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Internet of Things
The IoT opportunity – Are you ready to capture a once-in-a lifetime value pool?
Image source: https://www.lsr.com/
Chris Ip (叶远扬)
Hong Kong IoT Conference 21 June 2016
McKinsey & Company 1
The Internet of Things (IoT) powers a whole ecosystem of use cases and “Things” are only one part of it
SOURCE: McKinsey
THE IoT PLATFORM OPPORTUNITY
Connected
Lighting
Home
Automation
Smart
Metering
Smart
Appliances
Health
MonitoringSmart
Clothes
Hospital
Management
Enhanced
surveillance
Preventive
Maintenance
Manufacturing
Monitoring
McKinsey & Company 2SOURCE: Source
McKinsey & Company 3
The Internet of Things (IoT) has a potential economic impact of 2.7-6.2 trillion USD until 2025
SOURCE: McKinsey Global Institute analysis
Range of sized potential
economic impacts
Impact from other
potential applications
(not sized)Low High
X–Y
$ trillion, annual
0.2–1.9
Advanced robotics 1.7–4.5
3D printing
0.1–0.6
Next-generation
genomics
0.2–0.5Advanced materials
0.2–0.3Renewable energy
0.2–0.6
Energy storage
0.7–1.6
Autonomous and near-
autonomous vehicles
Advanced oil and gas
exploration and recovery0.1–0.5
Cloud technology
3.7–10.8
5.2–6.7
2.7–6.2Internet of Things
Automation of
knowledge work
1.7–6.2
Mobile Internet
Who will
capture this
opportunity
THE IoT PLATFORM OPPORTUNITY
McKinsey & Company 4
IoT is quickly becoming ubiquitous…
0
5
10
15
20
25
30
35
2015 2016 2017 2018 2019 2020
Human
population
# of devices
10,000
1
1,000
10
100
2020.02017.52015.0
100,000
2025.02022.5
Human
to device
Device
to device
Projections for world population and number of
IoT devices
Projections for human to device and device to
device data consumptions1
Explosive growth in device to device traffic will introduce new
challenges in areas such as bandwidth, management and security
SOURCE: World Population forecast (Census.gov), IDC IoT forecast
Billions ZB per year
McKinsey & Company 5
…and will unlock tremendous value across industry verticals
SOURCE: McKinsey Global Institute IoT KIP
Economic value creation
Verticals
Consumer Enterprise
$ Trillions
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McKinsey & Company 6
IoT’s value creation potential is based on its ability to solve traditionally hard business problems (1/2)
Sample
Business
Problem
How IoT
solves
the
problem
HC remote monitoring
$0.2 – 1.1T
Value at stake Sample
Business
Problem
How IoT
solves
the
problem
Autonomous vehicle
$0.4 – 0.5T
Value at stake
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275
Verticals
Consumer Enterprise
Co
ns
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er
go
od
s
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il
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lth
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re
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ed
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ctr
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ics
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tom
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ve
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ure
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SOURCE: MGI IoT KIP
▪ Treatment adherence linked to 50%
decrease in treatment costs for cardiac
patients
▪ Early detection of complications such as
rapid gain in weight in a patient with CHF
can lead to prevention of acute pulmonary
edema, and cardiac arrest
▪ 60%+ of road accidents
attributed mostly to human
error; safety is top priority for
car manufacturers
▪ 1/3 of new car buyers want their
car to be autonomous
▪ Power autonomous vehicles
with advanced ADAS modules
can reduce accidents by 40%
– Features include vehicle-
to-vehicle
communication, computer
vision, and machine
intelligence
▪ ~50% adherence to recommended
treatment among heart patients
▪ Non-adherence in chronic coronary artery
patients increases risk of hospitalization
by 10-40% and mortality 50-80%
McKinsey & Company 7
IoT’s value creation potential is based on its ability to solve traditionally hard business problems (2/2)
SOURCE: MGI IoT KIP
Pollution management
0.3 – 0.6T
Value at stake
Asset monitoring
$0.2 – 0.5T
Value at stakeSample
Business
Problem
How IoT
solves
the
problem
▪ Reduce pollution by 10-20% through
efficient energy consumption
▪ Prevent deaths attributed to poor air quality
through network of sensors monitoring air
