For instance, McKinsey says less than 1% of the data being generated by the 30,000 sensors on an offshore oil rig is currently used to make decisions. And even with the data that is actually used, such as in manufacturing automation systems on factory floor, McKinsey says "most are used only for real-time control or anomaly detection. A great deal of additional value remains to be captured, by using more data, as well as deploying more sophisticated IoT applications, such as using performance data for predictive maintenance or to analyze workflows to optimize operating efficiency. Indeed, IoT can be a key source of big data that can be analyzed to capture value, and open data, which can be used by more than one entity."

Interestingly, McKinsey also finds that B2B applications of IoT have greater economic potential than consumer applications, though it does not provide much detail to really back up this statement.

The report also says that users of IoT technologies will capture most of the potential value over time, as opposed to providers of IoT-based systems.

"As in other technology markets, the end customer ultimately captures the most value," McKinsey says. "Eventually, we estimate that customers (such as factory owners using machines guided by IoT technology, operators of transportation fleets, and consumers) will capture upwards of 90% of the value opportunities IoT applications generate."

It notes that in many settings, customers will capture value in both direct and indirect ways, such as being able to buy more efficient machinery that is designed using IoT data from older products in use. Of the value opportunities created by the Internet of Things that are available to technology suppliers, in general the largest share will likely go to services and software and less will likely go to higher hardware prices.

As with many others, McKinsey believes the Internet of Things will change the bases of competition and drive new business models for user and supplier companies. For example, with the ability to monitor machines that are in use at customer sites, makers of industrial equipment can shift from selling capital goods to selling their products as services.

Similarly, sensor data will tell the manufacturer how much the machinery is used, enabling the manufacturer to charge by usage.

"Service and maintenance could be bundled into the hourly rate, or all services could be provided under an annual contract. The service might also include periodic upgrades (software downloads, for example). Performance from the machinery can inform the design of new models and help the manufacturer cross-sell additional products and services. This "as-a-service" approach can give the supplier a more intimate tie with customers that competitors would find difficult to disrupt."

Not said in the report, those new business model can only really create value for suppliers if they are able to in the end charge more money for their products under the new pricing model than the traditional approach - which in turn assumes end customers will be willing to spend more of their money for the new offering. Will it really work out that way, or will IoT capabilities simply be a new feature that suppliers in effect give away to remain competitive?

That is a real possibility, SCDigest believes, and not really addressed in the McKinsey study.

On the supply chain side, McKinsey sees the factories setting as one of the largest sources of value from the adoption of the Internet of Things, potentially generating an economic impact of $1.2 trillion to $3.7 trillion per year by 2025. It defines factories in the broadest sense to include all standardized production environments, including hospitals and in agricultural settings in addition to manufacturing facilities.

"In the factories setting, value from the Internet of Things would arise chiefly from productivity improvements, including 10 to 20% energy savings and a 10 to 25% potential improvement in labor efficiency," McKinsey said. "Improvements in equipment maintenance, inventory optimization, and worker health and safety are also sources of value in factories."

In the "outside" setting, McKiney sees potential value creation of $560 billion to$850 billion per year in 2025 through improved transportation routing and inventory tracking, although as with value creation in the other settings not much if any detail is provided to back up these numbers.

McKinsey notes that the price of MEMS (micro-electromechanical systems) sensors, which are used
in smartphones, has dropped by 30 to 70% in the past five years, noting that "A similar trajectory is needed for radio-frequency identification (RFID) tags and other hardware to make IoT tracking practical for low-value, high-volume items in package delivery and retailing."

Whether that price drop will occur is still a big question.

"The digitization of machines, vehicles, and other elements of the physical world is a powerful idea. Even at this early stage, the Internet of Things is starting to have real impact," McKinsey concludes. "The Internet of Things is changing how goods are made and distributed, how products are serviced and refined, and how doctors and patients manage health and wellness. Capturing that potential will require innovation in IoT technologies and business models, and 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."

The full report is available here: The Internet Of Things: Mapping the Value Beyond the Hype

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