English | EN Morgan Stanley Reports on Internet of Things Disruptions
May 7, 2014
In a recently published blue paper, Morgen Stanly attempts to quantify the potential impacts of an ‘Internet of Things’ Economy. In their view, it is the pervasive penetration and integration of semiconductors, networking/connectivity, and Big Data/analytics into the real economy. Building upon the previous wave of computing (smartphone/mobile internet) that was driven by vertical integration (Apple) and a move from hardware to software/applications (Google/Android) in the consumer space. Moore’s Law (Bluetooth chips below US1$ and application processors at the US2$ level) and Big Data intelligence are the main drivers of the economic impact.
The speed at which disruption will take place depend on the level of intelligence and the leven of standardization, presented in four different scenario’s.
After surveying all sectors globally, Morgan Stanley found that the internet of things potentially disrupts these six sectors:
1. Factory Automation
This could drive enhanced efficiency with process monitoring and supervision, remote management and optimization, optimal energy management. Assuming the global cost base of manufacturing is $25trn today, 2-4% cost savings from IoT as a result of 50% penetration of IoT, we could see $500bn in cost savings. Mining, for instance, is an early adopter of the Internet of Things, with Rio Tinto currently generating over $300m in cost savings from the “autonomous mining” concept.
2. Precision Agriculture
Real-time analysis of weather data could provide $20bn of increased revenues for companies such as Agrium, DuPont, and Monsanto. We also expect farmers to increase productivity and revenues by an even larger amount.
3. Utilities
‘Smart water’ could generate €18bn in revenues in 2020 in Europe by potentially reducing leakage (which is at 20% today). The ‘smart grid’ could drive material changes to the
electric power business model through the development of distributed power, requirements for more energy storage, and changes in consumer behavior.
4. Healthcare
Real-time monitoring reduces the need for specialized human capital and could result in 1-2% cost savings, which would represent $800-1,600m of EBITDA savings for the four for-profit US hospital companies covered by Morgan Stanley Research (LPNT, HTC, HCA, and CYH).
5. Retail
The use of radio-frequency identification (RFID) chips and precision analytics that improve inventory management could lower the cost of goods sold by 2%. For non-food retail in the UK, that would represent potential savings of £3bn/US$5bn.
6. Insurance
The Internet of Things could drive major changes in business models and profit pools as a result of the growing adoption of telematics in automotive insurance. On the life insurance side, biometrics could become intrinsic to risk assessment by insurers.
Structuring the internet of things – according Morgan Stanley – should be done in a three layer architecture: semiconductors, integrators and big data analytics and fourteen improvements that are based on the six sectors that they have spotted.
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