quality in real time
Sample
Business
Problem
How IoT
solves
the
problem
▪ Condition based monitoring
needed to reduce costly
operating costs
– Equipment downtime can
cost up to 5% OP for
plants/ manufacturers
▪ Early detection to prioritize and optimize maintenance resources, and increase unit availability due to shorter down-times– Maintenance cost
reduction (10%-40%)– Downtime reduction (50%)
6098112144157209230
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Verticals
Consumer Enterprise
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ns
um
er
go
od
s
Reta
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▪ Poor air quality increasing health care
costs
– 90% of people in urban centers breathe
air that fails to meet safety
requirements
– ½ of world's urban population exposed
to pollution over 2.5 times the WHO
recommended frequency
McKinsey & Company 8
Resulting in a large IoT market size, of which a significant component is ICT
Solution
services1
SW infra-
structure & apps
Connectivity
Hardware
Total
59-176
10-29
80-219
34-36
227-581
44-121
Security2
Total IoT market size
$ Billion CAGR
(%, 2015-20)
2020 ICT market size
(Base case – Upside), $ BillionOP
(%, 2020)
7-19%
7-20%
8-19%
7-20%
7-19%
8-19%
8%
10-35%
0-10%
15-30%
10-30%
0-10%
505-900
Other
1427-3781
2020
300-600
2015
1200-3200
227-581
205-300
ICT
SOURCE: McKinsey IoT KIP, IDC, Gartner
1 Solution services not considered technical products
2 $3-$6B is IoT security and $25-$35B is for mobile security
McKinsey & Company 9
IoT ICT can be defined as a technology stack…
On-device software
Board-level
components
Devices/
Packaging
Local
Backhaul
App engine
Analytics and
visualization
Enterprise &
consumer apps
API management
Device mgmt
Data storage
Data processing
Connectivity
Hardware
Enablem-
ent platf-
orm
Cloud
infra-
structure
Apps
SW
infrastru
cture &
apps
Security▪ Spans entire technology stack and includes multifactor identity and authentication management and
endpoint protection
▪ Web or mobile applications that leverage IoT data and algorithms to solve specific business or
consumer needs
▪ Advanced analytics solutions that can aggregate, analyze and display data from millions of nodes to
extract insights
▪ API services (e.g., create, maintain and analyze) that enable integration and communication with 3rd
party solutions
▪ Libraries, algorithms and engines that makes App development on IoT cloud platform possible
▪ Management tool to remotely control and manage the access, configuration and OTA updates of IoT
devices
▪ Management of asynchronous data collections/streams from millions of nodes as well as real-time
data processing
▪ Storage infrastructure that can accommodate Zettabytes of unstructured data
▪ Protocols and services for long-haul communications over 4G/LTE, GPS and other networks
▪ Protocols and/or services for short-range and machine-to-machine communications
▪ Custom packaging, particularly those designed for harsh and rugged environments
▪ OS, SDK, and other tools that allow OEMs and developers to easily tap into the sensor’s features
and capabilities
▪ Sensors, actuators and other components that collect and relay contextual / real-world data
Endpoint protection &
IAM
Tech stack Description Notable companies
SOURCE: Expert interviews
McKinsey & Company 10
… and each layer can be a unique control point for different verticals
On-device software
Board-level
components
Devices/
Packaging
Local
Backhaul
App engine
Analytics and
visualization
Enterprise &
consumer apps
API management
Device mgmt
Data storage
Data processing
Connectivity
Hardware
Enablem-
ent platf-
orm
Cloud
infra-
structure
Apps
SW
infrastru
cture &
apps
SecurityEndpoint protection &
IAM
Tech stack
SOURCE: Expert interviews
2G/3G/4G
LTELTE-U Wired
Wifi BT NFC802.15.4
(Zigbee)
Authentication Log trackingRegistration
and Pwd mgt
Patching/
Updates
Configuration
mgt
Policy mgt. &
Key rotation
Relational DBNon-relational
DB
Operational
data stores
Data backup &
DWHData indexing
Orchestration
& security
API publishing
and discovery
Tokenization /
authentication
API analytics /
reporting
Search &
query
User
authentication
Blob
managementSDK
Algorithms
engine
Rules engineHadoopData
orchestration
Machine
learning
App storeSelf-service
portal / UI
Data caching /
storingData validation
Protocol
normalizationData logging
Developer
tools/ portal
DSRCInfrared
SDK (inc. libs.
