Forecast the Internet of Things 2013

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G00259115

Forecast: The Internet of Things, Worldwide,2013Published: 18 November 2013

Analyst(s): Peter Middleton, Peter Kjeldsen, Jim Tully

The Internet of Things will include 26 billion units installed by 2020. IoTproduct and service suppliers will generate incremental revenue exceeding$300 billion, mostly in services, in 2020. It will result in $1.9 trillion in globaleconomic value-add through sales into diverse end markets.

Key Findings■ The installed base of "things," excluding PCs, tablets and smartphones, will grow to 26 billion

units in 2020, which is almost a 30-fold increase from 0.9 billion units in 2009. The componentcost of IoT-enabling consumer things will approach $1, and "ghost" devices with unusedconnectivity will be common.

■ There will be a $309 billion incremental revenue opportunity in 2020 for IoT suppliers fromdelivering products and services.

■ The total economic value-add from IoT across industries will reach $1.9 trillion worldwide in2020.

■ By 2020, more than 80% of the IoT supplier revenue will be derived from services. Services thatare associated one-to-one with individual products will face competition from higher-tierservices, in which trusted IoT providers oversee multiple product categories with branded"umbrella" services.

■ The industries likely to see the greatest value added from the IoT will be manufacturing,healthcare providers, insurance, and banking and securities.

Table of Contents

Forecast Data.........................................................................................................................................2

Analysis..................................................................................................................................................4

IoT Will Bring New Supplier Opportunities and Add Global Economic Value......................................7

Supplier Revenue Opportunity.................................................................................................... 7

Economic Value-Add.................................................................................................................. 8



Assumptions........................................................................................................................................ 11

Market Penetration......................................................................................................................... 11

Cost Structure................................................................................................................................11

Business Models............................................................................................................................ 12

Forecast Methodology..........................................................................................................................13

Definition of a "Thing"..................................................................................................................... 13

Value-Add Forecast/Hindcast Approach.........................................................................................13

2020 Market Size Based on Three-Way Comparison................................................................14

Long-Tail Product Category Analysis........................................................................................ 14

Number-per-Population Study..................................................................................................14

Economic Envelope.................................................................................................................. 15

Gartner Recommended Reading.......................................................................................................... 16

List of Tables

Table 1. Total Economic Value-Add From IoT, Worldwide, 2013-2020................................................... 3

Table 2. Worldwide Economic Value-Add by Industry Sector in 2020..................................................... 3

List of Figures

Figure 1. Growth of Things Will Be Rapid................................................................................................4

Figure 2. Internet of Very Different Things............................................................................................... 5

Figure 3. IoT Adoption Will Occur at Different Rates................................................................................6

Figure 4. Total Economic Value-Add, Worldwide, 2013-2020.................................................................9

Figure 5. Economic Value-Add by Industry Sector in 2020................................................................... 10

Forecast DataTable 1 shows total economic value-add from Internet of Things (IoT) technology. Conceptually, thetotal economic value-add across all sectors is a measure of GDP (actual GDP includes the impactof taxes, subsidies and other factors), so the values in this table represent incremental global GDP.Value-add can be derived within an industry sector by either increasing sales, or decreasing inputcosts, or both. The value-add represents the aggregate benefits that businesses derive through thesale and usage of IoT technology.

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Table 1. Total Economic Value-Add From IoT, Worldwide, 2013-2020

2013 2014 2015 2016 2017 2018 2019 2020

Value-Add ($T) 0.3 0.4 0.5 0.6 0.8 1.0 1.4 1.9

Growth (%) - 25 26 27 29 31 34 39

Source: Gartner (November 2013)

Table 2 shows a breakout of Gartner estimates of the percentage split of value-add across industrysectors.

Table 2. Worldwide Economic Value-Add by Industry Sector in 2020

Industry Sector Contribution to Total (%)

Manufacturing 15

Healthcare Providers 15

Insurance 11

Banking and Securities 11

Retail and Wholesale 8

Computing Services 8

Government 7

Transportation 6

Utilities 5

Real Estate and Business Services 4

Agriculture 4

Communications 3

Other 4

Note: Numbers may not add to 100% due to rounding.


