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Artwork by Harry Campbell

The Internet of Things


More objects are becoming embedded with sensors and gaining the ability to communicate. The resulting information networks promise to create new business models, improve business processes, and reduce costs and risks.

Michael Chui, Markus Lfer, and Roger Roberts In most organizations, informationtravelsalongfamiliarroutes. Proprietaryinformationislodgedindatabasesandanalyzedin reportsandthenrisesupthemanagementchain.Informationalso originatesexternallygatheredfrompublicsources,harvestedfrom theInternet,orpurchasedfrominformationsuppliers.

Michael Chui is a senior fellow with the McKinsey Global Institute, Markus Lfer is a principal in McKinseys Stuttgart ofce, and Roger Roberts is a principal in the Silicon Valley ofce.

Butthepredictablepathwaysofinformationarechanging:the physicalworlditselfisbecomingatypeofinformationsystem. InwhatscalledtheInternetofThings,sensorsandactuators embeddedinphysicalobjectsfromroadwaystopacemakersare linkedthroughwiredandwirelessnetworks,oftenusingthesame InternetProtocol(IP)thatconnectstheInternet.Thesenetworks !"#$%&'#(&"#)*&+',#-*.&'/&01(1&("1(&2'3&('&!'-4#(*$.&/'$&1%1,5.6.7& Whenobjectscanbothsensetheenvironmentandcommunicate, theybecometoolsforunderstandingcomplexityandresponding toitswiftly.Whatsrevolutionaryinallthisisthatthesephysical informationsystemsarenowbeginningtobedeployed,andsomeof themevenworklargelywithouthumanintervention. Pillshapedmicrocamerasalreadytraversethehumandigestivetract andsendbackthousandsofimagestopinpointsourcesofillness. Precisionfarmingequipmentwithwirelesslinkstodatacollected fromremotesatellitesandgroundsensorscantakeintoaccount !$'4&!'%06(6'%.&1%0&108#.(&("*&315&*1!"&6%06+60#1,&41$(&'/&1&9*,0&6.&

farmedforinstance,byspreadingextrafertilizeronareasthatneed morenutrients.BillboardsinJapanpeerbackatpassersby,assessing "'3&("*5&9(&!'%.#-*$&4$'9,*.:&1%0&6%.(1%(,5&!"1%)*&06.4,15*0& messagesbasedonthoseassessments. Yes,therearetracesoffuturisminsomeofthisandearlywarnings forcompaniestoo.Businessmodelsbasedontodayslargelystatic informationarchitecturesfacechallengesasnewwaysofcreating valuearise.Whenacustomersbuyingpreferencesaresensedinreal (6-*&1(&1&.4*!69!&,'!1(6'%:&05%1-6!&4$6!6%)&-15&6%!$*1.*&("*&'00.& ofapurchase.Knowinghowoftenorintensivelyaproductisused cancreateadditionaloptionsusagefeesratherthanoutrightsale, forexample.Manufacturingprocessesstuddedwithamultitudeof .*%.'$.&!1%&;*&!'%($',,*0&-'$*&4$*!6.*,5:&$16.6%)&*/9!6*%!57&<%0&3"*%& operatingenvironmentsaremonitoredcontinuouslyforhazardsor whenobjectscantakecorrectiveactiontoavoiddamage,risksand costsdiminish.Companiesthattakeadvantageofthesecapabilities standtogainagainstcompetitorsthatdont. ThewidespreadadoptionoftheInternetofThingswilltaketime,but thetimelineisadvancingthankstoimprovementsinunderlying (*!"%',')6*.7&<0+1%!*.&6%&36$*,*..&%*(3'$=6%)&(*!"%',')5&1%0&("*& greaterstandardizationofcommunicationsprotocolsmakeitpossible tocollectdatafromthesesensorsalmostanywhereatanytime.Ever smallersiliconchipsforthispurposearegainingnewcapabilities, whilecosts,followingthepatternofMooresLaw,arefalling.Massive increasesinstorageandcomputingpower,someofitavailablevia cloudcomputing,makenumbercrunchingpossibleatverylargescale andatdecliningcost.

The Internet of Things

Putting the Internet of Things to work: Information and analysis Tracking behavior
Monitoring the behavior of persons, things, or data through space and time.