message bus)HDK RTOS
Firmware, driv
ersOS API
Secure boot
loaderModemProcessors Sensors / AFE
Data caching /
storingActuators
Threat
detection
Identity &
access mgmt
Stack components
.Anti-virus
Consumer
goods
Retail
Healthcare
Advanced
electronics
Automotive
TMT
Agriculture
Public sector
Oil and gas
TTL
Infrastructure
Aerospace
Banking
Mining
IoT verticals
Sample analysis on
following pages
McKinsey & Company 11
In the past decade, digital native players build-up “Mega Platforms” and thus dominated the consumer industry
SOURCE: McKinsey
SYMBOLIC VALUES
Player
… products
currently listed
on Amazon.com~470 m
A platform for all
physical products
… users currently
registered on
Facebook~1.6 bn
A platform for the
interactions between
people
… currently existing
websites in the
world wide web~1 bn
A platform to make
the www searchable
for everyone
… current number of
connected Internet
of Things devices~10 bnA platform for the
data of Internet of
Things devices
Mega platform Indicative sizing
THE IoT PLATFORM OPPORTUNITY
McKinsey & Company 12
… while the IoT gives rise to the opportunity to establish a new “Mega Platform”– who will capture that?
SOURCE: McKinsey
1 Assuming 10 USD revenue per connected device with 10bn IoT devices
Estimated Platform Revenues in USD billions
IoT value pool1
~107 ~18~75
100Who will
capture this
value pool
THE IoT PLATFORM OPPORTUNITY ESTIMATION
McKinsey & Company 13SOURCE: McKinsey team analysis; Google annual filings 2014
1API = application programming interface
Digital native player have established a whole ecosystem
around their platforms (e.g. through APIs1)
Player Platform function externally available
▪ Development and build environments
for Android operating system
▪ Sensor data and thermostat
regulation (e.g., cooperation with
Daimler to switch on heating when
driver is approaching home)
▪ Photo, video, and music recognition
for Amazon's Fire Phone
▪ Access to user data for third-party
applications (e.g., songs requested
over Spotify)
Number of accessible SW resources in
Google’s ecosystem (FTEs)
Where they can attract thousands of
additional SW development resources
Android ecosystem
~400,000
x20
Digital native players used their platforms to tap into a huge 3rd party ecosystem and share data via open APIs
~ 20,000
IoT PLATFORM MECHANICS
McKinsey & Company 14Source: IDC, 2015; Press search
While successful
approaches and
business models are
yet to be
identified…
… the IoT opportunity
is being pursued by
many relevant
players in the
technology space
(taking aggressive
investments)…
…creating a very
competitive and
highly dynamic
arena, and
…requiring to move
fast
Several players are already establishing their platforms, both vertically and horizontally along the IoTStack
IoT PLATFORM MECHANICS
McKinsey & Company 15
To build up the required speed, we can build on ideas from venture capital and leading technology businesses
Run like hell
Significant benefit to fast movers, “winner takes all” dynamics
deliver superior returns
Best teams onlyBring the most talented resources on board. No second chances
to revisit the team. Senior advisor allow to learn from experience
Hyper-incentives
Nothing is sure, yet if goal is achieved, personal reward is
disproportionate
Results ahead of cash
Stage-gates for investment rounds instead of yearly budget. If
results are met, financing continues. If not, it is over
End-goal focusEverything geared towards reaching exit value. Simple
governance
IoT PLATFORM MECHANICS
SOURCE: McKinsey
McKinsey & Company 16
Delivering an IoT platform is a staged approach – with customer-facing results early on through MVPs1
1 Minimum viable product
TECHNOLOGY
BUILDING
BLOCKS
BUSINESS
CONCEPT
ECO-SYSTEM
Organization
Architecture concept
Talent & capability
Platform strategy
Use cases
Tech stack
Partners
Go to market strategy
Development approach
Business case
Monetization model
Cloud environment
overview
MVP1 development
Vendor selection
Ecosystem seeding
Data market place
Roll-out
APIs & SDKs
Standards
MINIMUM VIABLE