Gartner, Inc. | G00259115 Page 3 of 19



AnalysisFigure 1 compares the growth of IoT "things" with the growth in connected personal computingdevices.

Figure 1. Growth of Things Will Be Rapid

0

5

10

15

20

25

30

Connected PC, smartphone, tablet IoT

2009

2020

Billions of Things in Use


The growth in IoT will far exceed that of other connected devices. By 2020, the emergence of mass-market smartphones and tablets, combined with the mature PC market, will result in an installedbase of about 7.3 billion units, which compares with the expected human population of 7.7 billion inthat year (based on information from the United Nations Population Division). In contrast, the IoT willhave expanded at a much faster rate, resulting in an installed base of about 26 billion units at thattime. Installed base is important because it drives the value of service revenue, aggregatecommunications bandwidth and data center activity.

Due to the low cost of adding IoT capability to consumer products, we expect that ghost deviceswith unused connectivity will be common. This will be a combination of products that have thecapability built in but require software to "activate" it and products with IoT hardware/software thatcustomers do not actively leverage. Depending on the usage model, much effort will be required toeducate consumers about the utility they will derive from using IoT products. Companies may offerdifferent product tiers, with the higher-end products offering IoT-enabled services, and midtierproducts sold with the inherent hardware capability and needing only a remote software upgrade tounlock the IoT capabilities.

In addition, enterprises will make extensive use of IoT technology, and there will be a wide range ofproducts sold into various markets, such as:




■ Advanced medical devices, including surgical tools, instrumentation and wearable medicalsensors/monitors, and ingestible devices, such as smart pills

■ Factory automation sensors and applications in industrial robotics

■ Sensor motes for increased agricultural yield

■ Automotive sensors

■ Infrastructure integrity monitoring systems for diverse areas, such as road and railwaytransportation, water distribution, and electrical transmission

Figure 2 shows a distribution of shipments of things by category in 2020, ranked by volume.

Figure 2. Internet of Very Different Things

0

200

400

600

800

1,000

1,200Indoor LED lighting

Smoke alarms

Vending machines

Toys

Smart meters

Parking meters

Hotel door locks

Remote patient-monitoring nodes

Security cameras

Shipments in 2020 (Millions)


The graph ranks about 60 different categories, with a handful called out as examples. The highest-volume shipments will come from connected light-emitting diode (LED) interior light bulbs. Otherareas with high shipment volumes include connected set-top boxes and TVs, wireless peripherals,smart meters, and smart pills. As we move to the right of the graph, the number of things in thesecategories falls off into a long tail composed of a great variety of different applications.

By 2020, component costs will have come down to the point that connectivity will become astandard feature, even for processors costing less than $1. This opens up the possibility ofconnecting just about anything, from the very simple to the very complex, to offer remote control,monitoring and sensing. Many categories of connected things in 2020 don't yet exist. As product




designers dream up ways to exploit the inherent connectivity that will be offered in intelligentproducts, we expect the variety of devices offered to explode. The combination of many newapplications, many of which will be specialized and ship in relatively low volumes, will form a longtail of devices, which looks very different from the picture in 2009, when PCs and smartphonesdominated. The market dynamics in this emerging environment will be quite different in view of thehigh fragmentation of submarkets. IoT suppliers will need to carefully consider which markets tooperate in, and different techniques will be required to reach customers.

Figure 3 shows different categories of things plotted on demand versus systemic friction axes.

Figure 3. IoT Adoption Will Occur at Different Rates

Indoor LED lighting

Car related

Alarms andsecurity

Digital cameras

Smart pills

Smart meters

Point of sale hardware market

Person/medical monitors

Digital signage

Sports related

Vending machines

Smart trash bins

Media consumption

Bluetooth headset, mouse, KB, speakers

Printers

LED street and area lamps

Smart household appliances

Thermostats

Toys

ATMs

Parking meters

Hig

hM

od

era

te

High Low

De

ma

nd

Systemic Friction

KB = keyboard


On the graph, demand represents the combination of end-user interest and/or economic incentiveto adopt a technology, where end-user interest typically applies to consumer applications, andbusinesses will consider the ROI when choosing whether to invest.

