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Machina Research
Research Note

Forecasting the Internet of Things

revenue opportunity
Emil Berthelsen, Principal Analyst and Jim Morrish, Founder & Chief Research
Officer
April 2015
The issue

Our view

Research
Stream(s)

The Internet of Things as a new market opportunity is a natural evolution from M2M
and connected things. It is however a different market opportunity. In IoT, three
different characteristics are clear: i) IoT architectures will become closely aligned with
IT solutions, ii) applications and data as compared to device and connectivity will
become the points of gravity and opportunity in the solution, and iii) where a great
deal of effort and focus has driven by the vertical markets, the IoT market opportunity
will reflect a combination of vertical and horizontal attributes. This Research Note aims
to share Machina Research perspectives on the challenges in forecasting the Internet
of Things revenue opportunity and provide early forecasts of the scope of the IoT
revenue opportunity.
Forecasting the revenue opportunity in the Internet of Things differs significantly
from forecasting the M2M revenue opportunity. Shared attributes of devices,
installation, connectivity and M2M services will remain. The significant changes will
be found in applications, platforms, data monetization and IoT services and systems
integration and strategy, producing a more complex set of revenue across Subnets of
Things rather than vertical markets, and making the allocation of such revenue to
discrete vertical segments and applications less accurate. The outcome is a forecast
Internet of Things revenue opportunity at USD4.3 trillion by 2024.
IoT Strategies

1 Traditional M2M markets are changing to

support an emerging IoT world
The emerging IoT opportunity will address a significantly increased scale of connected things. IoT
solutions will grow from hundreds and thousands of connections to tens of thousands and millions.
These connections will transform from principally being one-way data communications for monitoring

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purposes to bi-directional communications for monitoring, managing and actuating devices, primarily
in real-time. Initial applications (which could be termed M2M) will leverage this data, and issue,
where appropriate, required alerts, tasks, or commands. In IoT, this process goes further: the same
exhaust data may be utilised in other functions and applications, aggregated or combined. The
management of this data as potentially disassociated from the original M2M architecture is what
brings additional value to the IoT market, and encourages the growing field of application
development.
Figure 1: Transformation from M2M to IoT [Source: Machina Research, 2015]

Traditional M2M revenue will play an important role in IoT emerging revenue opportunity. Devices,
installation, connectivity and M2M service revenue will continue to form fundamental revenue
building blocks in the Internet of Things.
These M2M forecast revenue will be closely associated with the applications from which they have
been identified, providing clear and transparent alignments to vertical markets. Machina Research has
gone into extensive detail in researching the drivers and constraints to market adoption of connected
devices across 180 different applications and identifying and scoping the enabling networks,
technologies and services as related to those applications. The aggregated revenue opportunity from
these M2M devices and applications amounts to USD2.5 billion in 2024, as presented in Figure 2.

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Figure 2: M2M application revenue, USD billion, 2014-24 [Source, Machina Research, 2015]
3,000

M2M revenues USD Bn

2,500

2,000

1,500

1,000

500

Device

Installation

Connectivity

M2M services

For M2M, this is a highly applicable and suitable methodology. Applications have remained structured
in a highly vertical stovepipe and closed system. For IoT, a separate methodology is required. It is
appropriate to consider devices, installation, connectivity and M2M services as relating to an
individual device or application within a particular vertical sector. In IoT this will not necessarily be the
case. IoT revenue is much less specifically applicable to a single device. In IoT there will be greater
degrees of application and data sharing between stovepipes. There will also be increased integration
to enterprise systems and workflows, augmenting these M2M revenue with IoT revenue. As noted
earlier, in IoT, applications and data become the points of gravity for the solution, rather than devices
and connectivity in M2M.
Before exploring the IoT market, it is important to recognise that any future growth and development
in IoT will relate closely to the growth in connected devices. The one-off revenue from devices will
continue to form the most significant component in any revenue picture of M2M and IoT markets.
Furthermore, a large proportion of the revenue associated with deploying IoT solutions aimed at
meeting regulatory obligations, driving efficiency gains, adding enhanced features and driving new
business models will be associated with the particular application, and thus are already considered by
us as part of the M2M service revenue. However, the key point is that additional service revenue will
become available through application development, and new and innovative IoT services such as IoT
Service Exchanges, discussed later in this Research Note.

