Consulting firm McKinsey has just released a report on the Internet of Things, one of ReadWriteWeb’s top 5 trends of last year. The report, available for free if you sign up as a member of McKinsey Quarterly, focuses on the “new sensor-driven
business models” that Internet of Things brings.

McKinsey sees two categories for emerging applications: “information and analysis” and “automation and control.” Many of the applications listed are for large companies or specialized industries (for example automobile manufacturers). But consumers should take note too, because there will be a lot more data about us flowing onto the Internet.

McKinsey defines Internet of Things as “sensors and actuators
embedded in physical objects […] linked through wired and wireless networks, often using the same
Internet Protocol (IP) that connects the Internet.”

In the “information and analysis” category, McKinsey firstly lists tracking behavior. An example is insurance companies installing location sensors in customers’ cars, allowing them to base the price of policies on “how a car is driven as well
as where it travels.” Another example is Tesco’s use of sensors to capture
shoppers’ profile data via membership cards. According to McKinsey, this “can help
close purchases by providing additional information or offering
discounts at the point of sale.”

On the B2B side, McKinsey points to companies using sensors to track RFID tags placed on products moving through
supply chains. We’ve written before about IBM’sactivities in this market.

The next information and analysis application is enhanced situational awareness.
This is when large numbers of sensors are deployed in infrastructure such
as roads and buildings, in order to report on real-time environmental conditions such as weather or temperature.

Sensor-driven decision analytics shows how revolutionary sensor technologies could be, without most consumers even realizing it! The report explains that some retailers are presently studying ways to gather and
process data from shoppers as they flow through
stores. Sensor readings and videos will be able to “note how long they linger at
individual displays and record what they ultimately buy,” data which McKinsey says “will help to increase revenues by optimizing retail

The second major category for Internet of Things apps in this report is “automation and control.”
By this McKinsey means “converting
the data and analysis collected through the Internet of Things
into instructions that feed back through the network to actuators
that in turn modify processes.”

The first class of apps listed under this category is process optimization, for example for chemical production and assembly lines.

Next is optimized resource consumption, for example power companies that provide so-called ‘smart meters’ so that customers can better manage their power expenditure. This is particularly useful for companies that use a lot of power every day, because they can “shift energy-intensive processes and
production away from high-priced periods of peak energy demand to
low-priced off-peak hours.”

The third and final automation and control use case is complex autonomous systems, which McKinsey calls “the most demanding use of the Internet of Things” because it involves rapid,
real-time sensing of unpredictable conditions. For example the automobile industry is developing systems that can detect imminent
collisions and take evasive action.

The report ends by saying that the Internet of Things holds great promise, but there are many issues to resolve – including privacy, legal and cost of sensors and actuators. However McKinsey thinks that energy consumption efficiency and process
optimization are “good early targets” for businesses using Internet of Things.

Overall, this is an informative, useful report for companies who want to get their heads around the potential business opportunities of the Internet of Things. For ReadWriteWeb’s ongoing coverage and analysis of this important trend, check out our Internet of Things archive and subscribe to our RSS feed.