Systemic friction is effectively resistance to change. It represents the combination of technological,infrastructure prerequisite, business model/market structure, regulatory and legal, and standards-related "barriers" to adoption of the technology in a particular area. Thus, this graph gives a senseof the potential adoption rate of the various IoT product areas. The rate of adoption of a newtechnology is a function of both user demand and any factors that will resist change. The size of thebubbles on the chart represents the number of units shipped in 2020 and corresponds to the valuesshown in Figure 1.




Differences in demand and systemic friction will result in adoption of different technologiesoccurring at different speeds. Some things will move very quickly in the market because all theconsumer needs is an app to use them — the infrastructure is already there. Other things willrequire a substantial change to institutional systems and will take a longer period before adoption iswidespread.

One of the highest-demand sectors for IoT is street lighting. Embedded intelligence andconnectivity allows LED lamps to be controlled and monitored. The overall benefit is reduced coststhrough reduced energy consumption. This is happening fast because there is little to slow theadoption process.

But compare this adoption scenario with the medical sector. Smart pills, for example, will takelonger than lighting to move into the mainstream because of regulation, such as Food and DrugAdministration (FDA) approval. Nevertheless, the new IoT technologies will add $285 billion ofhealthcare provider value to the global economy by 2020 — but the main benefits will be felt afterthis date.

For example, printers are shown with moderate demand because they are a low-growth (flat)market. In contrast, toys are potentially a more exciting end-use technology for consumers.

IoT Will Bring New Supplier Opportunities and Add Global Economic Value

Supplier Revenue Opportunity

The IoT encompasses hardware (the "things" themselves), embedded software (software runningon, and enabling the connected capabilities of, the things), connectivity/communications servicesand information services associated with the things (including services based on analysis of usagepatterns and sensor data). We refer to the companies that provide this hardware and these servicesas IoT suppliers. The incremental IoT supplier revenue contribution from IoT in 2020 is estimated at$309 billion. Incremental revenue refers to the difference in sales that results from adding IoTcapability to a product/service offering. For example, LED light bulbs are in the early stages ofcoming to market, though early models are not networked. By adding IoT capability, LED lightingsuppliers can charge higher prices for their products, and associated services will arise. It is thisincrease in opportunity associated with IoT that is referred to as incremental supplier revenuecontribution. Another example would be adding IoT capabilities to home appliances. We refer onlyto this addition, rather than to the full value of the original appliance market. So, in this example, anappliance company could be a supplier of both traditional, unconnected appliances and a supplierof IoT-enabled appliances. Similarly, a company selling jet aircraft engines will see an incrementalproduct and service revenue opportunity associated with the addition of connected sensors to itsdesigns. We count the incremental revenue as opposed to the total sales of jet engine products andservices, which is much larger.

Because of the diversity of IoT applications, it should be noted that the suppliers involved will notnecessarily be traditional technology and service provider companies (i.e., those that we currentlyassociate with information technology). In the case of the lighting example, the incremental revenuecontribution will go to those that provide services and those that build IoT lights. Light bulb




manufacturing has not traditionally been thought of as a high-tech industry, but connected LEDlighting combines advanced optical semiconductor expertise with a software-driven, networkedoperational model (so it is very much a high-tech product). The utilities or home managementcompanies that seek to derive service revenue from such products are likewise not traditional ITservices providers. There are many other examples, so IoT will open up revenue opportunities in awide range of areas as it augments traditional product and service categories.

As hardware costs fall, and solutions proliferate, the bulk of this opportunity falls to serviceproviders. Although the industry will benefit tremendously from IoT technology, consumer end userswill drive almost two-thirds of the IoT supplier revenue.

Economic Value-Add

Economic value-add for a sector is essentially the sales in that sector minus inputs and suppliesfrom other industries (for example, manufacturing sales minus the cost of raw materials and energy).Conceptually, the total economic value-add across all sectors is a measure of GDP (actual GDPincludes the impact of taxes, subsidies and other factors). Value-add can be derived within a sectorby either increasing sales, or decreasing input costs, or both. The value-add represents theaggregate benefits that businesses derive through the sale and usage of IoT technology. Forexample, an IoT technology supplier derives value-add through its profit from sales of products orservices. A business that invests in IoT technology (bought from a supplier) derives value-add fromthe use of the technology, which can be leveraged to increase the business's sales or reduce itscosts. Economic value-add for a sector represents the total across all businesses in a sector. Figure4 shows the growth in total economic value-add globally from the present through 2020.

