This is the second in the series on the Top 10 areas to probe when considering the Internet of Things.
What does the Internet of Things represent financially? Where is the financial burden or savings realized? Why? What has to happen for the savings and return on investment of these systems? What assumptions are inherent to the financial projections regarding the Internet of Things?
These are a number of the questions being asked by more and more people and organizations. In the past several weeks, I have read a number of white papers and articles exploring this subject which I highly recommend. A few of the ones I found most helpful were recent pieces by Cisco, GE, McKinsey, and Inex Advisors.
Let’s start with the basics. Will the Internet of Things drive financial value? Yes. According to the recent Cisco study, there is $14.4 trillion of “Value at Stake” over the next decade. Of course, there is uncertainty about any forward-looking estimate, however I was impressed with the depth of Cisco’s study. (Note: In Cisco parlance, they refer to this as the “Internet of Everything” or IoE). Among other things, they broke down this number further:
But what exactly is “Value”? Many people have differing definitions.
In a recent blog, Chris Rezendes, president of INEX Advisors, wrote about discussions he had with a number of people at the Cisco conference (where the study referenced here was introduced). According to Chris, the growing consensus was that “Value” is best defined as a function of economic stability. So there are certainly elements of direct financial benefit, but the discussion extends beyond that. Can an energy company make more money by delivering energy more efficiently? Of course. Can a manufacturer make more money by further optimizing the supply chain? Again, yes – this is obvious.
But what happens when people who are living in underdeveloped areas can see significant gains in quality of life? One example Chris referenced was a person walking miles trying to find clean well water. If information on the location of clean water could be made available, it could potentially “save” vast amounts of time, allowing the person to now do additional productive activities (perhaps gain better employment). When quality of life in developing nations, or in smaller cities and depressed towns in the developed world that need “re-developing,” is enhanced, then the focus and energy of those people can move to higher-level goals. Employment, infrastructure, health care, and overall well-being should improve.
Intuitively, it is easy to conclude that the myriad improved capabilities brought about by the Internet of Things will yield value. When you spend less time in your car because there are smart traffic systems, there is value. When the time and costs associated with diagnosing medical conditions, especially when it involves someone at a remote location, are decreased, there is value. When your house responds to external conditions ranging from the weather to the load on the grid, there is value. The Cisco study was interesting in that it made some very tangible assessments of this value. But even there, it pertained to the private sector, and the value of the Internet of Things will certainly extend far beyond. That said, the report by Cisco, as well as reports, comments, ideas and other input from the likes of GE, McKinsey, Accenture and many, many other organizations (including non-profit industry groups like the W3C) all point to a connected world that economically, among other things, will be fundamentally changed.
The $14.4 trillion number is certainly compelling. The real “Value” of the Internet of Things is likely to be measured in numbers far greater. There are many other considerations, including security and privacy, that represent potential issues along the way. I will explore those issues in subsequent parts of this series. But it is reasonably certain that the Internet of Things is both here to stay and “valuable” by anyone’s definition.