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2 IoT revenue become closely aligned with IT

revenue
As Machina Research started to define IoT revenue, it became clearer that it started to reflect a
number of revenue components already identified in both the M2M market space or in IT. In the IT
space, traditional IT areas such as system integration (professional services), data centre systems, IT
services and enterprise software were becoming increasingly more integrated and aligned with IoT
solutions. While the market is still at a fairly early stage, one of the key assumptions around IoT
markets is that they will become closely aligned with and resemble todays IT markets.
Machina Research includes 5 elements in its definition of IoT revenue:

Applications related to an M2M device

Applications using data exhaust from an M2M device
Applications development consistent with emerging IoT standards
Platforms that support IoT applications
Project work related to IoT concepts

Applications will be the key element in the IoT world for the three fundamental reasons outline above.

2.1 Applications related to an M2M device

Some applications will be tightly integrated with the M2M device. These applications will have been
designed in an end-to-end manner, integrating the device, the connectivity, the middleware and the
application including potential back-end integrations in one single structure. Examples of these
include a security application utilising security sensors and cameras, or a vehicle tracking application
with the appropriate connected device in the car. The revenue of these applications is closely linked
with the installed device. This element of revenue is already considered in the M2M forecasts
identified in Section 1, above, and is included in M2M services which amounts to USD 1.0 trillion in
2024.

2.2 Applications using data exhaust from an M2M device

From the thousands, millions and billions of sensors, data will be generated at enormous rates,
providing information for specific purpose-designed applications but potentially also feeding data into
additional applications benefitting from the data exhaust of M2M devices. As access and availability
to data feeds becomes increasingly more transparent and open, Machina Research anticipates that
the field of application development will become one of the key markets in IoT, generating revenue
from both application development activities but also closely associated IT elements as application
hosting and provisioning, and ongoing application management. Data monetisation, starting initially

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from M2M devices and subsequently including data exhaust from IoT solutions will amount to USD124
billion by the end of 2024, as illustrated in Figure 3.

2.3 Applications development consistent with emerging IoT

standards
Parallel to the increasing number of IoT developments and proof-of-concept activities, the market
recognizes that to achieve quoted market sizes, IoT standards will need to emerge in a wide ranging
set of environments and levels. These may be at the device, connectivity or platform level, and a
number of consortia have started to explore the possibilities for standards in, for example, the home,
in smart cities, and other closely linked IoT device environments.
The two application areas referred to in points 2.2 and 2.3 reflect a growing revenue opportunity in
applications in IoT, reaching USD 739 billion by 2024 as illustrated in Figure 3.

2.4 Platforms that support IoT applications

In the evolving M2M and IoT platform space, new attributes of scalability, agility and flexibility have
become critical features in the selection of IoT-suitable platforms. In traditional M2M architectures,
the core functionality of M2M platforms was device and connectivity management. In IoT, this point
of gravity has moved towards application development, application management and data
management, enabling a seamless, secure and robust management of data and applications through
the platforms but also opening up the opportunities for data sharing and application aggregation.
These levels of scalability, agility and flexibility in dealing with applications and data is what
characterizes the new M2M and IoT Application platforms, and enables the new service and ultimately
revenue opportunities in the Internet of Things. As illustrated in Figure 3, platforms and middleware
reach a level of USD265 billion by the end of 2024. These figures include M2M and IoT application
platforms and other horizontal platforms.