Products and services purchased purely for consumer entertainment/utility do not generateeconomic value-add above the value derived by IoT suppliers. For instance, an IoT-enabled toy withan associated service (e.g., to enable multiple children to play simultaneously via a subscriptionservice) generates value-add for the toy manufacturer and for the service provider (which may bethe same company). However, consumer purchases of IoT products/services can contribute tovalue-add in diverse industry sectors. For example, consumer purchases of connected smokedetectors benefit the insurance industry by improving public safety, as do purchases of automobileswith IoT-enabled safety systems. Other examples of consumer influence include consumer use ofhealthcare or transportation services, whereby the level of consumer usage will impact themagnitude of the value that can be derived from IoT technology.




Figure 4. Total Economic Value-Add, Worldwide, 2013-2020

0.0

0.5

1.0

1.5

2.0

2.5

2013 2014 2015 2016 2017 2018 2019 2020

Value-Add ($T)


Figure 5 provides a breakout of the distribution in 2020 economic value-add by industry sector.




Figure 5. Economic Value-Add by Industry Sector in 2020

Manufacturing15%

Healthcare Providers15%

Insurance11%

Banking and Securities

11%

Retail and Wholesale8%

Computing Services8%

Government7%

Transportation6%

Utilities, 5%

Real Estate and Business Services

4%

Agriculture, 4%

Communications, 3% Other4%

Total Economic Value-Add in 2020: $1.9 Trillion


Economic value-add across sectors in 2020 is forecast to be $1.9 trillion. The $1.9 trillion ineconomic value-add partially overlaps with the $309 billion incremental IoT supplier revenue figurebecause suppliers derive value from the profits they earn in selling their IoT products and services.IoT value-add is composed of the combination of mature IoT, which is already yielding benefits, anda high-growth emerging IoT opportunity. It is derived from a combination of sector-specifictechnology (such as connected, automated manufacturing systems in the manufacturing sector),and more generic, widely used technology, such as the suite of "smart building" technologies,including LED lighting, smart HVAC systems, etc.

Some industries (part of mature IoT) are already highly leveraging connectivity, such ascommunications and banking, which has widely employed connected automatic teller machines(ATMs) and point-of-sale (POS) technology to lead to operational savings and enhanced revenueopportunities. While the unit numbers associated with early IoT are not large, the technology isalready having a noticeable effect. That said, the growth in IoT will have a relatively small short-termimpact but a potentially transformative long-term impact (with our 2020 date being possibly on thecusp of the transformative change, but not yet in the midst of it).

Emerging areas will witness rapid growth of connected things. For example, this will lead toimproved safety, security and loss prevention in the insurance industry. IoT will also facilitate newbusiness models, such as usage-based insurance calculated based on real-time driving data. Thebanking and securities industry will continue to innovate around mobile and micro-paymenttechnology using convenient POS terminals and will invest in improved physical security systems.IoT will also support a large range of health and fitness devices and services, combined with




medical advances, leading to significant benefit to the healthcare sector. Emerging connectedsensor technology will lead to value creation in diverse areas such as utilities, transportation andagriculture. Most industries will also benefit from the generic technologies, in that their facilities willoperate more efficiently through the use of smart building technology, such as connected LEDlighting systems, HVAC systems and physical security (via connected door and window locks andmonitoring systems).

From an IoT supplier standpoint, the primary value-add will arise in computing services, which willenable the mining of big data generated by the installed base of "things" — converting hugeamounts of data into a manageable amount of actionable information for end users. The value-addfrom application software associated with the usage of IoT also falls under computing services. Thevalue-add from hardware sales will arise in the manufacturing sector, while connectivity services willbenefit the communications sector.

Assumptions

Market Penetration

By 2020, several IoT categories will have reached the steep part of the adoption s-curve, but the IoTmarket as a whole will be on only the cusp of the transformative change induced by IoT.

