What is the Internet of Things (IoT)? (2024)

What is the Internet of Things (IoT)? (1)

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Does your house have a smart thermostat? Or maybe you’re one of the one in three Americans who wears a fitness tracker to help you stay physically active. If you do, you are tapping into the Internet of Things, or IoT. It’s become embedded in our lives, as well as in the way organizations operate.

Get to know and directly engage with senior McKinsey experts on the Internet of Things.

Cindy Levy is a senior partner in McKinsey’s London office; Enno de Boer is a senior partner in the New Jersey office; Gérard Richter is a senior partner in the Frankfurt office; Mark Patelis a senior partner in the Bay Area office; and Matteo Mancini is a senior partner in the Riyadh office.

IoT uses a variety of technologies to connect the digital and physical worlds. Physical objects can be embedded with sensors and actuators. Sensors monitor things like temperature or motion, or really any change in environment. Actuators receive signals from sensors and then react to the reported changes. Sensors and actuators communicate with computing systems via wired (for example, Ethernet) or wireless (for example, Wi-Fi or cellular) networks; these computers can monitor or manage the health and actions of connected objects and machines.

The constant connectivity that IoT enables, combined with data and analytics, provides new opportunities for companies to innovate products and services, as well as to increase operational efficiency. Indeed, IoT has emergedas one of today’s most significant trends in the digital transformation of business and economies. Challenges abound, particularly when it comes to IoT cybersecurity, but we estimate the total value potential for the IoT ecosystem could reach $12.6 trillionby 2030.

What is an IoT device?

An IoT device is any object that has sensors and actuators embedded within it that communicate to an external network. Broadly, IoT devices are used in the following nine fields:

  1. Human bodies. Devices can be attached to or implanted in the human body, including wearable or ingestible devices that monitor or maintain health and wellness, assist in managing diseases such as diabetes, and more.
  2. Homes. Homeowners can install devices such as home voice assistants, automated vacuum cleaners, or security systems.
  3. Retail environments. Devices can be installed in stores, banks, restaurants, and arenas to facilitate self-checkout, extend in-store offers, or help optimize inventory.
  4. Offices. IoT applications in offices could entail energy managementor security for buildings.
  5. Standardized production environments. In such settings, including manufacturing plants, hospitals, or farms, IoT applications are usually aimed at increasing operating efficiencies or optimizing equipment use.
  6. Custom production environments. In customized settings, like those in mining, construction, or oil and gas exploration and production, IoT applications might be used in predictive maintenanceor health and safety efforts.
  7. Vehicles. IoT can help with condition-based maintenance, usage-based design, or presales analytics for cars and trucks, ships, airplanes, and trains.
  8. Cities. IoT applications can be used for adaptive traffic control, smart meters, environmental monitoring, or managing resources.
  9. Outside. In urban environments or other outdoor settings, such as railroad tracks, autonomous vehicles, or flight navigation, IoT applications could involve real-time routing, connected navigation, or shipment tracking.

Other real-world examples abound. IoT solutions are being used in a wide variety of settings: in refrigerators, to help restaurants optimize their food compliance processes; in fields and farms, to track livestock; in offices, to track how many and how often meeting rooms are used; and more.

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What is the economic potential of IoT?

The potential value of IoT is large and growing. By 2030, we estimate it could amount to up to $12.5 trillion globally. That includes the value captured by consumers and customers of IoT products and services.

The potential economic value of IoT varies by usage context. IoT applications in factories and in human health contexts represent outsize shares of this total. IoT in factories alone could generate up to $3.3 trillion by 2030, or just over a quarter of the total value potential. IoT economic impact in human health settings could reach about one sixth of the total estimated value.

Another way of looking at IoT’s value is to explore use case clusters, or similar uses adapted to different settings. The following common use cases account for a sizable share of IoT’s potential economic value:

  • optimizing operations, or making the various day-to-day management of assets and people more efficient (41 percent)
  • healthcare applications (15 percent)
  • human productivity (15 percent)
  • condition-based maintenance (12 percent)

Other clusters include sales enablement, energy management, autonomous vehicles (the fastest-growing cluster), and safety and security.