2.5 Project work related to IoT concepts

Evolving from standalone systems, monitoring data from M2M devices, IoT solutions with a growing
estate of integrated applications and advanced analytics will begin to impact business critical and
sensitive processes of enterprises. No longer positioned solely as complementary providers of data
for back-end systems, IoT solutions will become directly integrated into workflows and business
processes, enabling efficient and automated processes to take place in near real-time.
For this technology development to take place, and deliver optimal business benefits, Machina
Research forecasts a growing amount of project work related to IoT concepts ranging from the
strategic design and inception stages to more practical and operational system development and

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system integration activities, building IoT into the business. These professional services will also
include the additional development in business analyst and data scientist capabilities, required for
advanced analytics.
As illustrated in Figure 3, Project Work reaches a level of USD674 billion by the end of 2024. This figure
includes the strategy, consulting and system integration work done within enterprises as well as part
of their internal and ongoing efforts to develop capabilities and services for the growing IoT market.
Figure 3: Data Monetisation and IoT Services, Applications, Platforms and Project Work revenue,
USD billion, 2014-24 [Source: Machina Research, 2015]
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-

Data Monetisation

Applications

Platforms

Project Work

3 Additional revenue opportunities will come

from data monetization and new IoT
services
One exciting and promising development in IoT will stem from the disassociation and monetization of
data from deployed architectures, and the availability of services to realize additional value from this
data. This development will be subject to the adoption and wider uptake of IoT, generating newer and
wide ranging data sources from connected things. As the focus shifts towards data, concerns about
data privacy and ownership will continue and need to be addressed but ultimately we expect that the
benefits will outweigh the issues.

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These opportunities for realizing revenue from data sharing will emerge first in Subnets of Things1,
environments within which stakeholders openly agree to share and leverage data sources within
agreed frameworks which cover issues such as security and data privacy. Examples include smart cities
and smart homes. Subnets of Things deliver a natural and logical stepping stone between the Intranet
of Things, characterized by M2M solutions, and the significantly pervasive concept, and fragmented
market, of the Internet of Things. The Subnets of Things also captures many of the changing attributes
from M2M to IoT such as the scope of connected things and the agility within which the data must be
managed. This is illustrated in Figure 4.
Figure 4: Subnets of Things in a continuum [Source: Machina Research, 2015]

Data disassociated from architectures will become a feature in the Internet of Things with the vast
array of information sources emerging, including but not limited to: M2M applications and devices,
corporate IT systems, published data feeds, crowdsourcing, social media, and so on.
This in itself will not add substantial economic opportunity as most data will be compromised by the
existence of similar data from alternative sources, and instances of monopoly rent from unique data

See Research Note More of a network of Subnets of Things than an Internet of Things? (September 2014) for
more details

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will be limited. As previously argued by Machina Research, the value of this data will be determined
by the context and potential revenue streams that it can deliver.2
An emerging path towards data monetization is that of IoT Service Exchanges3, providing scalable,
agile and flexible frameworks, highly suitable for the Internet of Things, and removing friction from
the complex environment of IoT. IoT Service Exchanges will allow enterprises to subscribe to services
such as advanced analytics and billing and subscription management to apply to their data assets, and
opens up opportunities for data wholesale and brokerage. The key feature of IoT Service Exchanges is
increased levels of interoperability through API libraries and pre-configured integrations, enabling the
identification of value of data in new services created, and expanding what may otherwise have been
limited to Subnets of Things environments, to approach the more comprehensive Internet of Things
world.
Figure 5: Texture of the Internet of Things [Source: Machina Research, 2015]

Machina Research Strategy Report, Creating value from data analytics in M2M the Big Data opportunity
published October 2013
3
Machina Research White Paper, The emergence of Data Service Exchanges: liquidity for the IoT, published
February 2015

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4 Conclusions & Recommendations

Overall Machina Research forecasts that the IoT revenue opportunity will be USD4.3 trillion by the
end of 2024 (as illustrated in Figure 6). As such it is a significantly bigger overall opportunity that that
which we identified for M2M, i.e. USD2.5 trillion.
Figure 6: Global IoT opportunity, 2014 and 2024 [Source: Machina Research, 2015]
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
2014

