Comments for McKinsey: Get Ready For Sensor-Driven Business Models

McKinsey: Get Ready For Sensor-Driven Business Models

2010-03-03T09:02:25Z

Consulting firm McKinsey has just released a report on the Internet of Things, one of ReadWriteWeb's top 5 trends of last year. The report, available for free if you sign up as a member of McKinsey Quarterly, focuses on the "new sensor-driven business models" that Internet of Things brings.

McKinsey sees two categories for emerging applications: "information and analysis" and "automation and control." Many of the applications listed are for large companies or specialized industries (for example automobile manufacturers). But consumers should take note too, because there will be a lot more data about us flowing onto the Internet.

]]> McKinsey defines Internet of Things as "sensors and actuators embedded in physical objects [...] linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet."

In the "information and analysis" category, McKinsey firstly lists tracking behavior. An example is insurance companies installing location sensors in customers' cars, allowing them to base the price of policies on "how a car is driven as well as where it travels." Another example is Tesco's use of sensors to capture shoppers' profile data via membership cards. According to McKinsey, this "can help close purchases by providing additional information or offering discounts at the point of sale."

On the B2B side, McKinsey points to companies using sensors to track RFID tags placed on products moving through supply chains. We've written before about IBM's activities in this market.

The next information and analysis application is enhanced situational awareness. This is when large numbers of sensors are deployed in infrastructure such as roads and buildings, in order to report on real-time environmental conditions such as weather or temperature.

Sensor-driven decision analytics shows how revolutionary sensor technologies could be, without most consumers even realizing it! The report explains that some retailers are presently studying ways to gather and process data from shoppers as they flow through stores. Sensor readings and videos will be able to "note how long they linger at individual displays and record what they ultimately buy," data which McKinsey says "will help to increase revenues by optimizing retail layouts."

The second major category for Internet of Things apps in this report is "automation and control." By this McKinsey means "converting the data and analysis collected through the Internet of Things into instructions that feed back through the network to actuators that in turn modify processes."

The first class of apps listed under this category is process optimization, for example for chemical production and assembly lines.

Next is optimized resource consumption, for example power companies that provide so-called 'smart meters' so that customers can better manage their power expenditure. This is particularly useful for companies that use a lot of power every day, because they can "shift energy-intensive processes and production away from high-priced periods of peak energy demand to low-priced off-peak hours."

The third and final automation and control use case is complex autonomous systems, which McKinsey calls "the most demanding use of the Internet of Things" because it involves rapid, real-time sensing of unpredictable conditions. For example the automobile industry is developing systems that can detect imminent collisions and take evasive action.

The report ends by saying that the Internet of Things holds great promise, but there are many issues to resolve - including privacy, legal and cost of sensors and actuators. However McKinsey thinks that energy consumption efficiency and process optimization are "good early targets" for businesses using Internet of Things.

Overall, this is an informative, useful report for companies who want to get their heads around the potential business opportunities of the Internet of Things. For ReadWriteWeb's ongoing coverage and analysis of this important trend, check out our Internet of Things archive and subscribe to our RSS feed.

Comment from Business Analysis Services on 2011-04-22

2011-04-22T19:52:12Z

A very comprehensive and insightful read on how a business model can be shaped for The Internet of Things.

Comment from Carlin on 2010-05-11

2010-05-11T16:52:43Z

You can already see it happening. I went into a bathroom the other day and the lights were dim and on, but after 2 minutes they slowly became much, much brighter. stoves are already doing that.. I guess cars will be the next sensor consumer purchases and the auto manufacturers will surely increase the price for that delicate feature. hey have to pay back the govt. right?

Comment from dave tribbett on 2010-04-06

2010-04-06T13:13:18Z

Great post, just compiled a couple of articles on the Internet of Things HERE. I’m amazed at the explosion in intelligent devices and the growth of the hacker communities.

Google is smart to pursue this idea, not just because it is green but because it ultimately creates more traffic flow on the net - good for them.

Comment from Tal Eizenberg on 2010-03-29

2010-03-29T10:12:42Z

Thank you for this post! Today, more and more objects are becoming embedded with sensor enabled wireless communication devices – a “cell phone” for assets – gaining the ability to communicate. The resulting information networks promise to create new business models, improve business processes, and reduce costs and risks. “In most organizations, information travels along familiar routes. Proprietary information is lodged in databases and analyzed in reports and then rises up the management chain. Information also originates externally—gathered from public sources, harvested from the Internet, or purchased from information suppliers. But the predictable pathways of information are changing: the physical world itself is becoming a type of information system. In what’s called the Internet of Things, sensors and actuators embedded in physical objects—from roadways to pacemakers—are linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet. These networks churn out huge volumes of data that flow to computers for analysis. When objects can both sense the environment and communicate, they become tools for understanding complexity and responding to it swiftly. What’s revolutionary in all this is that these physical information systems are now beginning to be deployed, and some of them even work largely without human intervention.”

