GE refers to it as the industrial Internet, while Cisco’s chief executive John Chambers calls it the Internet of everything. Peter Hartwell, a researcher at HP Labs, terms it as a trillion sensors embedded in the environment, making it possible to “hear the heartbeat of the Earth".

All these technology luminaries are referring to the Internet of Things (IoT, or devices connected to the Internet), which is poised to be the biggest technological revolution yet, and expected to create $2.7–6.2 trillion of economic impact globally by 2025 . This impact is likely to be created by leveraging IoT to do business through novel forms of customer interaction, following new business models centred on assets and information and dynamic pricing, and by enhancing and optimizing operations through better efficiency, quality and safety.

We have already begun to see this impact in a variety of cases where IoT has enabled smart, networked and automated interaction to improve customer experience. Smart grids equipped with time-of-day-based energy saving applications can reduce energy costs by 30%, while automatic fault detection and maintenance can reduce losses by 2%. Smart traffic management systems consisting of global positioning satellite-enabled public transport, traffic lights optimized for reducing transit time, and closed circuit television cameras to detect and avert crimes or disasters can reduce travel time and make a smart city safer.

IoT sensors mounted on machinery are already helping save 25–30% of maintenance costs through preventive maintenance and consistent levels of operation. The automobile of the future is likely to be a connected, autonomous vehicle, with IoT-based interfaces providing real-time traffic data, entertainment on demand, productivity applications, remote monitoring, active safety systems, personalized insurance rates and, in the long-term, a driverless experience.

IoT can revolutionize agriculture by creating connected farms where farmers can get real-time weather and soil alerts, crop advisory services and even personalized microfinancing. Connected tools combined with autonomous tractors and harvesters enabled by IoT sensors could further improve yields.

In India, IoT could take form in different ways to cater to its unique challenges. While smart meters that reduce energy bills might transform global utility enterprises, Indian firms will prioritize power theft prevention applications first. Similarly, use of smart pills and medicare wearables will be prevalent in the developed world, while Indian healthcare firms will be likely to focus on mHealth and remote diagnostics applications.

Other applications could include smart farm loans based on real-time farm conditions, smart cameras to reduce crime and enable faster emergency response times, and remote medical services via tele-consultation.

The successful implementation of an IoT solution encompasses hardware (sensors, controllers), software (middleware and end-use applications) and network (data transport and security) components. As a result, the technology stack of IoT is resulting in an ecosystem of entities that need to work in tandem. Experts say professional services firms that design and integrate various modules of the solution are likely to capture 30–50% of the revenue pool.

To be able to craft business solutions enabled by IoT, enterprises and providers will need to change their business models. Companies will need to rely more on services revenues and make a greater investment in offering value-added services like utility companies offering smart meter services or car makers offering remote maintenance applications.

IoT applications are more likely to be delivered via an as-a-service, outcome-based model rather than a capital investment like usage-based auto insurance or managed printing services, mainly due to the perceived risk of these investments and lack of technology expertise in user enterprises. Enterprises will also need to deploy advanced analytics solutions to analyse the vast amount of customer data, redefining the meaning of customer relationship management. A new set of utilities will also emerge to offer horizontal solutions.

To be able to realize the full benefits of IoT, several enablers are critical and will require concerted action by enterprises and governments. Firstly, IoT needs an effective and dependable, high bandwidth network infrastructure. Secondly, substantial investment will be required from sensor manufacturers and operators to establish standards and platforms as well as reduce the cost of such devices and repurpose them for the Indian context. Technological advancement in ultra-low power solutions and hardware security will also be required to ensure secure IoT sensors with a long life.

Finally, security and privacy challenges will need to be carefully navigated and customers made more comfortable with machine-controlled applications.

Gordon Orr is a director and chairman at McKinsey and Co., Asia, and Noshir Kaka is a director and managing director at McKinsey and Co., India.

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