2024

Device

Installation

Connectivity

M2M services

Platforms and middleware

Applications

Data monetisation and IoT services

Systems integration and strategy

The USD4.3 trillion figure begins to approach forecasts for global IT spend which underpins an
important view shared in this Research Note: that IT will become closely aligned and indistinguishable
from IoT.
Devices, installation, connectivity and M2M services, i.e. the legacy M2M portion of the forecast, will
see their share of the total IoT opportunity move from 83% to 58%. Opportunity in applications and
systems integration and strategy (including internal enterprise initiatives) will grow throughout the
period. What these forecasts cannot fully address are the potential multiplier effects in data value,
from instances of monopoly rent that unique data will be able to command, and more significantly,
from the additional business opportunities and services that enterprises will be able to produce from
the data, applications and IoT Service Exchanges.
Growth in these markets has been reflected in the forecasts but with further acceleration from
increased enterprise adoption, incremental values may be added to new IoT services forecasts. This
revenue reflects, however, the development of the IoT services, and not the revenues for the
businesses that can be built on these new applications.
Machina Research makes the following conclusions and recommendations:

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IoT opens up new opportunities for further business opportunities. Innovation and creativity
will face few limits in this emerging market space. Established enterprises as well as start-ups
will begin to explore the additional opportunities from new applications and shared data,
trialed and launched with potentially minimal costs and investments. New services will add to
these business opportunities and while incremental in revenue, will be on top of quoted
forecasts.

IoT will disrupt enterprises. OEMs have started to recognize the growing opportunities in
servitisation, i.e. the build and sale of products with integrated services such as predictive
maintenance, warrant management, or new pay-as-you-go business models. This
development has already started to disrupt many enterprises and industries.

IoT will present enterprises with new and significantly different challenges. The Internet of
Things differs in many ways from traditional M2M, IT and operational technology
architectures. IoT will require architectures which are highly scalable, agile and flexible.
Business cases and ROI will need to identify and quantify multiple application and data
structures, working across traditional departmental structures and interests, and building
end-to-end IoT business solutions across the entire enterprise. Finally, IoT will require
executives to approach products and services with an entirely new mindset, an Enterprise IoT
mindset where continuous innovation and process improvement through IoT will become a
mainstay feature.

IoT will eventually subsume the market for IT solutions. These are disruptive times for the IT
industry as the emergence of IoT will introduce a new set of IoT standards and best practices.
These standards and best practices will begin to displace existing IT frameworks and
approaches, and while the basic technology building blocks will remain the same, IT service
providers will need to adopt to these new IoT ways.

5 About Machina Research

Machina Research is the worlds leading provider of market intelligence and strategic insight on the
rapidly emerging Machine-to-Machine (M2M), Internet of Things and Big Data opportunities. We
provide market intelligence and strategic insight to help our clients maximise opportunities from these
rapidly emerging markets. If your company is a mobile network operator, device vendor,
infrastructure vendor, service provider or potential end user in the M2M, IoT, or Big Data space, we
can help.
We work in two ways:

Our Advisory Service consists of a set of Research Streams covering all aspects of M2M and
IoT. Subscriptions to these multi-client services comprise Reports, Research Notes, Forecasts,
Strategy Briefings and Analyst Enquiry.

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Our Custom Research and Consulting team is available to meet your specific research
requirements. This might include business case analysis, go-to-market strategies, sales
support or marketing/white papers.

Machina Researchs Advisory Service provides comprehensive support for any organisation interested
in the Internet of Things (IoT) or Machine-to-Machine (M2M) market opportunity. The Advisory
Service consists of thirteen Research Streams (as illustrated in the graphic below), each focused on a
different aspect of IoT or M2M. They each provide a mixture of quantitative and qualitative research
targeted at that specific sector and supported by leading industry analysts.
Advisory Service Research Streams [Source: Machina Research, 2014]

For more information on the Advisory Service, please contact Machina Research
(enquiries@machinaresearch.com) and request a copy of the Guide to Research Streams document.
Machina Researchs analysts also have a wealth of experience in client-specific consultancy and
custom research. Typical work for clients may involve custom market sizing, competitor
benchmarking, advice on market entry strategy, sales support, marketing/promotional activity, white
papers or due diligence. Subscription clients are eligible to purchase our custom research and
consulting services at discounted daily rates.
For more information, refer to our website at https://machinaresearch.com, or email us at
enquiries@machinaresearch.com.

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