Ten trends shaping the Internet of Things business landscape

 

Here is a brief excerpt from an article written by Eric Lamarre and Brett May for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Experience working on the Internet of Things indicates where the value lies.

As we’ve worked with clients on Internet of Things (IoT) projects over the past year, we’ve noticed ten trends shaping the industry that we expect to continue in 2019.

Company level

1. IoT is a business opportunity, not just a tech opportunity

In the past, IoT has often been viewed as mostly a technology challenge, and we’ve found that a company’s CIO is most frequently the leader of its IoT efforts. But we see time and again that maximizing the economic impact of an IoT effort requires a broad set of changes to business practices as well. Connecting a wind turbine to the Internet, for example, means that it can send data to managers about when it needs to be serviced or that an optimization opportunity exists. But if the necessary management and maintenance business processes are not in place—for example, the supply chain isn’t able to deliver a replacement part—then the benefits can’t be realized.

2. Disciplined execution across multiple use cases is the path to value

Several clients have asked us to help them find the “killer app” for IoT. Given hundreds of IoT applications with a range of potential value, we typically suggest that clients begin any IoT effort with a clear vision and thoughtful reconceptualization of the business. We have found both at clients and through independent research that 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. The greatest impact comes from following a learning curve that builds across use cases (Exhibit 1).

Implementing more IoT use cases correlates with better financial impact.

3. 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. Instead of a fixed capital cost plus a maintenance fee, manufacturers are increasingly offering “water pump by the hour” or “compressed air by the hour” services, which can be financial win-wins for sellers and buyers. On the household side, while nonconnected 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. We believe this is because these assets have a shorter life span compared with industrial assets, leasing can achieve a similar benefit, and predictive maintenance may be nonexistent, with replacement or warranty still preferred by consumers.

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Here is a direct link to the complete article.

Eric Lamarre is a senior partner in McKinsey’s Boston office, and Brett May, chief operating officer of McKinsey’s IoT Ventures, is based in the Silicon Valley office.

The authors wish to thank Michael Chui, Jeremy Eaton, Karel Eloot, Bodo Koerber, Teresa Nick, Mark Patel, and Satya Rao for their contributions to this article.

 

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