There has been a surge in interest in the internet of things (IoT) in the past two to three years. The technology is gaining rapid traction with enterprises looking to deploy it to enhance their businesses and consumers using it to meet their day-to-day needs.
IoT is a network of networks comprising uniquely identifiable endpoints (or things) that communicate using-IP connectivity without any human interface. In other words, physical objects such as smartphones, energy meters, and household and electronic appliances are connected to each other using embedded sensors, actuators and other devices that can collect or transmit information about the objects. The data amassed from these devices is then analysed to optimise products, services and operations.
IoT architecture is multi-layered with each layer communicating with the next to deliver solutions and results. Intelligent systems or devices make up IoT’s most fundamental layer. Using IP connectivity, which is the second layer, these devices are aggregated onto a platform, which forms the third layer. Analytics is the last layer where applications are developed to analyse the data collected from various connected devices to deliver value to the end-user.
Given that IoT requires the interaction of multiple layers/tiers, it has opened up immense opportunities across the value chain, be it for IT vendors, device manufacturers, service providers or application developers. As a result, IoT is today being claimed to be the fastest emerging technology.
Global growth story
According to a 2015 study by the McKinsey Global Institute, IoT is likely to have a total potential economic impact of $3.9 trillion-$11.1 trillion per year by 2025, with the actual impact depending on factors such as the declining cost of technology and the level of acceptance among end-users. The estimate was arrived at by studying the possible economic value of a wide range of IoT applications, such as operations, sales enablement, product development, safety and consumer security applications.
In terms of distribution of the potential value of IoT, McKinsey suggests that greater IoT value is expected to be created in developed economies as compared to developing ones. However, the potential number of IoT use cases is likely to be higher in the latter. In fact, China is expected to emerge as one of the largest users of IoT systems in the coming years. A key advantage that developing countries have is the lack of legacy technologies that need to be displaced to enable IoT. This indicates potential opportunities for IoT players in such countries.
Industry analysts are of the view that the global IoT market is nearing an inflection point. The technology is receiving unprecedented attention from suppliers across the value chain. While investing in strengthening their market position, the incumbents are facing increasing competition from new entrants looking to capture the emerging opportunities in this space.
Meanwhile, the emergence of IoT on the global stage has been aided by a steep decline in the price of sensors, processors and networking equipment. Research and development efforts have resulted in higher efficiency and lower prices of semiconductor components that are central to most IoT products. In addition, there has been a rapid expansion in wireless network deployment across the world, making it relatively easy to add new networked devices to homes and offices.
Even as the supply side of the IoT market thrives, the demand is not too far behind. With the proliferation of smart devices and the roll-out of faster telecommunications networks, end-users are demanding applications that simplify their daily tasks. A recent study by Verizon shows that IoT network connections in the healthcare and pharmaceuticals industry witnessed a year-on-year increase of 26 per cent during 2015. Similarly, in home monitoring, IoT connections grew by 50 per cent during 2014, while connections in the agriculture market increased by 33 per cent. All these point towards the increasing acceptance of IoT across end-user segments.
Serving business and consumer needs
While IoT deployment is still at an early stage, its impact is beginning to be felt. In the consumer segment, there is growing use of wireless and fixed connectivity in security systems, energy meters, household appliances, wearable devices, consumer healthcare devices and connected cars. As per the GSM Association, annual shipments of connected home devices are likely to grow at a compound annual growth rate (CAGR) of 67 per cent during the period 2014 to 2019 to reach over 1,800 million units. McKinsey’s estimates regarding the economic impact of IoT applications in the home environment are pegged at $250 billion-$300 billion per year by 2025.
The impact of IoT is expected to be greater for businesses than for consumers. The McKinsey report suggests that business-to-business applications will capture nearly 70 per cent of the value created by IoT. Enterprises across industry verticals are leveraging IoT to drive business excellence. The technology has helped enterprises improve their revenue-earning capabilities. Many enterprises are now looking at monetising the data collected for improving internal operational efficiency. Companies are increasingly realising the role that data can play in lowering costs and increasing revenues. While currently only 8 per cent of businesses are using 25 per cent of their IoT data, an Oxford Economics study suggests that this could go up to 50 per cent in the next two to three years. In fact, IoT is likely to change the basis of competition and drive new business models across industries. Some industry experts suggest that IoT will enable manufacturers to evolve from just supplying goods to offering those goods as a service. The “as-a-service” approach will, in turn, encourage greater ties between the supplier and the consumer. Going forward, the IoT capability of an enterprise will become a key differentiator of its competitiveness.
Apart from the obvious benefits at the enterprise and consumer levels, IoT can also potentially transform the functioning of a city. With cities becoming the locus of technological innovations, the impact of IoT can be substantial. The technology can be leveraged to improve transportation, public safety and health, resource management and service delivery. According to the McKinsey study, IoT application in cities could have an economic impact of $930 billion-$1.6 trillion per year by 2025.
However, the key factor that needs to be addressed for realising the value arising from IoT is interoperability. Interoperability can be achieved by implementing systems or platforms that enable different IoT systems to communicate with one another. The ability of IoT devices and systems to work together is necessary to realise 40 per cent of the potential value that can be generated from IoT in various settings.
The emergence of IoT on the global stage has been aided by a steep decline in the price of sensors, processors and networking equipment.
Future outlook
IoT has the potential to fundamentally shift the way consumers and businesses interact with their surroundings. As per an IDC estimate, the installed base of IoT units across the world is expected to grow at a CAGR of 17.5 per cent, from 9.1 billion in 2013 to 28.1 billion in 2020. The IoT market revenue during the same period is estimated to go up from $1,928 billion to $7,065 billion. Yet another estimate by Statista suggests that the IoT market will increase from $601.2 billion in 2014 to $1,701 billion in 2019. Meanwhile, Gartner estimates that by 2020 there will be 20.8 billion connected things in the IoT space and in 2016, 5.5 million new things will get connected every day. Juniper Research, on the other hand, estimates that the number of IoT devices will hit 38.5 billion in 2020, up from 13.4 billion in 2015. While industry estimates vary quite widely, there is no denying the fact that the IoT market has reached its inflection point and is set to witness rapid growth.
However, there are certain challenges that need to be overcome in order to realise the full potential of IoT. While many developed countries are rapidly moving to adopt this technology, in developing countries, IoT may be a low priority area for the industry and the government for now. In addition, IoT’s global scalability potential is yet to be demonstrated. Meanwhile, privacy and security concerns, lack of standards, and a nascent ecosystem for application development are some of the other challenges that are hindering widespread uptake.
These challenges notwithstanding, a dynamic global industry is evolving around IoT and it presents immense opportunities for both the incumbents as well as new players.
