An introduction to the Internet of Things

The Internet of Things, or IoT, is an umbrella term referring to the ability of everyday physical objects (such as fridges, watches, or cars) to connect with other devices over the internet, enabling them to send and receive data. It describes using connected sensors and actuators to control and monitor the environment, the things that move within it, and the people that act within it.  

By collecting and analysing the data they transmit, consumers and businesses can monitor, maintain, and upgrade these “things” much more efficiently. Using IoT, many aspects of our lives, such as securing our homes or predicting when our car will need its next service, can be automated, saving time, energy, and money. 

A related term, Internet of Everything (IoE), is often used in the technology industry, originating from communications technology vendor Cisco. IoE covers the networked connection of people, processes, data, and things rather than just things or devices. As the underlying connectivity technologies are ultimately the same, we will focus specifically on IoT.

There are five major IoT markets, each defined by its own characteristics. As shown in the chart below, the consumer IoT segment includes wearable tech, automated homes, and connected cars. Within the enterprise IoT segment, the key markets are the Industrial Internet and smart cities.

The value chain for IoT is divided into five layers: physical, connectivity, data, apps, and services.  

While these layers are logically discrete, large-scale IoT solutions are seeing considerable blurring of these logical boundaries. For example, while there will continue to be a clearly identifiable data layer towards the top of the stack, a growing proportion of the data processing occurs within and at the edge of the network. 

From the point of view of IoT adopters, it is also crucial to note that they can only realize value in the application layer. All the data an IoT network collects is ultimately worthless until action is taken because of it, whether in the form of an instruction to an irrigation unit, an alarm sent to a maintenance engineer, or an emergency call made to a doctor. 

The accelerated development of generative AI, particularly ChatGPT, has increased the relevance of AI across all IoT layers. Therefore, a growing number of IoT products and services incorporate AI into their capabilities, especially across customer-driven interfaces.

In the physical layer, we find the makers of connected things, including sensors, embedded chips, and their components. Connected things can include connected cars, smart thermostats, fitness bands, smart light bulbs, or a parcel in a delivery truck. The essential electronic components include microcontroller units, central processing units, AI chips, communications chips, and sensors. Despite the geopolitical issues impacting the production and delivery of advanced chips, leaders in this space include Amazon, Apple, and Huawei. 

In the connectivity layer, providers of network connections are the key players, including major telecom operators and networking equipment vendors. Also in this category are makers of edge devices (e.g., routers and gateways), which provide entry into the communications network. Cisco, Huawei, Nokia, and Ericsson are the leaders here. Cloud and edge computing service providers such as Amazon, Microsoft, Alphabet, and Oracle also play an important role. 

Developments in cellular technologies, including 5G, have improved the capabilities offered by those companies. Interestingly, small and medium-sized enterprises (SMEs) and start-ups emphasize low-orbit technologies to increase connectivity to remote and less accessible areas. As a notable and niche IoT trend, we expect more companies to develop low-cost satellite technologies and broaden their connectivity. 6G, the next generation of wireless networks, is expected to integrate cellular- and satellite-based communications in the physical layer. 

In the data layer, the information collected from connected things is stored, cleansed, integrated with other systems, and analysed. Much of the security and management is provided by companies offering infrastructure as a service. Leaders in this space include Amazon, Microsoft, and IBM. Big data service providers like SAP and Oracle are also leaders in this segment. 

In the app layer, we find smart hubs that control and monitor connected things. This is where the long-term value resides. Amazon and Huawei are leaders in consumer IoT, while Cisco, Honeywell, and Bosch are leaders in the Industrial Internet. This layer is also where start-ups are most active. 

In the services layer, we find the technology service providers who provide system integration and consulting services related to developing and maintaining IoT ecosystems. IoT services have become an integral component of the IoT value chain in recent years because many IoT adopters lack the design, technical, integration, or data analysis skills to deliver a successful IoT implementation. Accenture, Altsource, Deloitte, and Arup are some of the players in the IoT services market.

The global IoT market was worth $866bn in 2022 and will grow to $1,677bn by 2027 at a compound annual growth rate (CAGR) of 14% over the period, according to GlobalData forecasts. Enterprise IoT spending dominates the overall IoT market, generating 70% of total revenue in 2022.  

This dominance of the enterprise IoT will continue for the foreseeable future. GlobalData expects this segment to occupy 73% of the overall IoT market in 2027. The enterprise IoT market will grow at a CAGR of 15%, and consumer IoT revenue will increase at a CAGR of 12% between 2022 and 2027. 

According to GlobalData forecasts, the total enterprise IoT market will be worth $1,226bn in 2027, having grown at a CAGR of 15.1% from $608bn in 2022. The hardware category is currently the leading enterprise IoT segment, generating 38% of total revenue in 2022. However, GlobalData expects that IoT software will be the largest market segment by 2027, thanks to its 16.7% CAGR over the period, compared to 12.8% for the hardware category.

From a geographic perspective, the Asia Pacific region had a 35% share of global enterprise IoT revenues in 2022, with North America contributing 32% and Western Europe just 17%. Given the faster economic growth in emerging markets, North America and Europe will continue losing market share to Asia Pacific over the next few years. 

Considering a more granular and country-driven perspective, the US dominates the market with 27%, followed by China (11%) and Japan (8%). However, enterprise IoT spending in China and Japan will grow faster than in the US between 2022 and 2027.