumption among those new to IoT
is that data need to be in the cloud or some similar central location in order
to be analyzed. Sometimes this is true, but as long as data transmission costs
remain high, especially for remote industrial environments, performing some
analytics at the “edge”—that is, adjacent to where the data was produced—will
become an option. In many industrial sectors with mobile and/or remote assets
(such as oil and gas, aviation, and transportation), shifting some analytics
intelligence to the edge may be more cost effective. Autonomous vehicles face a
similar challenge; even with better data-transport technologies such as 5G,
response times for rapidly moving vehicles may make an edge-based solution more
relevant. For the most part, the debate about whether to store data and
analytics at the edge or centrally on the cloud hinges on which is decreasing
faster: the cost and latency of data transmission or the cost of “smarter” edge
equipment. Both are declining in price, but there is still no clarity about
which approach will prevail.
9. Cyberattacks are not noticeably derailing existing IoT
efforts
Cybersecurity is top of mind for
virtually every CXO who is involved in IoT. According to our research and
surveys, almost 50 percent admit they have been attacked (and it’s likely that
a significant number of the others have been as well and haven’t yet realized
it). Of those who know they’ve been attacked, more than 25 percent experienced
what they call high or severe damage as a result (Exhibit 2). Cybercrime is a
persistent risk requiring diligence and care. That said, however, even
companies that have been attacked and significantly damaged are for the most
part not significantly curtailing their IoT activities. In short, cybersecurity
is a big concern, but not a barrier to IoT adoption in most cases. Companies
doing IoT at scale view it as a strategic imperative, and while they may change
policy and invest more in cybersecurity, they are not ratcheting back IoT
activities.
Exhibit 2 IN THE ORIGINAL ARTICLE
10. Artificial intelligence (AI) has caught on in IoT in the
past two years
AI has been around in some form since the
1960s but often has generated more hype than results. While some hype remains,
real use cases with valuable results are emerging, particularly around machine
learning (ML), as adoption steadily increases. According to our research, AI
and ML are being used in 60 percent of IoT activities. What changed? Three
major things have spurred the increase in the use of AI: the convergence of
algorithmic advances, data proliferation, and tremendous increases in power and
storage capabilities at a lower cost. For AI and ML to scale, production-grade
data platforms are needed. Clearly, business leaders expect that to happen,
with adoption of AI and ML expected to outpace other technologies (Exhibit 3).
Exhibit 3 IN THE ORIGINAL ARTICLE
IoT, perhaps the most transformative and
compelling application of innovative technologies for businesses and consumers
today, remains in the early stages of its revolution. But significant trends
are emerging. Those who are able to listen, learn, and adapt are likely to be
the winners.
By Eric
Lamarre and Brett
May
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/ten-trends-shaping-the-internet-of-things-business-landscape?cid=other-eml-alt-mip-mck&hlkid=4594adde5e744a7a983d6c9f94a92f27&hctky=1627601&hdpid=1117bc77-3cf1-44f3-a5b5-6d0292addfc0
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