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Joseph Bradley Joel Barbier Doug Handler
Embracing the Internet of Everything To Capture Your Share of $14.4 Trillion More Relevant, Valuable Connections Will Improve Innovation, Productivity, Efficiency & Customer Experience
Executive Summary• TheInternetofEverything(IoE)creates$14.4trillioninValueatStake—thecombinationofincreasedrevenuesandlowercoststhatiscreatedorwillmigrateamongcompaniesandindustriesfrom2013to2022.
• ThefivemainfactorsthatfuelIoEValueatStakeare:1)assetutilization(reducedcosts)of$2.5trillion;2)employeeproductivity(greaterlaborefficiencies)of$2.5trillion;3)supplychainandlogistics(eliminatingwaste)of$2.7trillion;4)customerexperience(additionofmorecustomers)of$3.7trillion;and5)innovation(reducingtimetomarket)of$3.0trillion.
• Technologytrends(includingcloudandmobilecomputing,BigData,increasedprocessingpower,andmanyothers)andbusinesseconomics(suchasMet-calfe’slaw)aredrivingtheIoEeconomy.
• ThesetechnologyandbusinesstrendsareusheringintheageofIoE,creatinganunprecedentedopportunitytoconnecttheunconnected:people,process,data,andthings.Currently,99.4percentofphysicalobjectsthatmayonedaybepartoftheInternetofEverythingarestillunconnected.
• TogetthemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatmakeupthemajorityofIoE’sValueatStake.Theseusecasesincludesmartgrid,smartbuildings,connectedhealthcareandpatientmonitoring,smartfactories,connectedprivateeducation,connectedcommercial(ground)vehicles,connectedmarketingandadvertising,andconnectedgamingandentertainment,amongothers.
• Robustsecuritycapabilities(bothlogicalandphysical)andprivacypoliciesarecriticalenablersoftheInternetofEverythingEconomy.TheIoEValueatStakeprojectionsarebasedonincreasinglybroadadoptionofIoEbyprivate-sectorcompaniesoverthenextdecade.Thisgrowthcouldbeinhibitediftechnology-drivensecuritycapabilitiesarenotcombinedwithpoliciesandprocessesdesignedtoprotecttheprivacyofbothcompanyandcustomerinformation.
Page 1©2013Ciscoand/oritsaffiliates.Allrightsreserved.
TogetthemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatmakeupthemajorityofIoE’sValueatStake.
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The Internet of Everything Is Happening NowCiscoestimatesthat99.4percentofphysicalobjectsarestillunconnected.1Conversely,thismeansthatonlyabout10billionofthe1.5trillionthingsgloballyareconnected.2Atamorepersonallevel,thereareapproximately200connectablethingsperpersonintheworldtoday.3Thesefactshighlightthevastpotentialofconnectingtheunconnected.
Evenso,thegrowthoftheInternethasbeenunprecedented(seeFigure1).Ciscoestimatesthattherewereabout200millionthingsconnectedtotheInternetintheyear2000.Drivenbyadvancesinmobiletechnologyandthe“bringyourowndevice”(BYOD)trend,amongothers,thisnumberhasincreasedtoapproximately10billiontoday,puttingussquarelyintheageoftheInternetofThings(IoT).ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything(IoE).4
Figure 1. RapidGrowthoftheNumberofThingsConnectedtotheInternet.
Source:CiscoIBSG,2013
IoEisfurtherbeingdrivenbyseveralfactors.First,powerfultechnologytrends—includingthedramaticincreaseinprocessingpower,storage,andbandwidthatever-lowercosts(Moore’slawstillatwork);therapidgrowthofcloud,socialmedia,andmobilecomputing;theabilitytoanalyzeBigDataandturnitintoactionableinformation;andanimprovedabilitytocombinetechnologies(bothhardwareandsoftware)inmorepowerfulways—makeitpossibletorealizemorevaluefromconnectedness.
Second,barrierstoconnectednesscontinuetodrop.Forexample,IPv6overcomestheIPv4limitbyallowingfor340,282,366,920,938,463,463,374,607,431,768,211,456morepeople,processes,data,andthingstobeconnectedtotheInternet.Amazingly,IPv6createsenoughaddresscapacityforeverystarintheknownuniversetohave4.8trillionaddresses.
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ThenextwaveofdramaticInternetgrowthwillcomethroughtheconfluenceofpeople,process,data,andthings—theInternetofEverything.
Third,formfactorscontinuetoshrink.Today,acomputerthesizeofagrainofsalt(1x1x1mm)includesasolarcell,thin-filmbattery,memory,pressuresensor,andwirelessradioandantenna.Camerasthesizeofagrainofsalt(1x1x1mm)nowhave250x250-pixelresolution.And,sensorsthesizeofaspeckofdust(0.05x0.005mm)detectandcommunicatetemperature,pressure,andmovement.Thesedevelopmentsareimportantbecause,inthefuture,thingsconnectedtotheInternetmaybehardforthehumaneyetoevensee.
Finally,IoEreflectstherealitythatbusinessvaluecreationhasshiftedtothepowerofconnectionsand,morespecifically,totheabilitytocreateintelligencefromthoseconnections.Companiescannolongerrelysolelyoninternalcorecompetenciesandtheknowledgeoftheiremployees;instead,theyneedtocaptureintelligencefaster,frommanyexternalsources.ThiswilloccurthroughconnectionsenabledbytheInternetofEverything.