What are IoT platforms?

To get value from IoT, it helps to have a platformto create and manage applications, to run analytics, and to store and secure your data. Essentially, these platforms do a lot of things in the background to make life easier and less expensive for developers, managers, and users. They handle issues like connecting and extracting data from many different end points, which might be in inconvenient locations with spotty connectivity.

Which IoT platform you select should depend on what your company is trying to achieve with IoT. Here are five things to consider when evaluating IoT platforms:

  1. Applications environment. Here, you might examine questions like: Can the platform develop, test, and maintain multiple applications? Can it connect easily to the applications my company already uses?
  2. Data management. It’s helpful to understand if the platform can structure and join multiple unfamiliar data sets, for example.
  3. Ownership of cloud infrastructure. Does the infrastructure provider own and operate its own data centers, or which public cloud provider does it use? (See “What is cloud computing?” for more on this topic.)
  4. Security. What commercial-grade authentication, encryption, and monitoring capabilities does the platform have, and are they distinctive?
  5. Edge processing and control. Here, you could examine whether the platform can do edge analytics without first bringing data into the cloud, or whether it can be easily configured to control local assets without human intervention.

What are the key factors for a seamless IoT experience?

A seamless IoT experience meets the following six requirements, spanning enterprise and consumer use cases:

  1. Hyperconnected. Connectivity is seamless across a vast number of devices and sensors sharing data.
  2. Integrated. Integration within and across networks of devices is effortless, with simultaneous use of multiple connectivity standards, platforms, and back-end systems.
  3. Secure and trusted. Dynamic cybersecurity enables a high degree of trust in handling the multilayered complexity of both new and legacy solutions.
  4. Intelligent. Devices and systems have the intelligence—enabled by AI and machine learning—to draw insights from data and make real-time decisions. This allows for a leap from monitored to automated implementation.
  5. Mobile. Devices and networks require minimal maintenance, are battery efficient, and have a persona to allow for futuristic experiences.
  6. Hyperpersonalized. There are personalized experiences across platforms and scenarios.

What should I know about IoT security?

The billions of IoT devices in use have naturally created new vulnerabilities for companies. As more “things” get connected, the number of ways to attack them mushrooms. Pre-IoT, a large corporate network might have had 50,000 to 500,000 endpoints vulnerable to attack; IoT may involve a network with millions or tens of millions of these endpoints. In the 2022 McKinsey B2B IoT Survey, IoT solution suppliers and buyers ranked cybersecurity as the top impediment to IoT adoption.

Overcoming the cybersecurity obstacle may be the determining factorin whether IoT will be able to transition to a truly integrated network—and achieve its massive value potential.

It’s important to address customer privacy concernsvis-à-vis connected devices. But managing IoT cybersecurityis also about protecting critical equipment, such as pacemakers or entire manufacturing plants—which, if attacked, could put customers’ health or companies’ production capabilities at risk.

Six recommendations can help CEOs and other leaders tackle IoT cybersecurity:

  • understand what IoT security means for your industry and business model
  • set clear roles and responsibilities for IoT security in your supply chain
  • hold strategic conversations with other industry players, including regulators
  • prioritize cybersecurity for the entire product life cycle
  • transform mindsets and skills
  • create a point-of-contact system for external security researchers and implement a postbreach response plan

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What is IIoT?

The Industrial Internet of Things, or IIoT, is among the advanced manufacturing technologies collectively referred to as Industry 4.0, or the Fourth Industrial Revolution.

What are some benefits of IIoT technologies? They can drastically reduce downtime, open up new business models, and improve customer experiences—and they can also make organizations more resilient. In the COVID-19 era, for example, digital management tools and constant connectivity allowed some companies to quickly respond to market changes by adjusting production capacity and simultaneously supporting remote operations.