Examples: Presence-based advertising and payments based on locations of consumers Inventory and supply chain monitoring and management

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Noneofthisisnewstotechnologycompaniesandthoseonthe frontierofadoption.Butasthesetechnologiesmature,therangeof corporatedeploymentswillincrease.Nowisthetimeforexecutives acrossallindustriestostructuretheirthoughtsaboutthepotential impactandopportunitieslikelytodevelopfromtheInternetof Things.Weseesixdistincttypesofemergingapplications,whichfall 6%&(3'&;$'10&!1(*)'$6*.>&9$.(:&6%/'$-1(6'%&1%0&1%1,5.6.&1%0:&.*!'%0:& automationandcontrol.

Information and analysis


<.&("*&%*3&%*(3'$=.&,6%=&01(1&/$'-&4$'0#!(.:&!'-41%5&1..*(.:&'$&("*& operatingenvironment,theywillgeneratebetterinformationand 1%1,5.6.:&3"6!"&!1%&*%"1%!*&0*!6.6'%&-1=6%)&.6)%69!1%(,57&?'-*& organizationsarestartingtodeploytheseapplicationsintargeted areas,whilemoreradicalanddemandingusesarestillinthe conceptualorexperimentalstages.

1. Tracking behavior
Whenproductsareembeddedwithsensors,companiescantrackthe movementsoftheseproductsandevenmonitorinteractionswith ("*-7&@#.6%*..&-'0*,.&!1%&;*&9%*A(#%*0&('&(1=*&10+1%(1)*&'/&("6.& ;*"1+6'$1,&01(17&?'-*&6%.#$1%!*&!'-41%6*.:&/'$&*B1-4,*:&1$*&'//*$6%)& toinstalllocationsensorsincustomerscars.Thatallowsthese companiestobasethepriceofpoliciesonhowacarisdrivenaswell aswhereittravels.Pricingcanbecustomizedtotheactualrisksof operatingavehicleratherthanbasedonproxiessuchasadriversage, gender,orplaceofresidence. Orconsiderthepossibilitieswhensensorsandnetworkconnections areembeddedinarentalcar:itcanbeleasedforshorttimespans

Enhanced situational awareness

Achieving real-time awareness of physical environment.

Example: Sniper detection using direction of sound to locate shooters

toregisteredmembersofacarservice,rentalcentersbecome unnecessary,andeachcarsusecanbeoptimizedforhigherrevenues. Zipcarhaspioneeredthismodel,andmoreestablishedcarrental companiesarestartingtofollow.Inretailing,sensorsthatnote ."'44*$.C&4$'9,*&01(1&D.('$*0&6%&("*6$&-*-;*$."64&!1$0.E&!1%&"*,4& closepurchasesbyprovidingadditionalinformationoroffering discountsatthepointofsale.MarketleaderssuchasTescoareatthe forefrontoftheseuses. Inthebusinesstobusinessmarketplace,onewellknownapplication oftheInternetofThingsinvolvesusingsensorstotrackRFID(radio /$*F#*%!5&60*%(69!1(6'%E&(1).&4,1!*0&'%&4$'0#!(.&-'+6%)&("$'#)"& supplychains,thusimprovinginventorymanagementwhilereducing workingcapitalandlogisticscosts.Therangeofpossibleusesfor trackingisexpanding.Intheaviationindustry,sensortechnologies arespurringnewbusinessmodels.Manufacturersofjetenginesretain ownershipoftheirproductswhilechargingairlinesfortheamount '/&("$#.(&#.*07&<6$4,1%*&-1%#/1!(#$*$.&1$*&;#6,06%)&16$/$1-*.&36("& networkedsensorsthatsendcontinuousdataonproductwearand teartotheircomputers,allowingforproactivemaintenanceand reducingunplanneddowntime.

The Internet of Things

2. Enhanced situational awareness


Datafromlargenumbersofsensors,deployedininfrastructure(such asroadsandbuildings)ortoreportonenvironmentalconditions (includingsoilmoisture,oceancurrents,orweather),cangivedecision makersaheightenedawarenessofrealtimeevents,particularly whenthesensorsareusedwithadvanceddisplayorvisualization technologies. ?*!#$6(5&4*$.'%%*,:&/'$&6%.(1%!*:&!1%&#.*&.*%.'$&%*(3'$=.&("1(& combinevideo,audio,andvibrationdetectorstospotunauthorized

Sensor-driven decision analytics

Assisting human decision making through deep analysis and data visualization Examples: Oil eld site planning with 3D visualization and simulation

Continuous monitoring of chronic diseases to help doctors determine best treatments