Some of the segments with long-term transformative potential will, due to various types of systemicfriction, not yet have taken off by 2020. In our forecast for 2013 through 2020, we have assumedthat services associated one-to-one with individual products dominate the picture. The likelyemergence of higher tiers of umbrella IoT services across traditional product categories couldpotentially create an "IoT tipping point" but, in our analysis, we have assumed that this will notdominate the picture during the forecast period.

About 15% of LED lamps will contain connectivity technology by 2020 and will therefore bemembers of the IoT. This amounts to more than a billion connected lamps.

The use of LEDs results in considerable energy savings, combined with electronic controllability.About 90% of the energy savings will be in consumer markets, with commercial, street and arealighting accounting for the rest. The energy savings are so great that governments will encouragethe use of LED lamps through subsidies and forced use. This adds a degree of certainty to theforecast for these devices. By 2020, LEDs will reduce worldwide electrical consumption by 1,400terawatt-hours annually.

Cost Structure

By 2020, the cost of adding basic IoT capability to a consumer-grade end-user device will approach$1.

Any product that contains a microcontroller or system-on-chip device will have inherent IoTcapability, once the incremental cost of basic connectivity and sensors comes down. This will




enable the addition of latent IoT capabilities and will create a vast number of ghost devices that areIoT-enabled but not actively connected or monitored. Moreover, due to the low incremental cost,even products that contain no electronics or minimal electronics today could be offered inconnected versions in the future (such as hand tools, door and window locks, toys, smoke alarms,thermostats, parking meters, and similar items).

Price levels for the combination of a basic microcontroller, Bluetooth wireless connectivity and asimple sensor, such as a temperature, vibration or acceleration sensor, will approach $1 by 2020. Inother words, the cost of the component technology is not a barrier to IoT growth. More complexdevices with additional onboard compute capabilities, multiple and/or specialized sensor clusters,autonomous operation, or advanced mobile/remote power capabilities will cost considerably more.

Business Models

By 2017, 50% of IoT solutions (typically a product combined with a service) will originate in startupsless than 3 years old.

Through 2017, the IoT market will be in its very early stages. Similar to other technology advanceshistorically, the growth promise associated with these early stages will lead to the creation andfunding of a large number of startup organizations. These companies will maneuver to capture whatthey perceive to be early opportunities or overlooked product niches. This will lead to creativesolutions and a wide range of products, many of which will fail in the market. Nevertheless, thisprocess will lead to growth as the successful solutions are often consolidated by larger suppliers,and the overall market expands. These developments will diversify the IoT ecosystem and lead tothe long-tail effect shown in Figure 2. It will also lead to unpredictable things and services. We don'tknow what many of these will be, so we have considered an incremental "unknown" category in ouranalysis.

By 2020, more than 80% of the IoT supplier revenue will be derived from services.

The incremental cost of hardware and embedded software is relatively small, whereas the serviceand analytics opportunity is much larger. Initially, much of the supplier focus in the IoT market(s) willbe on hardware and software, as companies try different approaches and feature sets in an effort tobuild awareness of their products. As business models mature, however, the market willincreasingly be driven by services (including data analytics services). There will be serviceopportunities associated with coordinating and managing the multiple things that typical consumerswill interact with in an average day, both in their home/possession and in their daily travels. Indeed,the value chain for IoT devices and services will be multilayered, with usage data leveraged usinganalytics software that is designed to pull out trends useful for further product and servicemarketing initiatives. IoT creates a big data problem that analytics must solve — transform hugevolumes of data into a small (readily synthesized by a human mind) quantity of usable/actionableinformation.

Services will initially be associated one-to-one with individual products. Through 2020, this will openup to allow higher tiers of umbrella services and analytics, which will associate services with multipleproducts (one-to-many) to generate significant economic value-add.




Under this umbrella model, a service could arise to manage, control, aggregate data or analyzeinformation from multiple things. As an example of value creation under this model, where patternsof user behavior can be tracked (from the use of multiple things), there will be an opportunity toanalyze them to generate useful information or to perform marketing analytics. However, there willbe security and privacy implications of sharing data, so society (often individual countries) can beexpected to pass legislation regulating the use of shared data. This is one factor that could affectoverall systemic friction, as depicted in Figure 3.