Companies using IIoT for digital transformationin manufacturing can follow seven guideposts to align their business, organization, and technology spheres to reap the full benefits from IIoT:

  • Business
    • identify and prioritize use cases
    • focus on plant rollout and enablement
  • Organization
    • monitor change and performance management
    • build capabilities and embrace new ways of working
  • Technology
    • attend to IIoT and data infrastructure, with a focus on core platform design and cybersecurity
    • choose an IIoT cloud platform
    • monitor the tech ecosystem

What could affect IoT adoption?

When it comes to getting more value from IoT, there are tailwinds as well as headwinds that will affect IoT adoption.

Three factors could accelerate the adoption and impact of IoT solutions:

  • Perceived value proposition. Customers see value in IoT and the way it enables digital transformation and sustainability efforts.
  • Technology. Affordable technology, which enables IoT deployments at scale, exists for the vast majority of IoT applications. Progress in hardware can be coupled with developments in analytics, AI, and machine learning, which can enable more granular insights and faster decision making.
  • Networks. These are the backbone of IoT, and higher-performing 4G and 5Gnetworks are now available to more people.

Conversely, a variety of factors could constrain adoption. These include the need for new avenues of collaboration across functions, interoperability issues, and installation challenges, as well as concerns about cybersecurityand individual privacy.

If your organization is just getting started, it can be helpful to consider what could accelerate enterprise IoT journeys. In a McKinsey interview, Wienke Giezeman, a serial tech entrepreneur and initiator of The Things Network, offers insight on what can drive action: “We’ve seen this in the industry again and again—you cannot solve IoT problems with money. It’s so tempting to try to solve these problems with cash, but really, it’s the creativity and pushing for simplicity that leads to the solution.”

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How can IoT efforts be scaled?

To really see the benefits of IoT, companies should embrace the technology at scale, rather than make one-off efforts. If your organization is adopting IoT, here are seven useful actions for scaling IoT:

  • Decide who owns IoT in the organization
  • Design for scale from the start
  • Don’t dip your toe in the water—deploying multiple use cases can be a forcing mechanism in transforming operating models, workflows, and processes
  • Invest in technical talent
  • Change the entire organization, not just the IT function
  • Push for interoperability
  • Proactively shape your environment by building and controlling IoT ecosystems

For more in-depth exploration of these topics, see McKinsey’s Insights on the Internet of Things. Learn more about IoT consulting—and check out IoT-related job opportunitiesif you’re interested in working at McKinsey.

Articles referenced:

  • Cloud-powered technologies for sustainability,” November 9, 2023, Bernardo Betley, Tommaso Cariati, Fan Gao, Eric Hannon, Cindy Levy, Francesco Parente, and Julyeon Seo
  • Cybersecurity for the IoT: How trust can unlock value,” April 7, 2023, Jeffrey Caso, Zina Cole, Mark Patel, and Wendy Zhu
  • IoT comes of age,” March 7, 2022, Michael ChuiandMark Collins
  • IoT value set to accelerate through 2030: Where and how to capture it,” November 9, 2021, Michael Chui, Mark Collins, and Mark Patel
  • A manufacturer’s guide to scaling Industrial IoT,” February 5, 2021, Andreas Behrendt,Enno de Boer, Tarek Kasah, Bodo Koerber,Niko Mohr, andGérard Richter
  • Industry 4.0 adoption with the right focus,” October 21, 2021, Matteo Mancini,Gustavo Marteletti,Alpesh Patel,Laura Requeno, andTingfeng Ye

This article was updated in May 2024; it was originally published in August 2022.

What is the Internet of Things (IoT)? (3)

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What is the Internet of Things (IoT)? (2024)

FAQs

What is the meaning of IoT Internet of Things? ›

What is IoT? The Internet of Things (IoT) describes the network of physical objects—“things”—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.

What is the internet of things IoT Quizlet? ›

What is IoT? a network of Physical objects embedded with electronics, software, Sensors, Actuators and Network connectivity. These objects Collect and Exchange data.