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6%06+60#1,.&3"'&*%(*$&$*.($6!(*0&1$*1.7&?'-*&10+1%!*0&.*!#$6(5& systemsalreadyuseelementsofthesetechnologies,butmorefar reachingapplicationsareintheworksassensorsbecomesmallerand morepowerful,andsoftwaresystemsmoreadeptatanalyzingand displayingcapturedinformation.Logisticsmanagersforairlinesand truckinglinesalreadyaretappingsomeearlycapabilitiestogetup ('A("*A.*!'%0&=%'3,*0)*&'/&3*1("*$&!'%06(6'%.:&($1/9!&41((*$%.:&1%0& vehiclelocations.Inthisway,thesemanagersareincreasingtheir abilitytomakeconstantroutingadjustmentsthatreducecongestion costsandincreaseanetworkseffectivecapacity.Inanother 144,6!1(6'%:&,13A*%/'$!*-*%(&'/9!*$.&!1%&)*(&6%.(1%(1%*'#.&01(1&/$'-& .'%6!&.*%.'$.&("1(&1$*&1;,*&('&46%4'6%(&("*&,'!1(6'%&'/&)#%9$*7

3. Sensor-driven decision analytics


TheInternetofThingsalsocansupportlongerrange,morecomplex humanplanninganddecisionmaking.Thetechnologyrequirements tremendousstorageandcomputingresourceslinkedwithadvanced softwaresystemsthatgenerateavarietyofgraphicaldisplaysfor analyzingdatariseaccordingly. Intheoilandgasindustry,forinstance,thenextphaseofexploration anddevelopmentcouldrelyonextensivesensornetworksplacedin theearthscrusttoproducemoreaccuratereadingsofthelocation, .($#!(#$*:&1%0&06-*%.6'%.&'/&4'(*%(61,&9*,0.&("1%&!#$$*%(&01(1A0$6+*%& methodsallow.Thepayoff:lowerdevelopmentcostsandimprovedoil 2'3.7 <.&/'$&$*(16,6%):&.'-*&!'-41%6*.&1$*&.(#056%)&315.&('&)1("*$&1%0& processdatafromthousandsofshoppersastheyjourneythrough .('$*.7&?*%.'$&$*106%).&1%0&+60*'.&%'(*&"'3&,'%)&("*5&,6%)*$&1(& 6%06+60#1,&06.4,15.&1%0&$*!'$0&3"1(&("*5&#,(6-1(*,5&;#57&?6-#,1(6'%.& basedonthisdatawillhelptoincreaserevenuesbyoptimizingretail layouts. Inhealthcare,sensorsanddatalinksofferpossibilitiesformonitoring apatientsbehaviorandsymptomsinrealtimeandatrelativelylow cost,allowingphysicianstobetterdiagnosediseaseandprescribe tailoredtreatmentregimens.Patientswithchronicillnesses,for *B1-4,*:&"1+*&;**%&'#(9((*0&36("&.*%.'$.&6%&1&.-1,,&%#-;*$&'/& healthcaretrialscurrentlyunderway,sothattheirconditionscanbe monitoredcontinuouslyastheygoabouttheirdailyactivities.One suchtrialhasenrolledpatientswithcongestiveheartfailure.These 41(6*%(.&1$*&(546!1,,5&-'%6('$*0&'%,5&0#$6%)&4*$6'06!&4"5.6!61%&'/9!*& +6.6(.&/'$&3*6)"(:&;,''0&4$*..#$*:&1%0&"*1$(&$1(*&1%0&$"5("-7&?*%.'$.& placedonthepatientcannowmonitormanyofthesesignsremotely andcontinuously,givingpractitionersearlywarningofconditionsthat wouldotherwiseleadtounplannedhospitalizationsandexpensive

emergencycare.Bettermanagementofcongestiveheartfailurealone couldreducehospitalizationandtreatmentcostsbyabilliondollars 1%%#1,,5&6%&("*&G%6(*0&?(1(*.7&

The Internet of Things

Automation and control


Makingdatathebasisforautomationandcontrolmeansconverting thedataandanalysiscollectedthroughtheInternetofThings intoinstructionsthatfeedbackthroughthenetworktoactuators thatinturnmodifyprocesses.Closingtheloopfromdatato automatedapplicationscanraiseproductivity,assystemsthat adjustautomaticallytocomplexsituationsmakemanyhuman interventionsunnecessary.Earlyadoptersareusheringinrelatively ;1.6!&144,6!1(6'%.&("1(&4$'+60*&1&/16$,5&6--*061(*&415'//7&<0+1%!*0& automatedsystemswillbeadoptedbyorganizationsasthese technologiesdevelopfurther.