IoE Creates $14.4 Trillion of Value at Stake for Companies and Industries ValueatStake,accordingtoCisco,isthepotentialbottom-linevalue(higherrevenuesandlowercosts)thatcanbecreatedorwillmigrateamongcompaniesandindustriesbasedontheirabilitytoharnessIoE.CiscopredictsthattheIoEValueatStakewillbe$14.4trillionforcompaniesandindustriesworldwideinthenextdecade(seeFigure2).5Morespecifically,overthenext10years,theValueatStakerepresentsanopportunitytoincreaseglobalcorporateprofitsbyabout21percent.6
Inotherwords,between2013and2022,$14.4trillionofvalue(netprofit)willbe“upforgrabs”forenterprisesglobally—drivenbyIoE.IoEwillbothcreatenewvalueandredistribute(migrate)valueamongwinnersandlaggards,basedonhowwellcompaniestakeadvantageoftheopportunitiespresentedbyIoE.ThosethatharnessIoEbestwillreapthisvalueineitheroftwoways(see“UseCase”sectionforspecificexamples):
• Bycapturingnewvaluecreatedfromtechnologyinnovation
• BygainingcompetitiveadvantageandgrabbingmarketshareagainstothercompanieslessabletotransformandcapitalizeontheIoEmarkettransition7
Cisco’sanalysisshowsthatmostofthepotentialValueatStake(66percent,or$9.5trillion)comesfromtransformationbasedonindustry-specificusecasessuchassmartgridandsmartbuildings.Theother34percent,or$4.9trillion,isproducedbycross-industryusecasessuchasthefutureofwork(telecommuting)andtravelavoidance.ItisimportanttonotethatCiscoisfocusingontheamountofprivatesectorValueatStaketomakethefindingsandinsightsrelevantandactionableforbusinessesandindustries.Whileasignificantnumberonitsown,the$14.4trilliondoesnotincludepotentialValueatStakefromtheconsumerorpublicsectors,orfromsocietalbenefitsthatarebeyondthescopeofthisanalysis.
CiscocalculatedtheValueatStakebytakingabottom-upapproachconsideringthevaluecreatedbymorethan50usecasesintheprivatesectoronly—bothindustry-specificandcross-industry—andconsolidatingthemintothe21mostmaterialand
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Page 3©2013Ciscoand/oritsaffiliates.Allrightsreserved.
ValueatStake...isthepotentialbottom-linevalue(higherrevenuesandlowercosts)thatcanbecreatedorwillmigrateamongcompaniesandindustriesbasedontheirabilitytoharnessIoE.
value-generatingexamples.Top-downanalysiswasalsoperformedasacross-checktovalidatethecompletenessandorderofmagnitudeofthemorethoroughbottom-upapproach.Finally,carewastakennottodouble-countvalueacrossusecases.8
Figure 2. HowMuchValueIsatStakeintheIoEEconomy?
Source:CiscoIBSG,2013
5 Drivers Fuel IoE Value at StakeTherearefivemaindriversofthe$14.4trillionIoEValueatStake.ThesefindingsallowbusinessleaderstobeginplanninghowtheycanbenefitfromIoE.TheamountofValueatStakeissomewhatevenlydistributedacrosseachofthefivedrivers.
• Asset utilization ($2.5 trillion) — IoEreducesselling,general,andadministrative(SG&A)expensesandcostofgoodssold(CoGS)byimprovingbusinessprocessexecutionandcapitalefficiency.
• Employee productivity ($2.5 trillion) — IoEcreateslaborefficienciesthatresultinfewerormoreproductiveman-hours.
• Supply chain and logistics ($2.7 trillion) — IoEeliminateswasteandimprovesprocessefficiencies.
• Customer experience ($3.7 trillion) — IoEincreasescustomerlifetimevalueandgrowsmarketsharebyaddingmorecustomers.
• Innovation, including reducing time to market ($3.0 trillion) — IoEincreasesthereturnonR&Dinvestments,reducestimetomarket,andcreatesadditionalrevenuestreamsfromnewbusinessmodelsandopportunities.
ThefactthateachoftheseareashasroughlythesameamountofValueatStakesuggeststhatfirmsmustexaminehowIoEcanimpacteveryaspectoftheirbusinessprocesses—includingbothcost-cuttingandrevenue-raisingactivities.
Inaddition,tobenefitfromIoE,firmsmustcombinetechnology-enabledsecuritycapabilities(bothlogicalandphysical)withpoliciesandprocessesdesignedtoprotecttheprivacyofcompanyandcustomerinformation.IoE’sgrowthpotentialintheprivatesectoroverthenextdecadewillrelyheavilyuponthesuccessofcompanies’securityandprivacyefforts.9
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Page 4©2013Ciscoand/oritsaffiliates.Allrightsreserved.
Therearefivemaindriversofthe$14.4trillionofIoEValueatStake.ThesefindingsallowbusinessleadershiptobeginplanninghowtheycanbenefitfromIoE.
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Which Connections Matter Most?
Bydefinition,IoEincludesthreetypesofconnections—machine-to-machine(M2M),person-to-machine(P2M),andperson-to-person(P2P).Combined,P2MandP2Pconnectionswillconstitute55percentofthetotalIoEValueatStakeby2022whileM2Mconnectionsmakeuptheremaining45percent(seeFigure3).ItisimportanttonotethatwhileM2Mconnectionsarefastbecomingasizablesourceofvalue,theendresultoftheseconnectionsisultimatelytobenefitpeople.ThebottomlineisthattheIoEEconomyisaboutenablingpeopletobemoreproductiveandeffective,makebetterdecisions,andenjoyabetterqualityoflife.
