Ten IoT trends shaping the business landscape

Technology News | February 11, 2019

By Rich Pell

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The company says it has noticed these trends while working with clients during the past year, and considers IoT to be “perhaps the most transformative and compelling application of innovative technologies for businesses and consumers today.” The trends range in scope, from the company and market level up to the actual technologies and data.

At the company level, McKinsey sees three trends emerging:

IoT is a business opportunity, not just a tech opportunity – In the past, IoT has often been viewed as mostly a technology challenge, with a company’s CIO most frequently seen as the leader of its IoT efforts. But maximizing the economic impact of an IoT effort requires a broad set of changes to business practices as well.
Disciplined execution across multiple use cases is the path to value – 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.
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. Manufacturers are increasingly offering “water pump by the hour” or “compressed air by the hour” services. On the household side, while non-connected 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.

McKinsey sees the following trends occurring at the market level:

Favorable winds are blowing in heavy industrial sectors – The “industrial Internet” is real. The company sees 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.
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.
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. 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.

Finally, at the technology and data level, the company sees the following trends emerging:

Conflicts over data access are delaying business impact – Asset owners 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 sees two basic scenarios emerging: (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.
Cost pressures are determining whether the cloud or the edge environment wins out as the IoT host environment – 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 than having them in the cloud. 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. 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.
Cyberattacks are not noticeably derailing existing IoT efforts – Cybersecurity is top of mind for virtually every CXO who is involved in IoT. According to McKinsey’s research and surveys, almost 50% admit (or realize) they have been attacked, and of those who know they’ve been attacked, more than 25% experienced what they call high or severe damage as a result. However, even companies that have been attacked and significantly damaged are for the most part not significantly curtailing their IoT activities.
Artificial intelligence (AI) has caught on in IoT in the past two years – Real use cases of AI with valuable results are emerging, particularly around machine learning (ML), as adoption steadily increases. According to McKinsey’s research, AI and ML are now being used in 60% of IoT activities, the increase a result of three major factors: the convergence of algorithmic advances, data proliferation, and tremendous increases in power and storage capabilities at a lower cost.

For more, see “Ten trends shaping the Internet of Things business landscape.”