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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


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



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


…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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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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Verticals

Consumer Enterprise

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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%


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%)

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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


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


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


… 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


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



… 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



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


SOURCE: McKinsey


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


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


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


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


SOURCE: McKinsey


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


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


http://www.mckinsey.com/global-themes/internet-of-things

[email protected]

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