Figure 3. P2MandP2PStillMakeUptheMajorityofInternetConnections.
Source:CiscoIBSG,2013
Connectedhealthcareandpatientmonitoringprovideagreatexample(moredetailsintheuse-casesectionbelow).Byenrichingtheconnectionsbetweenmedicaldevicesandbothpatientsanddoctors(M2P),andamongpatientsanddoctorsthemselves(P2P),betterhospital-levelcarecanbeprovidedatpatients’homes.Thisimprovesqualityoflife,increasespositivemedicaloutcomes,andreducescostsforbothprovidersandpatients.
Value at Stake by Geography and IndustryItisalsointerestingtolookatValueatStakebygeographyandindustry.Bygeography,theamountofValueatStakeiswelldistributedacrossthemajorgeographies(seeFigure4).Figure4alsoshowsthedegreeofbeneficialimpactforeachgeographicregion,asdeterminedbydividingtheValueatStakebythesizeofeachregion’soutput.ThegeographicandindustrydistributionsofValueatStakeareveryheavilydrivenbyeachregion’srelativeeconomicgrowthrateandbytherelativesizeofeachindustrysectorineachregion.Forexample,China’sValueatStakeisveryheavilyderivedfromitsrelativelyrapideconomicgrowthanditslargeshareofthisgrowthinthemanufacturingsector.IntheUnitedStatesandEurope,ValueatStakeopportunitiesaremoreprevalentintheservicesareas.
ThebottomlineisthattheIoEEconomyisaboutenablingpeopletobemoreproductiveandeffective,makebetterdecisions,andenjoyabetterqualityoflife.
Page 5©2013Ciscoand/oritsaffiliates.Allrightsreserved.
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Page 6©2013Ciscoand/oritsaffiliates.Allrightsreserved.
Figure 4. ValueatStakeIsWellDistributedAcrossGeographies,YetImpactsRegionsDifferently.
Source:CiscoIBSG,2013
Fromanindustryperspective,fouroutof18industriesmakeupmorethanhalfthetotalValueatStake(seeFigure5).10Theamountincludesmanufacturingat27percent,retailtradeat11percent,informationservicesat9percent,andfinanceandinsurance,alsoat9percent.Theremaining14industriesrangebetween7percentand1percent.
Figure 5. TheTopFourIndustriesMakeUpMorethanHalfoftheTotalValueatStake.
Source:CiscoIBSG,2013
Fromanindustryperspective,fouroutof18industriesmakeupmorethanhalfthetotalValueatStake.
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Page 7©2013Ciscoand/oritsaffiliates.Allrightsreserved.
TheindustrydistributionofValueatStakeisveryheavilydrivenbyspecificusecases.Forexample,muchoftheValueatStakeformanufacturerscomesfromgreateragilityandflexibilityinfactories,andfromtheabilitytomakethemostofworkers’skills.Additionally,alargeamountoftheValueatStakeforretailerscomesfromconnectedmarketingandadvertising.ThetopfiveindustriesintermsofpotentialIoEimpactrepresent63percentofthetotalValueatStake.
Real-World Use Cases Show the Impact and Potential of IoEToreceivethemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatshowhowIoEworksintherealworld.Theeightusecasesfeaturedinthispaper,whichrepresent$6.17trillionofthe$14.4trilliontotalValueatStake,wereselectedfortheirusefulnessinhelpingbusinessleadersdeterminehowtomoveforwardwithregardtotheircompanies.11
Eachoftheseusecasesincludesageneraldescription,theamountofcontributiontothetotalValueatStake,andacomparisonofthekeyuse-caseattributesinboth2013and2022tohighlighttheimpactofIoE.Inaddition,eachusecasedescribesthevalueofconnections,topIoEdrivers,typesofconnections,IoEtechnologyenablers,andwhethervalueiscreatedormigrated.
1. Smart factories: $1.95 trillion of total Value at Stake
Addingconnectivitytomanufacturingprocessesandapplicationsincreasesfactoryproductivity,reducesinventorieswithreal-timeinventorysupplies,andcutsaverageproductionandsupply-chaincosts.
SmartfactoriesrepresentoneofthetwolargestusecasesintermsofValueatStake.Thevalueislargelyderivedfrommoreintelligentmachinesthatincorporatebettersensors,improvedconnectivitytoothermachines,andmoreintuitiveinterfaceswithpeople.Thesenewcapabilitiesallowmachinestobeprogrammedmoreeasilyandmakethemmoreadaptabletotheirconditionssotheycanbemoreefficientatdoingtheirwork.Inaddition,back-endconnectionstothecloudforanalyticsenablemoreeffectiveintegrationoflabor,capital,andtechnology.
ToreceivethemostvaluefromIoE,businessleadersshouldbegintransformingtheirorganizationsbasedonkeylearningsfromusecasesthatshowhowIoEworksintherealworld.
2013
Current state (without IoE)
2022
Potential with IoE
Automated assembly machines are expensive and complicated to create and install
Reduced costs as automated tools become less expensive to manufacture and implement
Often inflexible and costly product-line changes
Revenues increase with ability to produce multiple products with variations in inputs.
Allows for greater customization of products and smaller product-line runs.
Quality controls rely on human perception and dexterity
Sensors help workers improve product quality
Reliance on low-cost manufacturing countries. Employees with IT and data interpretation skills are costly, scarce.
Socialization of knowledge flattens the skills curve; IoE maximizes access to human talent pools at lower cost
Inefficient use of key inputs for production. Lack of flexibility among assembly locations.
