McKinsey Report Highlights Potential and Roadblocks to the IoT

Posted on June 15th, 2016

McKinsey Report Highlights Potential and Roadblocks to the IoT
Image: ReadWrite

As OpenStand has highlighted on many occasions, including this this recent post, there are a plethora of challenges on the path to building a successful, interoperable Internet of Things (IoT). Beyond the 400 plus competing IoT standards and a lack of global internet connectivity, competitive market dynamics encourage development practices that hamper the expansion and threaten the success of the IoT.  

recent report produced by research and consulting firm McKinsey & Company highlights the current state of the IoT and summarizes the challenges faced industry. The report projects that the IoT will likely command anywhere from $4 to $11 trillion in revenue year-over-year by 2025. However, the report also asserts that the true potential of the market will be determined by the ability of policymakers and businesses to drive technology and innovation that is interoperable, secure, protective of privacy and property rights, with established business models that better facilitate and enable data sharing.

The McKinsey report identifies incompatibility as the number one problem facing IoT growth. Without question, the IoT gold rush has driven extensive technology innovation and development from companies competing for market share. However, the closed proprietary development approaches adopted by businesses have largely fail to produce technologies and business models that encourage broad-scale interoperability, data sharing, privacy, security and protection of property. The McKinsey report asserts that, “Interoperability between IoT systems is critical. Of the total potential economic value the IoT enables, interoperability is required for 40% on average and for nearly 60% in some settings.”

As a solution, the report encourages the adoption of open standards as a critical means to encourage interoperability. As a secondary method, implementing systems or platforms that enable different IoT systems to communicate is also encouraged.  

Another critical problem is an underutilization of IoT data — which is a reflection of inoperability as well as a failure to build business models that encourage data sharing. McKinsey points out that consumer-facing applications are capitalizing more from shared data — utilizing nearly 70%. However, when compared against other industries, the data optimization issue becomes more evident.

As an example, McKinsey points to the oil and gas industry. A single oil rig may have that has 30,000 sensors. Typically, about 1% of the data is utilized for business purposes (e.g. to measure control anomalies). Meanwhile, while an extensive amount of data is being captured, measured, photographed — these sensors are not being utilized for other useful things  — such as developing predictive capabilities, measuring patterns of currents, oceanic temperatures and more. Collectively, the data they capture alone can provide value that extends far beyond the oil and gas industry.

Unlike many of the other technology development waves we’ve ridden, McKinsey asserts that the hype related to IoT may actually under-represent the potential of this market. At the top-level, McKinsey estimates the consumer surplus would be staggering, “equivalent to about 11% of the world economy.” Without question, it is clear from industry activity and technology proliferation that the IoT is viewed a veritable modern gold mine of opportunity. How well we mine it may be determined by our collective ability to balance the drive to gain market share and profiteering against a greater collective vision for the IoT.

To address the future and capitalize on the potential of IoT, the report summary concludes as follows, “…capturing the full potential of IoT applications will require innovation in technologies and business models, as well as investment in new capabilities and talent. With policy actions to encourage interoperability, ensure security, and protect privacy and property rights, the IoT can begin to reach its full potential—especially if leaders truly embrace data-driven decision making.” You can access the entire report more here.

As the IoT expands, leveraging the OpenStand principles in technology and standards and development can help confront some of the barriers to IoT success. In short, the OpenStand principles capture the effective and efficient development processes that have made the Internet and Web the premiere platforms for innovation and borderless commerce, creating a model that is extendible for standards and technology development across sectors and industries by ensuring:   

  • Cooperation among technology development organizations
  • Adherence to due process, broad consensus, transparency, balance and openness
  • Commitment to technical merit, interoperability, competition, innovation and benefit to humanity
  • Availability of technology to all
  • Voluntary, market-driven technology adoption

We hope you’ll consider becoming an advocate for the OpenStand Principles in technology and standards development.

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