Dominant IoT providers of higher-tier umbrella services are likely to emerge. Building end-user trustand brand equity (in part due to concerns over privacy and data security) will be key successparameters for prospective higher-tier IoT service providers. There will be two main approaches tothese umbrella services. One version will be based on a common technology platform developed toconnect and manage multiple categories and brands of things. The second one is a portal/customer-facing umbrella where consumers (or enterprises) perceive that all their services aremanaged by a single entity, such as Apple, Samsung, Siemens, or a telecom or utility company.

Forecast Methodology

Definition of a "Thing"

IoT is something of a misnomer; things needn't connect directly to the public Internet, but they mustbe connectable via a network (which could be a LAN, PAN, body area network, etc.) and individuallyaddressable. Thus, if 40 LED lamps are clustered together into an LED light bulb, which isconnected to a LAN, then this counts as one thing. If HVAC sensors are colocated with the lightbulb and share connectivity, then this cluster of lamps and sensors counts as one thing. Similarly, ifan agricultural sensor mote consists of a group of four types of sensors, along with a power source,microcontroller and radio, this will count as one thing. In some cases, connections will behierarchical. For example, a car can have multiple addressable subsystems, and the vehicle itselfcould represent a thing (such as a node in a traffic analysis system). In these cases, we consideredonly the "leaf nodes" in our analysis. It should be further noted that we exclude PCs, tablets andsmartphones from the count of IoT things. This is because personal computing devices such asPCs, tablets and smartphones will often be used as a hub to access information from, configure/control and manage things. In many cases, there will be a many-to-one relationship between thingsand personal computing devices (but not all personal computing devices will interact with things,particularly in the early stages of the market).

Value-Add Forecast/Hindcast Approach

The forecast presented here assesses the total value-add across all of the vertical sectors coveredby Gartner.

Traditionally, when forecasting a given market, the starting point is a sizing of the current market,which forms the basis for the forecast of how the market will develop in the future. However, the IoT




market is still at a very early stage, where many aspects of the market are embryonic or evennonexistent.

Given the characteristics of the IoT market, we decided to start with sizing the market in 2020 —which is when we believe that the market will be sufficiently mature to allow for estimates on howmany devices of a given type there may be per person, per household, etc. Since gauging a marketsize seven years out is not a trivial task, we decided on an approach by which we triangulated theoutcome of three different types of analyses based on different methodologies, rather than relyingon the methodology of a single analysis. This is described in more detail in a later section.

The preceding years in the forecast are therefore essentially a "hindcast" based on the 2020estimate — but of course also with an eye on the parts of the IoT market that are already visibletoday.

2020 Market Size Based on Three-Way Comparison

As mentioned, the methodology to develop the 2020 IoT market size forecast consisted of threeapproaches, which yielded results that were then cross-referenced against one another. An iterativeapproach was used where assumptions were adjusted until a converged and consistent pictureemerged from the three methodologies. These approaches are referred to as (1) long-tail productcategory analysis; (2) n-per-population study; and (3) economic envelope.

Long-Tail Product Category Analysis■ The purpose of this analysis was to generate a diverse list of conceivable applications.

■ Some of the product categories were accessible from existing Gartner forecasts, such as forLEDs, set-top boxes, printers, etc.

■ Gartner secondary research was used to help compile a comprehensive list, and we added an"others" category to capture items that we have not thought of or do not yet exist.

■ Installed base and shipment figures were developed for 2020.

■ Product categories were classified into consumer, enterprise, consumer/enterprise, industrialand high-grade industrial.

■ Relative price points were assessed for IoT capability depending on category, with consumerthe least expensive and high-grade industrial as the most expensive.

Number-per-Population Study■ The purpose of this analysis was to judge the size of the market in relation to populations of

people/objects/market sizes that influence the usage and purchase of connected things.

■ For example, we can relate the number of connected appliances to the number of households,or the number of automotive sensors to the number of cars in service, or the number of trafficsignals to the length of a major roadway.




■ The saturation level per unit of population and the percentage of penetration were estimated for2020. Saturation represents the number that would be used per population metric once thetechnology is fully mature at some point beyond 2020.

■ We assumed that quantitative product sales could be associated with these populations. Forexample, one could assume that 20 light bulbs are used in a typical home and measure thepenetration of connected LED lighting against that saturation figure.