1. Process optimization
TheInternetofThingsisopeningnewfrontiersforimproving 4$'!*..*.7&?'-*&6%0#.($6*.:&.#!"&1.&!"*-6!1,&4$'0#!(6'%:&1$*& installinglegionsofsensorstobringmuchgreatergranularityto monitoring.Thesesensorsfeeddatatocomputers,whichinturn analyzethemandthensendsignalstoactuatorsthatadjustprocesses forexample,bymodifyingingredientmixtures,temperatures,or 4$*..#$*.7&?*%.'$.&1%0&1!(#1('$.&!1%&1,.'&;*&#.*0&('&!"1%)*&("*& positionofaphysicalobjectasitmovesdownanassemblyline, ensuringthatitarrivesatmachinetoolsinanoptimumposition (smalldeviationsinthepositionofworkinprocesscanjamoreven damagemachinetools).Thisimprovedinstrumentation,multiplied hundredsoftimesduringanentireprocess,allowsformajor reductionsinwaste,energycosts,andhumanintervention.

Putting the Internet of Things to work: Automation and control Process optimization
Automated control of closed (self-contained) systems

Examples: Maximization of lime kiln throughput via wireless sensors Continuous, precise adjustments in manufacturing lines

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Inthepulpandpaperindustry,forexample,theneedforfrequent manualtemperatureadjustmentsinlimekilnslimitsproductivity gains.Onecompanyraisedproduction5percentbyusingembedded temperaturesensorswhosedataisusedtoautomaticallyadjustakiln 21-*C.&."14*&1%0&6%(*%.6(57&H*0#!6%)&(*-4*$1(#$*&+1$61%!*&('&%*1$& zeroimprovedproductqualityandeliminatedtheneedforfrequent operatorintervention.

2. Optimized resource consumption


Networkedsensorsandautomatedfeedbackmechanismscanchange usagepatternsforscarceresources,includingenergyandwater,often byenablingmoredynamicpricing.UtilitiessuchasEnelinItalyand I1!69!&J1.&1%0&K,*!($6!&DIJLKE&6%&("*&G%6(*0&?(1(*.:&/'$&*B1-4,*:& aredeployingsmartmetersthatprovideresidentialandindustrial customerswithvisualdisplaysshowingenergyusageandthereal (6-*&!'.(.&'/&4$'+606%)&6(7&DM"*&($106(6'%1,&$*.60*%(61,&9B*0A4$6!*A perkilowatthourbillingmasksthefactthatthecostofproducing energyvariessubstantiallythroughouttheday.)Basedontimeofuse pricingandbetterinformationresidentialconsumerscouldshutdown airconditionersordelayrunningdishwashersduringpeaktimes. Commercialcustomerscanshiftenergyintensiveprocessesand productionawayfromhighpricedperiodsofpeakenergydemandto lowpricedoffpeakhours. Datacenters,whichareamongthefastestgrowingsegmentsofglobal energydemand,arestartingtoadoptpowermanagementtechniques tiedtoinformationfeedback.Powerconsumptionisoftenhalfofa typicalfacilitystotallifetimecost,butmostmanagerslackadetailed +6*3&'/&*%*$)5&!'%.#-4(6'%&41((*$%.7&J*((6%)&.#!"&1&+6*3&6.%C(&*1.5:& sincetheenergyusageofserversspikesatvarioustimes,depending onworkloads.Furthermore,manyserversdrawsomepower24/7but

Optimized resource consumption

Control of consumption to optimize resource use across network

Examples: Smart meters and energy grids that match loads and generation capacity in order to lower costs

Data-center management to optimize energy, storage, and processor utilization

The Internet of Things

1$*&#.*0&-'.(,5&1(&-6%6-1,&!141!6(5:&.6%!*&("*5&1$*&(6*0&('&.4*!69!& operations.Manufacturershavedevelopedsensorsthatmonitoreach serverspoweruse,employingsoftwarethatbalancescomputingloads andeliminatestheneedforunderusedserversandstoragedevices. J$**%9*,0&01(1&!*%(*$.&1,$*105&1$*&10'4(6%)&.#!"&(*!"%',')6*.:&3"6!"& couldbecomestandardfeaturesofdatacenterinfrastructurewithina fewyears.