PRODUCT DEVELOPMENTCONCEPT DEFINITION SOLUTION SCALING
APPROACH TO DELIVER THE IoT PLATFORM
SOURCE: McKinsey
McKinsey & Company 17
Make vs. Buy: Tesla builds its automotive IoT platform in cooperation with several technology partners
Tesla
Automotive
Platform
Strategic partners
HMI and in car features
Middleware and runtime
Connectivity Layer
Core services and technical
Building Blocks
Apps and Ecosystem Link
Infrastructure and
Hosting Provider
Big Data and Analytics
Platform
Link to other platforms
Actu-
atorsECUs
Head-unit
Sen-
sors…
NOT EXHAUSTIVE
APPROACH TO DELIVER THE IoT PLATFORM
SOURCE: McKinsey, Press releases
McKinsey & Company 18
Three ways for a company to enter the IoT game
SOURCE: McKinsey
Ally with other
companies within or
beyond the industry in a
coopetition model to jointly build-up an IoT
platform focusing on
the respective
products
Independently of the chosen approach, current industry dynamics
show that future leaders in the IoT game need to act now
Join existing
ecosystems by
defining a clear value
proposition to find a
value-adding spot
Initiate own IoT
platform build-up by
setting up minimal
platform, first use
cases, and ramp-up
ecosystem by inviting
partners and
customers
HOW TO ENTER THE IoT PLATFORM GAME
McKinsey & Company 19
A lively ecosystem is essential as consumers don’t care about platforms, but really care about killer applications
In addition to
consumer
pull,
attractiveness
to developers
needs to be
ensured with
sufficient ease
of use and
monetization
options
Consumer following with
initial consumer-to-
consumer offering
Google showcases android capabilities
to lift the bar with reference devices
Expansion to B2C
marketplace
Expansion of android to other phones
to be the largest mobile operating
system today
Apple App Store
Consumer following with breadth of
book/fashion portfolio
Consumer following with
iTunes music application
Expansion offering 3rd parties to sell on
platform
Expansion to App Store with
iPhone launch
IoT PLATFORM MECHANICS
SOURCE: McKinsey
McKinsey & Company 20
Speed is critical - several players are currently building own IoT platforms and are creating a very dynamic environment
Smart home Healthcare Automotive
Industrial
automation Smart gridIoT Technology stack
App engine & tools
API management
Connectivity
Hardware
Enablement
platform
Software
infra-
structure
Apps
Implementation
Local
Backhaul
Devices/Packaging &
software
Board-level
components
SecurityEndpoint protection &
IAM
Device mgmt &
registration
Data collection &
management
Data storage/ cloud
infrastructure
Apps
(Enterprise, consume
r)
Analytics and
visualization
Samsung launches SmartThings Internet of Things hub
Cisco to pay $1.4 billion for Internet of Things firm Jasper
AT&T's plan for the Internet of Things goes way beyond the network
IBM Watson Platform Puts Algorithm-Driven Business to the Test
Amazon Jumps Into Internet Of Things Frenzy With New Cloud Platform For Devices Like Cars
IoT PLATFORM MECHANICS
SOURCE: McKinsey
McKinsey & Company
Key success factors for delivering the IoT platform help to avoid common pitfalls
“Spin-in” model, start-up like incentives and speed: nothing is guaranteed but reward is high for successful
individuals
M&A needed, yet will not come “in a box”: inorganic
moves required to build capabilities, but no single M&A
move will solve the puzzle and through-the-roof multiples
limit attractiveness
Significant talent build-up is a must, but it will take
time: different model required to bridge 12-18 months gap
Traditional “sequential” approach will not work: need
a different approach, agile and multi-front
IT is not the bottleneck: don’t aim to build everything in
house, leverage “frenemies” to accelerate and bridge
capability gaps
Passengers on the ship: IoT ecosystem battle is about to
start, need to win 3rd party players to your platform
SOURCE: McKinsey
HOW TO ENTER THE IoT PLATFORM GAME
McKinsey & Company 22
http://www.mckinsey.com/global-themes/internet-of-things
Chris_Ip@mckinsey.com
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