What is the internet of Things answer? ›

The internet of things, or IoT, is a network of interrelated devices that connect and exchange data with other IoT devices and the cloud. IoT devices are typically embedded with technology such as sensors and software and can include mechanical and digital machines and consumer objects.

What is using the internet of Things IoT? ›

IoT applications use machine learning algorithms to analyze massive amounts of connected sensor data in the cloud. Using real-time IoT dashboards and alerts, you gain visibility into key performance indicators, statistics for mean time between failures, and other information.

What is the IoT in your own words? ›

The term IoT, or Internet of Things, refers to the collective network of connected devices and the technology that facilitates communication between devices and the cloud, as well as between the devices themselves.

What is the definition of IoT? ›

usually the internet of things. [singular] (abbreviation IoT) ​the connection of devices within everyday objects via the internet, enabling them to share data. From smart refrigerators to web-enabled teddy bears, the internet of things has never been more extensive.

What is an example of the internet of Things IoT? ›

Wearable technologies.

One of the most common Internet of Things examples is smartwatches. Wearable IoT technology like Fitbits and Apple Watches connect to other devices (like your smartphone) to share data. They typically also connect to the internet to track GPS locations.

What is the goal of the internet of Things (IoT)? ›

The goal behind the Internet of things is to have devices that self report in real-time, improving efficiency and bringing important information to the surface more quickly than a system depending on human intervention.

What is an example of Web of Things in IoT? ›

What are some examples of Web of Things applications in the real world? Smart cities, retail and supply chain management, healthcare monitoring, industrial IoT (IIoT), smart home automation, and agricultural IoT (AgriTech) are a few examples of real-world uses for WoT.

What is the main idea of the internet of things? ›

By means of low-cost computing, the cloud, big data, analytics, and mobile technologies, physical things can share and collect data with minimal human intervention. In this hyperconnected world, digital systems can record, monitor, and adjust each interaction between connected things.

How does IoT work? ›

The IoT works by connecting devices to the internet through a variety of technologies, such as Wi-Fi, Bluetooth, and cellular networks. Once devices are connected to the internet, they can send and receive data. This data can be used to track the devices, monitor their performance, and control their behavior.

What is the internet of Things and why is it important? ›

IoT enables these smart devices to communicate with each other and with other internet-enabled devices. Like smartphones and gateways, creating a vast network of interconnected devices that can exchange data and perform various tasks autonomously. This can include: monitoring environmental conditions in farms.

What is IoT in real life? ›

The simplest, most straightforward definition is: The IoT is a network of Internet-linked devices, vehicles, and appliances that can collect and share data without need of human interaction. That's it.

What are the basics of IoT? ›

The Internet of Things (IoT) unites physical objects with the virtual world. Smart devices and machines are connected to each other and the Internet. They capture information about their direct environment with the aid of sensors, then analyze and link it and make it available in a network.

Why is IoT being used? ›

IIoT is supporting the Oil and Gas industry in three ways. The technology is helping the sector with anomaly detection of assets and equipment. Predictive Maintenance supports the industry with improvement in the efficiency level of the machinery and cost-effective production.

What is an example of IoT? ›

Internet of Things examples

Some that you may be familiar with include smart thermostats and kitchen appliances, fitness-tracking watches, self-driving cars, and home security systems. Personal medical devices like pacemakers are also IoT devices.

What are the four types of IoT? ›

The Internet of Things (IoT) can be categorized into four main types: Consumer IoT, Commercial IoT, Industrial IoT (IIoT), and Infrastructure IoT. Consumer IoT includes devices like smart home gadgets, wearable technology, and personal health trackers, enhancing everyday convenience and personal well-being.

What does an IoT device do? ›

IoT devices are pieces of hardware, such as sensors, actuators, gadgets, appliances, or machines, that are programmed for certain applications and can transmit data over the internet or other networks.

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