Could it be that the Internet of Things is actually under-hyped? Yes—it could have a total economic impact between $3.9 and $11 trillion a year by 2025, including $410 billion to $1.2 trillion per year in retail environments.
While the IoT has garnered oceans of digital ink in the last five years for its vast and varied potential, it is worth all the attention and may be due more, according to a recent McKinsey Global Institute report, "The Internet of Things: Mapping the value beyond the hype." And while the consumer market for interconnected devices will be large, the business-to-business market may represent 70 percent of the IoT value.
"Our central finding is that the hype may actually understate the full potential of the Internet of Things—but that capturing the maximum benefits will require an understanding of where real value can be created and successfully addressing a set of systems issues, including interoperability," the study stated.
The IoT means sensors and actuators in objects and devices connected to computing systems through networks, communicating with each other as well as with the people responsible for them. If the IoT reaches $11 trillion in value, this will equate to about 11 percent of the world economy, McKinsey reported.
"I think people are starting to understand all of the incredible impacts the internet has had on business, their personal lives and the ways we can interact with government," Michael Chui, a partner at the McKinsey Global Institute and co-author of the report, told the Huffington Post. "We are extending some of the power, speed and scope of the internet, not just to our online lives, but to all of the physical things we do. It is transforming how we combine the physical world with online and bringing it all to new domains," Chui said.
The McKinsey analysis of retail environments covered only physical stores, excluding e-commerce, and estimated that the uses of the IoT for retail could have an economic impact of $410 billion to $1.2 trillion per year in 2025. There could be $380 billion in potential annual value from automated checkout systems alone.
The IoT can provide traditional retailers with the tools they need to compete and coexist with online retailing as omnichannel shopping erases the distinction between online and off-line stores.
View full McKinsey Global Institute PDF here
For example, the IoT could guide shoppers to the items inside the stores that they have been researching online, and even send a text message with a personalized coupon to use if the purchase is made in-store that day. On the store operations side, IoT technology can provide data to optimize store layouts, enable fully automated checkout and fine-tune inventory management. "These and other innovations could enable new business models and allow retailers to improve productivity, reduce costs and raise sales," the study said.
IoT adoption in retail will depend on the evolution of technology, such as lower-cost sensors, but also the development of new business processes. IoT systems require modern store formats, as well as investments in data systems and electronic payment systems.
Widespread IoT adoption will have an effect across the value chain, including employees and consumers. It could reduce the need for labor on the sales floor and checkouts, and increase the revenue per customer. Consumers can gain more value through convenience, time saving and customized promotions. To remain competitive, retailers would need to master new ways of operating and learn to collaborate closely with technology and data vendors.
With IoT, retailers can also improve their economics by reducing shrinkage, lowering inventory costs, raising productivity and improving the customer experience. Among retail operators, early adopters could see share gains and cost reductions from leaner inventories, lower operating costs, and better use of floor space.
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