The Internet of Things and Big Data:

Opportunities for Value Creation

February 21, 2013

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
“The future is already here – it’s just not very evenly distributed.”

- William Gibson

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Press mentions

3,000
“Internet of things”

2,500

2,000

1,500

1,000

500

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SOURCE: Literature search McKinsey & Company | 4

SOURCE: Google Trends McKinsey & Company | 5
"This concept [of Internet of Things] first came to
my mind when I talked with a group of young
researchers who returned to China after their
overseas studies," Wen said, referring to those he
met during his inspection tour to east China's
Jiangsu Province in November.
"I learned Internet of Things is a network that can
be applied to infrastructure and services. The
program will have a rosy prospect," Wen said...
Internet of Things was one example Premier Wen
cited while outlining the country's initiatives to
foster new growth areas, especially in emerging
strategic industries."

- Chinese Premier Wen Jiabao

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 200
Sensors are Smartphone* Standards-com-
integrated into models pliant sensor
launched with 150 chipsets
more physical
accelerometer 305 MM shipments
devices: #models 285
▪ Improved power 100
management
142
▪ Miniaturization
50
▪ Reduced costs
20
▪ Location-based 1 4
0
awareness 07 08 09 10 11 12 2006 2008 2010 2012

Sensors in everything
SOURCE: Strategy Analytics, 2011, 2013; On World, Yankee Group, McKinsey & Company | 7
 200
Commercial Assigned IP
Networks are 234
LTE networks addresses
becoming Count /8s
# networks 150
pervasive, driven in
particular by
advances in wireless 144
technologies, 100
including:
▪ Increasing band- 50
width capabilities 47
▪ Open standards 2
17
▪ Reduced costs 0
09 10 11 12 13E 2000 2005 2010 2015

Networks everywhere
SOURCE: APNIC; GSMA McKinsey & Company | 8
 1,200 3,000
Systems have greater Smart 2,750 Size of
flexibility/intelligence 1,000 phone 2,500 largest data
for data processing and processor 2,250 warehouse
increasing autonomy, 800 speed 2,000 TB
driven by: Average 1,750
▪ Increased 600 Mhz 1,500
computational power, 1,250
memory, and storage 400 1,000
750
▪ Remote 500
200
programmability
250
▪ Probabilistic decision 0 0
making
2000 2005 2010 2015 1990 2000 2010 2020

Analyze everything
SOURCE: Press clippings; Guinness World Records; Strategy Analytics, 2013 McKinsey & Company | 9
“Internet of Things” high-level architecture

Observing the Changing the

physical world physical world

1 Internet 5
Networked data 3
4 Visualization
sources

Aggregation Analysis
2 6
Closed-loop
Sensors
actuation
Discovery & id

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6 categories illustrate the breadth of potential IoT applications
Category Description

Information
& analysis
A Tracking
behavior
Monitoring the behavior of persons, things
or data through space and time

B Enhanced
situational
Achieving real-time awareness of physical
environment
awareness

Sensor-driven Assisting human decision-making through

C decision deep analysis and data visualization
analytics

Automation
& control

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6 categories illustrate the breadth of potential IoT applications
Category Description

Information
& analysis
A Tracking
behavior
Monitoring the behavior of persons, things
or data through space and time

B Enhanced
situational
Achieving real-time awareness of physical
environment
awareness

Sensor-driven Assisting human decision-making through

C decision deep analysis and data visualization
analytics

Automation
& control
D Process
optimization
Automated control of closed (self-contained)
systems

E Optimized
resource
Control consumption behavior to optimize
resource use across a network
consumption

F Complex
autonomous
Automated control in open environments
with great uncertainty
systems

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The Internet of Things can create value through several economic levers

Levers
Allow new customer interactions with
Enable new opportunities to engage end-users on a
ways of doing dynamic, ongoing basis
Create new dynamic pricing models for
business inputs and outputs
Create new service models and products
to monetize information assets

Improve quality of delivered products

Enhance & and services
optimize today’s
operations Increase efficiency and reduce costs
of energy, materials, capital, and labor

Improve safety for consumers and workers

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Continuing challenges for Internet of Things

Technology challenges
▪ Cost and capability of sensors and actuators
▪ Reliability for critical networks
▪ Technical standards for open networks
▪ Software for massive data analytics in real-time
▪ Visualization technology

Policy and organizational challenges

▪ Data privacy
▪ Data security
▪ Legal liability
▪ Organizational implications
(e.g., role of IT function)

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“Any sufficiently advanced technology is indistinguishable from magic.”

- Arthur C. Clarke

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