The Internet of Things

Abstract

The Internet of Things (“IoT”), networks of connected machines and sensors with the ability to monitor and manage objects in the physical world electronically, has substantial economic potential. IoT technology has a wide range of applications, such as optimizing the performance of industrial operations and infrastructure systems; coordinating self-driving cars; managing the energy efficiency and security of homes and offices; and monitoring patients remotely. Drawing on a body of research by the McKinsey Global Institute (most notably, The Internet of Things: Mapping the value beyond the hype, June 2015), this chapter finds that the IoT could generate anywhere from $3.9 trillion to $11.1 trillion in annual economic impact by 2025. We arrive at these figures through a bottom-up quantification of economic surplus that examines multiple use cases clustered in nine types of settings where IoT technology has relevance. We also highlight some of the fundamental enablers that will be necessary for this value to be realized, including industrial adoption, interoperability standards, cybersecurity, and regulatory certainty regarding issues such as data sharing and liability. While these factors are not yet certain, we conclude that the current hype of IoT is somewhat justified. Indeed, if these issues are resolved quickly and fully, the eventual economic value may exceed current expectations.