■ The various categories of things were grouped according to usage by economic sector andconsumers.

■ Estimates were developed for IoT supplier sales, IoT supplier value-add and sector-as-customer economic value-add:

■ IoT supplier revenue was derived from the total shipments of things in 2020 and the costcategories.

■ IoT supplier revenue represents the 2020 incremental revenue opportunity from deliveringIoT products and services.

■ It is also the total of the costs paid by each of these sectors to the IoT suppliers (so it is aninput and not part of the value-add for the sector as a technology user).

■ However, there is a partial overlap with the $1.9 trillion economic value-add figure. Weincluded the value-add to the IoT suppliers. So, an estimate of the value-add portion of thesupplier sales is included in the value-add for manufacturing, communications andcomputing service industries (where the manufacturing sector provides the hardware, thecommunications sector provides the connectivity, and the computing service sectorprovides software/analytics/services).

■ The $1.9 trillion total economic value-add includes both the value-add derived by economicsectors as customers (i.e., organizations within the sector purchasing IoT technology/services and deriving incremental revenue and/or cost savings) and the value-add derivedby IoT suppliers.

Economic Envelope■ The purpose of this analysis was to ensure that the market size that we forecast fits within the

economic constraints of the global economy.

■ Global economic value-add from IoT by sector was constrained by total value-add data fromIHS Global Insight.

■ Value-add from revenue gain and value-add from cost savings by sector were estimated forselect years through the forecast period. For the remaining years in the forecast period, value-add estimates for each sector were calculated using an exponential growth modelapproximation of adoption patterns that were assumed to follow the initial part of an s-curve.




■ Economic value-add for a sector is essentially sales in that sector minus inputs and suppliesfrom other industries (so, for example, manufacturing sales minus the cost of raw materials andenergy).

■ Conceptually, the total economic value-add across all sectors is a measure of GDP (actual GDPincludes the impact of taxes, subsidies and other factors).

■ Value-add can be derived by either increasing sales, or decreasing input costs, or both.

■ When we looked at the IoT impact in a sector, we considered ways that IoT technology canincrease sales (e.g., new product or service opportunity beyond the existing situation) or reducecosts (e.g., smart lighting leading to reduced electricity expense).

■ The use of IoT can involve the replacement (in full or in part) of existing legacy processes —e.g., stop sending a driver/truck to each high-traffic vending machine every two days and startIoT-enabled just-in-time delivery.

■ Value-add has been assessed as a first-order analysis:

■ In some cases, savings in one area (e.g., vending machine refill operations) will lead tocutbacks in others (drivers, transport vehicles, etc.).

■ These higher-order effects were not considered in the current analysis.

■ Products purchased purely for consumer entertainment/utility do not generate economic value-add above the value derived by IoT suppliers. For instance, an IoT-enabled toy with anassociated service (e.g., to enable multiple children to play simultaneously via a subscriptionservice) generates value-add for the toy manufacturer and for the service provider (which maybe the same company).

■ In contrast, some products purchased by consumers lead to value being derived by specificverticals — for example, use of sensor-enabled cars and connected smoke detectors bothimprove public safety, which will benefit insurers even if they do not directly purchase thetechnology (insurers may, however, subsidize or lobby for government subsidies for suchproducts).

■ Some applications, such as LED lighting, offer a generic benefit (energy savings and improvedlifetimes/reduced maintenance). These generic benefits apply across industries.

Gartner Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"Hype Cycle for the Internet of Things, 2013"

"Uncover Value From the Internet of Things With the Four Fundamental Usage Scenarios"

"Key Technologies for the Internet of Things"




"The Potential Size and Diversity of the Internet of Things Mask Immediate Opportunities for ITLeaders"

"The Internet of Things Will Shape Smart Cities"

"Innovation Insight: Smart Grid Drives Innovation in the Utility Sector"

"Market Trends: CSPs Climbing Onboard the Connected Car, Worldwide, 2013"

"Life Insurers Must Prepare Now for the Internet of Things"

"Top Impacts of IT/OT Convergence and How CIOs Should Deal With Them"

"The Internet of Things Is Moving to the Mainstream"

"Agenda Overview for Operational Technology Alignment With IT, 2013"

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Forecast the Internet of Things 2013