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Projected Impact of the Internet of Things on the Economy in 2025

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IoT usage in business enterprises

One of the results of several decades of rapid high-tech development, the Internet of Things (or IoT) refers to the integration of computers and interconnected devices and appliances via the Internet. To dramatically improve these devices’ functions, they are connected to sensors that allow them to react and perform efficiently without any human interaction.

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IoT could deliver $11.1 trillion to the economy in 2025

Consulting firm McKinsey & Company released a study examining the actual benefit the IoT could provide in the future. According to McKinsey, IoT could deliver an economic benefit in the range of $3.9 trillion–$11.1 trillion by 2025. The purpose of the study was to determine the value IoT generated from its usage in business applications, as well as the benefit it provides to consumers out of their total technology spending.

This study takes into consideration the entire ecosystem of technology, which includes the consumer surplus that comprises ~11% of the global GDP in 2025. Currently, the consumer surplus stands at $1.0 trillion–$2.8 trillion and is expected to increase to $2.6 trillion–$7.6 trillion by 2025.

Value creation

McKinsey & Company estimated a range of benefits for different sectors because the degree of IoT usage varies across industries. For factories, the value creation is estimated to range from $1.21 trillion–$3.70 trillion. For vehicles, IoT is estimated to deliver a range of $210 billion–$740 billion. Retail environments are estimated to deliver a value creation range of $410 billion–$1,160 billion.

However, before deploying the IoT, the challenge is to achieve cost efficiency and to solve technical issues. For the implementation of IoT to succeed, advanced computing power and storage capacity is essential to allow the real-time stream of data to flow across the connected devices. Moreover, the platform should be independent of devices that are a part of Internet of Things. McKinney estimated that the lack of IoT interoperability may lose 40% of its value created.

The First Trust ISE Cloud Computing Index ETF (SKYY) is a portfolio of 36 stocks. SKYY’s top four stocks—Amazon (AMZN), Netflix (NFLX), Facebook (FB), and Google (GOOG)—constitute 4.98%, 4.54%, 4.54%, and 4.52%, respectively, of the fund.

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