We define “the Internet of Things” as sensors and actuators connected by networks to computing systems. These systems can monitor or manage the health and actions of connected objects and machines. Connected sensors can also monitor the natural world, people, and animals. For the purposes of this research, we exclude systems in which all of the sensors’ primary purpose is to receive intentional human input, such as smartphone apps where the data input comes primarily through a touchscreen, or other networked computer software where the sensors consist of the standard keyboard and mouse.
McKinsey Global Institute
1. Introduction What we would recognize as the Internet of Things from our definition has been evolving for two decades. Consumer goods manufacturers and retailers have long used RFID tags on shipping pallets to manage inventory, for example. Today we are entering a critical stage in IoT evolution. A number of significant technology changes have come together to enable the rise of IoT. The prices of IoT hardware are dropping, putting sensors, processing power, network bandwidth, and cloud storage within reach of more users and making a wider range of IoT applications practical.
2. There is also progress toward ubiquitous wireless coverage at a low cost, an essential enabler for widespread adoption. IoT applications also benefit from advances in big data and advanced analytics capabilities. While additional cost improvements and continuing advances in technology are needed to achieve the maximum economic impact that we estimate for 2025, advances to date have accelerated adoption.
3. We also observe the emergence of an Internet of Things ecosystem, another enabler of adoption. This includes vendors that specialize in IoT hardware and software, systems integrators, and a growing community of commercial and consumer IoT users.7 The actions of policy makers can advance or retard the evolution of the Internet of Things from this point.
4. As we will discuss in Chapter 4, the potential economic impact that we estimate for IoT applications in 2025 depends on measures to make IoT data secure, protect personal privacy and intellectual property, and encourage interoperability among IoT devices and systems.
5. Particularly in developing economies, low-cost data infrastructure is needed. Government agencies, working with technology providers, businesses, and consumers, can also participate in many of these efforts.
