IoT markets are growing at 20%, despite tempered enthusiasm

Enterprise customers are still bullish on the internet of things, but their enthusiasm has been tempered by the realization that complete systems may take longer to implement and yield a return than they had originally expected. Bain & Company’s research found that, despite these readjusted expectations, the market for IoT hardware, software, systems integration, and data and telecom services could grow to $520 billion in 2021, more than double the $235 billion spent in 2017 (see Figure 1).

Since our last extensive survey on the internet of things and analytics two years ago, customers believe that vendors have made little progress on lowering the most significant barriers to IoT adoption –including security, ease of integration with existing IT and operational technology systems, and uncertain returns on investment. These customers have extended their expectations about when those use cases will reach scale. On average, they are planning less extensive IoT implementations by 2020 than they were just a couple of years ago (see Figure 2).

In spite of these concerns, enterprise and industrial customers still see success within their reach. They are still running more proofs of concept than they were two years ago, and more customers are considering trying out new use cases — 60% in 2018 compared with fewer than 40% in 2016.

Over the past few years, cloud service providers (CSPs) have emerged as more prominent and influential vendors in the space, particularly AWS and Microsoft Azure. CSPs are lowering barriers to IoT adoption, allowing for simpler implementations and making it easier to try out new use cases and scale up quickly. In our survey, customers told us that CSPs and analytics and infrastructure software vendors have the most influence over the IoT systems they are buying. Many customers see CSPs as leaders in providing easy access to IoT tools that collect, aggregate, curate and analyze data.

CSPs are using their deep expertise in analytics to expand across the IoT market and to strengthen their position in analytics and cloud services for enterprise and industrial customers. But their broad horizontal services provide little optimization for industry-specific applications, leaving a significant opportunity for vertical offerings from systems integrators, enterprise app developers, device makers and telecommunications companies.

This pent-up demand represents a huge opportunity for technology providers that can meet customer needs. Meeting those needs will require a solid understanding of customers’ concerns. Our survey found that vendors are aligned with customers on some barriers (security, returns on investment), but less so on others (integration, interoperability and data portability).

Based on the experience of previous technology cycles, the key to addressing these concerns lies in focusing on fewer industries in order to learn what customers really want and need. Gaining deep experience in a few use cases helps vendors anticipate customer needs in those industries and allows them to create a repeatable playbook and end-to-end systems.

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