Reduced waste (materials, energy). Greater freedom and agility to reallocate production and optimize inputs.
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Page 8©2013Ciscoand/oritsaffiliates.Allrightsreserved.
• IoE value created:Moreintelligentdesignofmachines;greatercontrolofinstrumentationandproductionconditions
• Main IoE driver(s):Assetutilization,supplychainandlogistics
• Type of IoE connection(s):Machine-to-machine
• IoE technology enabler(s): Machinedesigntools,productionsensors,employeetraining
• Value created or migrated: Migratedfrominefficientproducersandcountries
Valueinsmartfactoriesisobtainedfromcost-cutting,revenuegrowth,andbetterworkforcecollaboration.Withthisinmind,manufacturingleadersshouldaccelerateadoptionofIoEtechnologiesandconsiderinitiativesthatfocusonimprovedcollaborationamongworkerstomakeemployeesmoreefficient.
2. Connected marketing and advertising: $1.95 trillion of total Value at Stake
BroadITandsocialapplicationsformarketingandadvertisingtransformthewaycompaniesengagewithcustomers,analyzetheirbehavior,andoptimizetheimpactoftheirinteractions.Examplesincludelocation-basedservices,viralmarketing,andmobileadvertising.
Today,itisverydifficulttocreateandimplementcohesivemarketingandadvertisingstrategiesacrossnumerousanddisparatechannels(TV,radio,Internet,pointofsale).IoEwillenablecompaniestohaveacompleteviewoftheircustomers(behaviors,preferences,demographicprofile)anddeliverindividuallytargetedmessagesandofferstothemonanydeviceatthetimeandlocationwheretheywillhavethemostbeneficialimpact.Withinthisnewparadigm,companiescanreactmorequicklybyassessingandreactingtotheirmarketsinrealtime;increaseprofitsbyofferingpricingbasedoncustomers’situationandabilitytopay;andgrowrevenuesbybundlingtheirofferingswithotherproductsandservicesbasedonaholisticassessmentofcustomers’wantsandneeds.
Valueinsmartfactoriesisobtainedfromcost-cutting,revenuegrowth,andbetterworkforcecollaboration.
2013
Current state (without IoE)
2022
Potential with IoE
Missed or unidentified sales opportunities Increased sales from real-time market assessments and reactions
Inefficient geographical selling Increased sales from location-based selling
Inflexible product lines Increased sales from better use of Internet-driven “freemium” market segmentations
Lost sales due to shifting competitive pressures and poor timing
Increased sales by directly tying pricing to current selling situation and customers’ ability to pay
Little holistic assessment of customers’ wants and needs
Increased sales from improved coordination with other products and services (two-sided markets)
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• IoE value created:Assimilationandanalysisofcustomerdemographicandpurchasehistoriesfrommultiplesources
• Main IoE driver(s): Customerexperience,innovation
• Types of IoE connection(s): Machine-to-machine,person-to-machine,andperson-to-person
• IoE technology enabler(s): Cloudcomputing,BigData,real-timedecisiontools,security
• Value created or migrated: Both
Data-drivenbusinessagilityisatthecoreofachievingtheValueatStakefromconnectedmarketingandadvertising.LeadersshouldfocusonIoEinitiativesthatuseBigDataandcloudcomputingtoimprovedecisionmakingacrossthecompany.Tosucceed,everycustomer-facingdepartment,includingmarketing,sales,service,andsupport,mustbeabletoadaptmorequicklytorapidlychangingcustomerdemandsintheIoEEconomy.
3. Smart grid: $757 billion of total Value at Stake
Aneffectivesmartgridusesnetworkconnections—fromproductiontocustomers—tobetterunderstanduserbehaviorandimprovethereliability,economics,andsustainabilityoftheproductionanddistributionofelectricity.
Utilitycompaniestodaytypicallyoperateona“besteffort”infrastructure:theygenerateandplaceenergyontheelectricalgridwithouttakingfulladvantageoftheirassets.Thismakesthegridvulnerabletofaultsandallowsonlyforaone-wayflowofelectricity—fromproducerstoconsumers.Inaddition,thesystemisinefficientbecausepowergenerationcannotbeeasilyadaptedtofast-changingenergyusagecycles.IoEwillimprovetheelectricgridbyautomaticallydetectingandrepairingproblems,controllingelectricalflowsbasedonreal-timedemand,improvinggeneratorutilization,andenablingmoresustainableenergysourcessuchaswindandsolarpower.
Data-drivenbusinessagilityisatthecoreofachievingtheValueatStakefromconnectedmarketingandadvertising.
2013
Current state (without IoE)
2022
Potential with IoE
Vulnerable to breakdowns and security threats
Automated detection and self-healing improves reliability of the electricity network
One-way electricity flow Ability to shape the flow of electricity enables more flexibility and distributed power generation capabilities
Production calibrated only for peak demand, requiring reserves and causing inefficiencies
Demand-side management improves generator utilization and grid efficiencies
Variability in renewable energy sources prevents widespread adoption
Enables more sustainable energy sources such as wind and solar to contribute to the power grid
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• IoE value created: Connectssensing,measurement,andcontrolsinrealtimetoimprovesupplyanddemandalignment,increasereliability,andreducecosts
• Main IoE driver(s): Supplychainandlogistics
• Type of connection(s): Primarilymachine-to-machine
• IoE technology enabler(s):Integratednetworkarchitecture,smartsensorsandmeters,privatecloudcomputing,security
• Value created or migrated:Netreductioninenergycostsforallprivatesectorstakeholders
ValueatStakefromthesmartgridwillcomemostlyfromimprovedefficienciesandincreasedreliabilityoftheelectricaldeliverysystem.Forthistohappen,however,significantregulatorychangesarerequired.Assumingthesechangestakeplace,utilitycompanyleadersmustbereadytoimplementinitiativesthatallowformoreflexibility,improveddemand-sidemanagement,andtheenablementofmoresustainableenergysources.
