An executive’s guide to the Internet of Things

As the Internet of Things (IoT) has gained popular attention in the five years since we first published on the topic,1 it has also beguiled executives. When physical assets equipped with sensors give an information system the ability to capture, communicate, and process data—and even, in a sense, to collaborate—they create game-changing opportunities: production efficiency, distribution, and innovation all stand to benefit immensely. While the consumer’s adoption of fitness bands and connected household appliances might generate more media buzz, the potential for business usage is much greater. Research from the McKinsey Global Institute suggests that the operational efficiencies and greater market reach IoT affords will create substantial value in many industries. (For more, see the video “What’s the one piece of advice for a business leader interested in the Internet of Things?” And to see how experts believe the Internet of Things will evolve, see “The Internet of Things: Five critical questions.”)

There are many implications for senior leaders across this horizon of change. In what follows, we identify three sets of opportunities: expanding pools of value in global B2B markets, new levers of operational excellence, and possibilities for innovative business models. In parallel, executives will need to deal with three sets of challenges: organizational misalignment, technological interoperability and analytics hurdles, and heightened cybersecurity risks.
Opportunities beckon . . .

IoT’s impact is already extending beyond its early, most visible applications. A much greater potential remains to be tapped.

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Cloud pricing models

Pricing models for cloud services are evolving, and range from free and ad-based models to pricing based on volume, transaction, or user.

For example, a cloud service provider may opt to provide a basic level of service for free, with premium upgrades. This "freemium" model reduces barriers that customers may have in trying out the software. Once they've started to derive some business value from it, customers are likely to consider upgrading to a paid version of the solution. Usage-based or transaction-based models also closely map to value. Transaction pricing and paying per unit of measure may not be applicable for every application, but sophisticated billing, provisioning, and metering techniques enable cloud providers today to offer more flexible pricing models

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The impact of disruptive technology: A conversation with Eric Schmidt

From computational biology to 3-D printing, Google’s executive chairman provides a look into the future of technologies that will change business models and lives.

In this video, Google executive chairman Eric Schmidt explores the phenomenon of technological disruption and selects those technologies likely to have the greatest impact on economies, business models, and people. This interview was conducted by James Manyika, a director in McKinsey’s San Francisco office, in February 2013. What follows is an edited transcript of Eric Schmidt’s remarks.

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