Modelling the Internet of Things: forecasted size and growth

When I was a child, I loved putting together plastic models of cars, trucks, planes and boats. Inside the cardboard box from the store I would find strangely-shaped, dull gray-colored plastic panels, flat pieces of chrome, and maybe even some translucent frosted plastic components. I would spend entire weekends following vaguely cryptic instructions showing me when to snap apart the various bits of plastic, where to apply glue to the edges, how to assemble the pieces together and what colored paint to use on the finished product.

Little did I know that 40 years later I would be researching and writing about a technology that is comprised of various technology elements integrated together – electronically glued, one might say – to create an end-to-end connected solution. The Internet of Things (IoT) in the 21^st century has become the equivalent of my childhood plastic models of the 20^th century.

MachNation, a specialty IoT research firm, has spent a lot of time modeling and forecasting the various parts of an IoT solution. This blog presents some of the findings from MachNation’s IoT worldwide revenue forecast.

MachNation’s IoT forecast analyze 6 layers of the IoT stack including:

1. IoT devices – the edge-based hardware products that collect IoT data
2. IoT communications services – the wide-area network based communications services used to transport IoT data from devices to systems
3. IoT platforms – the technology layers used for IoT data ingestion, device management and analytics
4. IoT application development – the design, testing and creation of IoT applications for a given IoT solution
5. IoT integration services – the services needed to stitch together all the various technology pieces of an IoT solution
6. IoT vertical services – the vertical technology, analytics and services wrappers added to an IoT solution

Here are some of MachNation’s forecast findings:

IoT growth shows opportunity in emerging and developed markets

According to MachNation forecasts worldwide IoT revenue will be USD98 billion in 2016 growing to USD987 billion by 2025 at a compound annual growth rate (CAGR) of 29% over the period (see figure 1). In 2016, the emerging regions of the world account for 22% of total revenue, whereas by 2025, emerging regions will account for 41% of total worldwide IoT revenue. This trend is caused by grow rates of IoT devices in the emerging world eclipsing those of the developed world, even though per unit total IoT revenue in the emerging world will only be 65% of the per unit IoT revenue in the developed world.

Today’s bespoke IoT solutions driving high integration services revenue

Interestingly, over 1/3 of total IoT revenue in 2016 will come from integration services (see figure 2). IoT solutions today are fairly integration-intensive. IoT solutions, still fairly in their infancy, requires a lot of effort to assemble. In addition, it is not possible to find pre-integrated and tested solutions for all IoT use cases, therefore, enterprises are spending a lot of time and money paying for integration services to ensure a viable technology solution. Vendors and services companies that can provide some pre-integrated, tested end-to-end IoT solutions are setting a high bar for the overall industry.

Productized IoT solutions will drive high vertical services revenue in the future

By the year 2025, MachNation expects vertical services revenues to account for almost 40% of total IoT worldwide revenue. These vertical solutions – primarily a combination of applications and ancillary services – will be available for many types of IoT use cases across many industry sectors. We anticipate productized solutions in transportation, heavy industry, construction services, clinical healthcare, factory/building automation, energy services, security/surveillance, various smart city solutions. And we also anticipate growth in IoT platform revenue.

High growth in IoT platform revenue

IoT application enablement and device management is one of the fastest growing IoT product revenue categories. In 2016, worldwide IoT application enablement and device management revenue will be USD1.1 billion growing to USD83.4 billion in 2025 at a CAGR of 62%. Application enablement provides a way to effectively, safely and efficiently transfer IoT device data to applications. MachNation has written extensively on application enablement and device management including a blog post on the characteristics that enterprises should consider when choosing an IoT platform-enabled solution vendor. For more information about choosing high-quality application enablement vendors, please see MachNation’s IoT Application Enablement Scorecard and MachNation’s IoT Platform-Enabled Solutions Scorecard.

Conclusion

MachNation believes that today’s highly customized IoT solution – one requiring fairly extensive integration services — will lead to tomorrow’s productized IoT solution. This transition will increase overall adoption of IoT solutions as smaller sized enterprises will be able to purchase solutions and deployment costs decrease.

Gluing together a plastic model – assembling the myriad miniature plastic pieces – is a great childhood activity. But in the world of IoT, sometimes being able to buy the already pre-integrated, tried and tested model is a faster, safer and less costly way to go.

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