4. Connected gaming and entertainment: $635 billion of total Value at Stake
Thisusecaseincludesserviceprovider(SP)andsoftwarevendorrevenuesandcashflowsfromallapplicationsofonlinegamingandentertainment;itdoesnotincludenon-revenue-generatinggamingactivities(suchassubsidizedadvertising).
Connectedgamingandentertainmentencompassesawidespectrumofproductsandservices,includinggamessuchasFarmVillefromZynga,streamingvideofromNetflix,andgamblingfrombwin.partyintheUnitedKingdom.IoEwillprovideawholenewwayforconsumerstoentertainthemselvesbyallowingthemtoplaywithothersremotely,selectwhattheywanttouseondemand,andchoosethedevicetheywanttouse(anydevice,anytime,anylocation).
• IoE value created:Enhancegamingandentertainmentexperiencewithremotecollaboration,richmedia,andon-demandprograms
• Main IoE driver(s): Innovation—increasedrevenuefromnewbusinessmodels
• Types of IoE connection(s): Person-to-machineandperson-to-person
• IoE technology enabler(s): Next-generationnetwork,includingintelligence,video,collaboration,BYOD,security
ValueatStakefromthesmartgridwillcomemostlyfromimprovedefficienciesandincreasedreliabilityoftheelectricaldeliverysystem.
2013
Current state (without IoE)
2022
Potential with IoE
Asset-heavy, dedicated hardware Asset-light, any Internet-enabled device
Pay for ownership Pay for access or free
Offline or dedicated networks (cable and TV)
On-demand streaming
Considerable space requirements (casinos)
Digital
Alone or co-located Together: collaborative, remote, and social
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• Value created or migrated: Mixofnewvalueandvaluemigrationfromtraditionalproviders
Forleadersinthegamingandentertainmentindustries,thisusecasehighlightstheimportanceoffocusingonthedeliveryofcontenttoanydevice,anywhere.ItalsoshowsthatclosepartnershipswithSPsarecriticaltodeliveringtheseamless,high-qualityexperiencecustomerswillexpect,andevendemand,intheIoEEconomy.
5. Smart buildings: $349 billion of total Value at Stake
SmartbuildingscompriseanintelligentandconvergedIPnetworkofelectronicdevicesthatmonitorandcontrolfacilitiesservices,includingmechanical,electronics,HVAC,andlightingsystemsinabuilding,toachievegreaterenergyefficienciesandcostsavings,alongwithanimprovedexperienceforoccupants.
IoEallowsbuildingstocreatevaluebybringingtogetheroperationsthatarecurrentlysiloedintoasingleIP-basedplatform.IoEreduceswaste(energy)bygreatlyincreasingtheefficiencyofbuildingmanagement(HVAC,lighting,safety).Smartbuildingsalsomakemoreefficientuseofavailablespacebymaximizingoccupancy.Forexample,CiscoestimatesthatIoEcanreducespacerequirementsforthesamenumberofemployeesby40percent.
• IoE value created: Lowerenergycosts,lowermanagementandmaintenancecosts,lowercapitalexpenses
• Main IoE driver(s):Assetproductivity
• Type of IoE connection(s): Machine-to-machine
• IoE technology enabler(s): Sensors,cloudcomputing,video,physicalsecurity
• Value created or migrated: Valuecreatedfromnext-generationnetworkedsystems;valuemigratedfromstand-alonesystemsandlowerstaffingrequirements
Thisusecasewillhaveatremendousinfluenceonthecommercialrealestateandconstructionmarketsinthenext10years.AsSmartBuildinginitiativescometo
Forleadersinthegamingandentertainmentindustries,thisusecasehighlightstheimportanceoffocusingonthedeliveryofcontenttoanydevice,anywhere.
2013
Current state (without IoE)
2022
Potential with IoE
Inefficient use of energy leads to high amount of waste and increased costs; energy use not based on true demand or building occupancy
Reduces energy costs by using sensors and energy-efficient systems
Physical monitoring of building systems Labor savings and increased staff productivity from remote monitoring
No scaling of building management infrastructure across facilities
Costs savings by utilizing shared infrastructure and open protocols
Inconvenience to tenants due to frequent breakdowns and repairs
Improved equipment life from continuous, proactive monitoring and timely maintenance
“One size fits all” occupant experience Building automation delivers a personalized experience for each occupant
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fruition,loweroperatingcostsshouldleadtoreducedrents,providingbenefitsforbothbuildingownersandtenants.TheIoEEconomyshouldleadtomorebuildingrenovationandnewconstruction,whichwillalsoleadtofasterbuildingobsolescence.Commercialrealestateandconstructionleaderswillneedtobeginpreparingforthesesignificantshiftsintheirrespectiveindustries.
6. Connected commercial ground vehicles: $347 billion of total Value at Stake
Thisusecaseisbasedoncommercialfleet(ground)vehiclesthatuseanintegratedplatformofcontrolsystemstoautomatetaskssuchasnavigation,pathoptimization,andlogisticsimprovements.