3. Complex autonomous systems


ThemostdemandinguseoftheInternetofThingsinvolvestherapid, realtimesensingofunpredictableconditionsandinstantaneous responsesguidedbyautomatedsystems.Thiskindofmachine decisionmakingmimicshumanreactions,thoughatvastlyenhanced performancelevels.Theautomobileindustry,forinstance,is steppingupthedevelopmentofsystemsthatcandetectimminent collisionsandtakeevasiveaction.Certainbasicapplications,such asautomaticbrakingsystems,areavailableinhighendautos.The 4'(*%(61,&1!!60*%(&$*0#!(6'%&.1+6%).&2'36%)&/$'-&360*$&0*4,'5-*%(& !'#,0&.#$41..&NOPP&;6,,6'%&1%%#1,,57&?'-*&!'-41%6*.&1%0&$*.*1$!"& organizationsareexperimentingwithaformofautomotiveautopilot fornetworkedvehiclesdrivenincoordinatedpatternsathighway speeds.Thistechnologywouldreducethenumberofphantomjams causedbysmalldisturbances(suchassuddenlyilluminatedbrake ,6)"(.E&("1(&!1.!10*&6%('&($1/9!&;'((,*%*!=.7 ?!6*%(6.(.&6%&'("*$&6%0#.($6*.&1$*&(*.(6%)&.31$-.&'/&$';'(.&("1(& maintainfacilitiesorcleanuptoxicwaste,andsystemsunderstudy inthedefensesectorwouldcoordinatethemovementsofgroups ofunmannedaircraft.Whilesuchautonomoussystemswillbe challengingtodevelopandperfect,theypromisemajorgainsinsafety, risk,andcosts.Theseexperimentscouldalsospurfreshthinking

Complex autonomous systems

Automated control in open environments with great uncertainty

Examples: Collision avoidance systems to sense objects and automatically apply brake Clean up of hazardous materials through the use of swarms of robots

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abouthowtotackletasksininhospitablephysicalenvironments(such 1.&0**4&31(*$:&31$.:&1%0&!'%(1-6%1(*0&1$*1.E&("1(&1$*&06/9!#,(&'$& dangerousforhumans.

What comes next?


TheInternetofThingshasgreatpromise,yetbusiness,policy,and technicalchallengesmustbetackledbeforethesesystemsarewidely embraced.Earlyadopterswillneedtoprovethatthenewsensor drivenbusinessmodelscreate superiorvalue.Industrygroups Related articles on mckinseyquarterly.com andgovernmentregulators shouldstudyrulesondata Eight technology trends to watch privacyanddatasecurity, How to make Web 2.0 work particularlyforusesthattouchon sensitiveconsumerinformation. Legalliabilityframeworksfor thebaddecisionsofautomatedsystemswillhavetobeestablishedby governments,companies,andriskanalysts,inconsortwithinsurers. Onthetechnologyside,thecostofsensorsandactuatorsmustfall tolevelsthatwillsparkwidespreaduse.Networkingtechnologies andthestandardsthatsupportthemmustevolvetothepointwhere 01(1&!1%&2'3&/$**,5&1-'%)&.*%.'$.:&!'-4#(*$.:&1%0&1!(#1('$.7& ?'/(31$*&('&1))$*)1(*&1%0&1%1,5Q*&01(1:&1.&3*,,&1.&)$14"6!&06.4,15& techniques,mustimprovetothepointwherehugevolumesofdata canbeabsorbedbyhumandecisionmakersorsynthesizedtoguide automatedsystemsmoreappropriately. Withincompanies,bigchangesininformationpatternswillhave implicationsfororganizationalstructures,aswellasfortheway decisionsaremade,operationsaremanaged,andprocessesare !'%!*6+*07&I$'0#!(&0*+*,'4-*%(:&/'$&*B1-4,*:&36,,&%**0&('&$*2*!(&/1$& greaterpossibilitiesforcapturingandanalyzinginformation.
The authors wish to thank their McKinsey colleagues Naveen Sastry, James Manyika, and Jacques Bughin for their substantial contributions to this article. Copyright 2010 McKinsey & Company. All rights reserved.

Companiescanbegintakingstepsnowtopositionthemselvesfor thesechangesbyusingthenewtechnologiestooptimizebusiness processesinwhichtraditionalapproacheshavenotbrought .1(6./1!('$5&$*(#$%.7&K%*$)5&!'%.#-4(6'%&*/9!6*%!5&1%0&4$'!*..& optimizationaregoodearlytargets.Experimentswiththeemerging technologiesshouldbeconductedindevelopmentlabsandinsmall scalepilottrials,andestablishedcompaniescanseekpartnerships withinnovativetechnologysupplierscreatingInternetofThings capabilitiesfortargetindustries.

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