Precyse Technologies (http://www.precysetech.com) is delivering customers with asset network solutions today. Very much like the internet in its early days, these are typically closed-loop asset networks that enables high value assets, like engines or transmissions on an automotive manufacturing line, to communicate their location and status along the process, providing manufacturers with Real Time supply chain Visibility and the ability to exercise proactive, real time management. We see these asset networks expanding all the time, first from the OEM to the supplier, then to ports, vessels and eventually into a global information network that allows assets to communicate with computers and people – adding Anything to the familiar Anywhere, Anytime global communication backbone, making the internet of things a reality. Please feel free to contribute – we are always on the lookout for new ideas or cooperation to shape the future of the internet of things. Post your comments below or get in touch with us today! You can read the full story by Mckinsey here: http://tinyurl.com/yasbyph

Comment from Alçıpan ustası on 2010-03-08

2010-03-08T09:34:04Z

alçıpan Ustası Zorlu alçıpan ürünleri
are viewed as a clear and present danger by many users. I think the explicit check-in interaction model represented by these Internet of Places applications offers more tangible benefits - and fewer [perceived] privacy costs

Comment from Dan on 2010-03-03

2010-03-03T20:09:05Z

What's more interesting is what all these new hyper connected, ultra sensory devices wielding AI's and all will think of their masters over time, master is probably a lose term, maybe we'll de-evolve into the slaves of such devices.

No doubt though, embedding awareness is happening across the board from phones, to cars, to buildings, to elevators, to groceries and more. Soon your toothbrush will tweet out your stats, "jimmy should brush twice a day but last week his performance dropped 34%, lame".

its sort of interesting to see how the explosion of could be would be design is radically out pacing need, much like the general explosion of ideas that came to internet in its birth. Will we see a similar bust we had in 1999/2000 when web 1.0 died big time, and then web 2.0 went nuts?

The optimized sensory enabled existence makes sense in a blog entry and on a white paper but we humans are rarely rational, often illogical, and down right emotional- makes you wonder what the future will be like.

Comment from blog.samidh.com on 2010-03-03

2010-03-03T19:19:07Z

Thanks for alerting us to this interesting article. Although it was very effective at giving examples of how businesses might use the "Internet of Things", I thought it might be helpful to explore what the opportunities might be for startups operating in this space. I had too much to say to post into the comments field here, so I put it on my blog: http://bit.ly/9Iw1kU

Comment from Sheamus on 2010-03-03

2010-03-03T18:52:58Z

I assume the Tesco example used is actually referring to their loyalty cards, which they've used for probably a decade now and have nothing to do with the internet whatsoever, apart from allowing you to check your points balance online.

I'm not sure where the 'sensors' come into it, either. I guess there must be some fancy Tesco stores in another part of the country for the really special folk. ;)

Comment from Joe McCarthy on 2010-03-03

2010-03-03T18:37:02Z

The Internet of Things continues to hold promise, but I'm more excited about the emergence of the Internet of Places, e.g., Foursquare, Gowalla, Whrrl, Yelp (with check-ins) and Google Favorite Places.

Many of the Internet of Things scenarios and "solutions" offer benefits to elements in the value chain that often exclude the user, while the potential costs, especially with respect to privacy, are viewed as a clear and present danger by many users. I think the explicit check-in interaction model represented by these Internet of Places applications offers more tangible benefits - and fewer [perceived] privacy costs - to users.

Comment from Joel on 2010-03-03

2010-03-03T15:31:16Z

McKinsey never comes up with innovative ways to address the ever-changing global technology and consumer market landscape. I just interview the head of McKinsey's China consumer practice here http://thechinaobserver.com and he provided tremendous insight on the growth trajectory of China's luxury consumer market.

Comment from Joan Pinyol on 2010-03-03

2010-03-03T15:15:25Z

Internet of Things is not fiction, for the last three years we have been developing commercial solutions in areas like Agriculture, Smart Cities, Healthcare and Energy Management, using low-power wireless technologies as IEEE802.15.4, Zigbee or 6lowpan.

The truth is that it's not going as fast as Gartner’s Hype Cycle anticipated in 2005, but now it's a matter of time (market adoption), constraints (energy consumption and standardization) and price (prices will drop for large quantities).

Comment from Judith Assinger on 2010-03-03

2010-03-03T10:42:40Z

Everyday devices will be able to send information over the web?
Well sounds more like a plot from a science fiction movie. So I was quite shocked to read that some of these technologies are already in use. And as McKinsey said that there are still issues to be resolved like privacy and legal, it seems that soon The Internet of Thing will be reality rather than fiction.