Asvehiclesbecomemoreconnectedwiththeirenvironment(road,signals,tollbooths,othervehicles,airqualityreports,inventorysystems),efficienciesandsafetygreatlyincrease.Forexample,thedriverofavending-machinetruckwillbeabletolookatapanelonthedashboardtoseeexactlywhichlocationsneedtobereplenished.Thisscenariosavestimeandreducescosts.
• IoE value created: Reducedtimelostincongestion,loweraccidentrates,lowerfuelandrepaircosts
• Main IoE driver(s): Supplychainandlogistics,assetutilization
• Type of IoE connection(s): Machine-to-machine
• IoE technology enabler(s): Telematics,sensors,cloudcomputing,security
• Value created or migrated: Both
Whilethemainbenefitsfromconnectedcommercialgroundvehiclescomefromimprovedlogistics,thereisalsoanopportunityforbusinessleaderstoimproveservicequalityandconsistency,andtorealizeenvironmentalbenefitsthroughlowerenergyconsumptionandcarbonemissions.
Whilethemainbenefitsfromconnectedcommercialgroundvehiclescomefromimprovedlogistics,thereisalsoanopportunity...toimproveservicequalityandconsistency,andtorealizeenvironmentalbenefitsthroughlowerenergyconsumptionandcarbonemissions.
2013
Current state (without IoE)
2022
Potential with IoE
Lost time, money, and fuel due to traffic congestion
Reduced congestion from traffic management and optimization of transportation infrastructure
Reduced fuel efficiency due to sudden acceleration and braking
Improved fuel efficiencies from vehicles intelligently adjusting driving speeds
High accident rate due to human error Lower accident rates due to vehicle-to-vehicle and vehicle-to-infrastructure communication
High vehicle insurance costs Insurance premiums based on actual driving patterns
Ad-hoc routing of vehicles Lower fuel and maintenance costs due to optimized delivery routes
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Page 13©2013Ciscoand/oritsaffiliates.Allrightsreserved.
7. Connected healthcare and patient monitoring: $106 billion of total Value at Stake
IoEwillenablebetter-connecteddevicesanddata-drivenpatientmanagement,resultinginimprovedhealthcareeffectivenessandefficiencies.
Manyoftheinefficienciesinhealthcaretodayaretheresultofsiloedsourcesofknowledgeandinformation—itisdifficulttoaccessalloftherelevantknowledgeavailableatthepointofcare.Inaddition,manymeasurementsandtestsareadministeredmanually.ThegreaternumberofsensorsandconnectionsinIoEwillallowforshorterhospitalstaysduetosmarterhomemonitoringsystemsandimprovedcarefromstandardizedtreatmentsthatconformtoallknownbestpractices.
• IoE value created: Continuousmonitoringofhealthconditionsinaless-expensivehomesetting;allcareaspectsconsolidatedandcoordinated
• Main IoE driver(s): Assetutilization,supplychainandlogistics,andcustomerexperience
• Types of IoE connection(s): Machine-to-machineandmachine-to-people
• IoE technology enabler(s): Medicaldevices,homeITconnections,security
• Value created or migrated: Both
Connectedhealthcareandpatientmonitoringinvolveafundamentalshiftinhowhealthcareprovidersdelivertheirservices.BillingandinsuranceprocesseswillalsohavetochangeforthisValueatStaketocometofruition.Giventhesechanges,businessleaderswillneedtofocusonbothnewtechnology-driveninitiativesandchangemanagement,whileaddressingpatients’privacyconcerns.
Connectedhealthcareandpatientmonitoringinvolveafundamentalshiftinhowhealthcareprovidersdelivertheirservices.BillingandinsuranceprocesseswillalsohavetochangeforthisValueatStaketocometofruition.
2013
Current state (without IoE)
2022
Potential with IoE
Long hospital stays to ensure patients can thrive at home after discharge
Reduced costs and improved quality of life from shorter hospital stays, with home monitoring systems that ensure health
Limited number of health conditions with home monitoring capabilities
Wider number of health conditions with home monitoring capabilities
Uncoordinated and manual collection of patient test records
Improved decision making from single electronic collection of patient records
Ad-hoc interpretation of medical test results and conditions
Improved patient care from standardized treatments that conform to best practices
Multiple doctors offer care in an uncoordinated manner
Improved patient care and health outcomes from consolidated, patient-centric views of all treatment aspects
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8. Connected private college education: $78 billion of total Value at Stake
Betterapplicationoftechnologieshelpsscaleteachers,faculty,andeducationalcontent;increasesnewwaysoflearning;andtransformstheeducationalmodel—givingstudentscurriculumflexibilitytolearnattheirownpace,anywhere,anytime,usinganydevice.
Today,educationismostlya“physical”experiencewhereprofessorsteachstudentsinclassroomsusingbooks.IoEwillallowprivatecompaniestochallengethistraditionalmodel.Evennow,earlyadoptersarebreakingdownphysicalbarrierstomakeeducationavailabletopeoplewhopreviouslydidn’thaveaccess.IoEwillenablenewbusinessmodels,extendprofessors’reach,andreducetextbookcosts.
• IoE value created: Extendprofessors’reachandscale;enablenewbusinessmodels:scalegloballywithoutphysicalvenueconstraints;reducetextbookcosts
• Main IoE driver(s): Customerexperience,assetutilization
• Types of IoE connection(s): Person-to-personandmachine-to-machine
• IoE technology enabler(s): Video,mobility,BYOD,collaborationtools,security
• Value created or migrated: Increasedpenetrationoftheonlineeducationmodel(migration)
TheIoEEconomywillgiveprivateeducationalinstitutionstheabilitytoscaleinstructionandprovideitatasignificantlylowercostthannot-for-profitinstitutions,whichwillgivefor-profitorganizationsasignificantcompetitiveadvantageovernot-for-profitestablishments.Andwhilevideoandonlinemediaarenotnewtoeducation,intheIoEEconomy,theywillofferremarkablenewcapabilitiesbothtoimproveacademicoutcomesandextendthereachofqualityeducationtopeoplewhohavenothadaccesstoit.Thiswillhaveasignificanteconomicimpact,forexample,byhelpingaddressthemoretechnicalskillsthatwillberequiredintheIoEEconomy.
TheIoEEconomywillgiveprivateeducationalinstitutionstheabilitytoscaleinstructionandprovideitatasignificantlylowercostthannot-for-profitinstitutions....
2013
Current state (without IoE)
2022
Potential with IoE
Physical classroom environment Improved access to education by scaling professors and highest-quality content to any device, anywhere
One-time instruction in a single location Greater accessibility from scaling content and providing recordable and replicable instruction anytime, at any venue
Static, linear content with limited control Improved quality of education by learning at your own pace, focusing only on relevant content, and viewing richer, interactive material
Accessible only during university and library hours
Improved education from greater availability of professors and content
Search for content (pull vs. push); costly textbooks; designed for one-size-fits-all
Improved education from proactive content (push vs. pull), free materials, and ability to customize curriculum
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How To Get StartedWhilethescopeofIoEmayseemdaunting,thereareactuallysomeverysimplestepsyoucantaketobegincapturingyourshareoftheIoEValueatStake:
• Determine where your business is today with regard to IoE. Withthehugenumberofconnectionsthatneedtobemadeamongpeople,data,andthings,companiesmustassesstheirstrengthsandweaknessesintheareasoftechnologyskills,businessprocessmanagement,dataanalytics,connectedness,andsecurity.
• Understand the role of IT in enabling your company to benefit from IoE. UsingITtoreducecostshasdiminishingreturns;investinginITtostrengthenandgrowthecustomerbasehasgreaterupsidepotential.
• Take steps now to maximize your firm’s capabilities in the areas of security and privacy:Asmentionedpreviously,securityandprivacyareessentialenablers—andpotentialinhibitors—ofIoE’sValueatStake.IoEsecuritywillbeaddressedthroughnetwork-poweredtechnology:devicesconnectingtothenetworkwilltakeadvantageoftheinherentsecuritythatthenetworkprovides(ratherthantryingtoensuresecurityatthedevicelevel).Privacy,ontheotherhand,willrequirethatcompaniescombinetechnologywitheffectiveprocessesandpolicies.TobenefitfromIoE,firmswillneedtoidentifynewprivacymodelsthatmeetcompanyandcustomerexpectations.
Mostimportant,firmswillneedtoconsidertheirowninternalculturalchangesthatarenecessarytoembraceIoE.ThevalueofanyITinvestmentwillbedeterminedbythecapabilitiesitenablesoutsidetheITdepartment.TheIoEValueatStakeemanatesfromthemarketing,HR,finance,production,sales,andothercorporatedepartments.Therefore,acompany’sITdecisionsmustconsidertherequirementsofthesedepartments.Corporatepoliciesonemployment,input-sourcing,andincustomer-facingareasmayneedadjustmenttoembracetheseIoE-drivenbestpractices.
The Game Is on . . .Challengesaboundfortoday’sbusinessleaders.Therapidpaceofchangecreatesconfusionandmisinformation,whichoftenleadstopoordecisionmakingor,worse,inaction.Whencombinedwithpricetransparencyandglobalsupplychains,manyofthesametechnologytrendsthatareusheringintheIoEeraarealsoenablingnewentrantstobecomeviablethreatsinjustweeksandmonthsratherthanyears.
Inthisenvironment,winnersandlosersaredeterminedfasterthaneverbefore.With$14.4trillionValueatStake,IoEpresentsanimportantopportunitytoincreasemarketshare,gaincompetitiveadvantage,strengthenandgrowyourcustomerbase,andincreaseprofitability.Andbecausethestakesarehigh—over10years,companiesstandtolosemorethanayearofprofitsiftheydonotembraceIoE—thetimetoactisnow.
“Youcan’twinifyoudon’tplay.Astechnologyandconnectednessacceleratethepaceofdeterminingthewinnersandlosers,preparingforIoEisnotaquestionofif,butofwhen.”
Joseph Bradley,General Manager and Senior Director,Cisco IBSG Global Research & Economics, Communications, and Planning Practices
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The authors would like to acknowledge Michael Adams, Dave Evans, Jeremy Hartman, Jeff Loucks, James Macaulay, Bob Moriarty, Ewan Morrison, Andy Noronha, Kathy O’Connell, Noelle Resare, and Cisco IBSG’s industry practices for their valuable contributions to the development of this paper.
Jointheconversation:#InternetofEverything#IoE
Endnotes1. Source:CiscoIBSG,2013.
2. Ibid.
3. Ibid.
4. CiscodefinestheInternetofEverythingasbringingtogetherpeople,process,data,andthingstomakenetworkedconnectionsmorerelevantandvaluablethaneverbefore—turninginformationintoactionsthatcreatenewcapabilities,richerexperiences,andunprecedentedeconomicopportunityforbusinesses,individuals,andcountries.
5. ValueatStakediffersfromInternetMarketSize,ortotaladdressablemarket(TAM).ValueatStakeisaforecastofthepotentialbottom-linevaluethatcanbecreatedorthatwillmigrateamongcompaniesandindustriesgloballybasedontheirabilitytoharnesstheInternetofEverythingoverthenextdecade(10-yearnetpresentvalue).Ciscoestimatesthisvalueat$14.4trillionoverthenext10years.Bycontrast,theInternetMarketSize,orTAM,isprojectedtoreach$4.1trillioninannualrevenueforallparticipatingvendorsby2016.Beyondrelevantinformationandcommunicationstechnologies(ICT),itincludese-commerceandadvertising.Ciscowilladdress$258billion(6percent)ofthisInternetmarket(source:CiscoSMO,2012).ValueatStakeincludesshiftsofbenefitsamongcompetingfirmsinanindustry;shiftsofbenefitsamongdifferentindustries;new-to-the-worldrevenuegrowthfrominnovation;costsavingsfrommoreefficientprocesses;andallowancesforimplementationcosts.ValueatStakedoes notincludeextentoflossesatfirmsthatdon’ttransform;consumerorgovernmentbenefits;socialbenefits;andvalueestimatesforreducedriskofoperations.
6. Weselectedaperiodof10yearsbecauseitisareasonableamountoftimeforcompaniestoidentify,design,andimplementchangestocapturetheirshareoftheIoEValueatStake.The$14.4trillionnumberisthenetValueatStake.ThegrossValueatStakeis$18.7trillion.Inotherwords,aninvestmentof$4.3trillionisrequiredtoachievethenetValueatStakeof$14.4trillionover10years.Inaddition,Ciscoestimatesthatthe$14.4trillioninValueatStakerepresentsanincreaseinaggregatecorporateprofitofabout21percentover10years.
7. Ciscoestimatesthat59percentofValueatStakewillbenewvalueresultingfromtechnologyinnovation,while41percentwillbegeneratedbycompaniescapturingmarketsharefromthecompetition.
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8. ToillustratehowValueatStakewascalculated,we’llusetheexampleofthe“ConnectedCommercialGroundVehicles”usecase.Cisco’sanalysisconsideredtwofactors:1)lowercostsforfleetownersand2)thepotentialrevenueincreaseforserviceproviders.Wealsoprojectedthepenetrationofcommercialgroundvehiclesasapercentageofthetotalglobalcommercialfleet—fromlowerpenetrationtoday(6.3percent)toestimatedpenetrationof24.5percentby2022.Usingresearch,wethenestimatedtheIoEbenefitspercommercialvehicle(includingfuelefficiencyanddriverproductivity)at$970annually.Fromthesebenefits,wedeductedone-timeandrecurringcosts.WealsoconsideredSPrevenueopportunities.Basedonthesamepenetrationnumbers,theanalysisalsoconsiderednewrevenueopportunitiesforSPs,includingconnectivityandvalue-addedservices.ToestimatetheValueatStakeforSPs,weassumedaconservativeaveragemarginof$12-$15monthly.TheoverallValueatStakenumber—$347billion—reflectsthecombinednetpresentvalueofthebenefitsforfleetownersandserviceproviders.WebelieveCiscoistheonlycompanytotakethiskindofuse-case-driven,bottom-upapproachtoevaluatetheopportunityofferedbytheInternetofEverything.
9. ThecriticalneedforsecurityandprivacyinIoEisunderlinedbyU.S.PresidentBarackObama’sexecutiveorderoncybersecurity,signedonFebruary12,2013,whichencouragesallnetworkoperators,companies,andconsumerstobecybersmartandcybersecure(http://www.whitehouse.gov/cybersecurity).
10.Sources:GlobalInsight,AmericanProductivityandQualityCenter,U.S.BureauofEconomicAnalysis,U.S.BureauofLaborStatistics(all2012),andCiscoIBSG,2013.The18industriesmeasuredfortheamountofValueatStake,inorderofsize,include:1)manufacturing;2)retailtrade;3)informationservices;4)financeandinsurance;5)healthcare;6)educationalservices;7)professional,scientific,andtechnicalservices;8)administrativeandwastemanagementservices;9)wholesaletrade;10)arts,entertainment,andrecreation;11)otherservicesexceptgovernment;12)agriculture,forestry,fishing,andhunting;13)construction;14)transportationandwarehousing;15)managementofcompaniesandenterprises;16)realestate,rental,andleasing;17)mining;and18)utilities.
11.The$14.4trillioninValueatStakecomprisesthefollowingusecasesandvalues:1)smartfactories,$1.95trillion;2)connectedmarketingandadvertising,$1.95trillion;3)smartgrid,$757billion;4)connectedgamingandentertainment,$634billion;5)smartbuildings,$349billion;6)connectedcommercialgroundvehicles,$347billion;7)connectedhealthcare/patientmonitoring,$106billion;8)connectedprivatecollegeeducation,$78billion;9)innovativepayments,$855billion;10)wealthmanagement,$451billion;11)improvedtimetomarket,$1.03trillion;12)businessprocessoutsourcing,$742billion;13)virtualattendants,$163billion;14)supplychaincostsavings,$697billion;15)smartfarming,$189billion;16)digitalsignage,$38billion;17)next-generationworkers(BYOD,mobilecollaboration,telecommuting,VDI),$2.16trillion;18)travelavoidance,$980billion;19)physicalandlogicalsecurity,$1.09trillion;20)next-generationretailbankbranches,$20billion;21)next-generationvendingmachines(digitalmalls),$49billion.