Mckinsey: IoT in the home worth $200 billion to $350 billion in 2025

A wide range of IoT devices and applications are emerging for use in the home, including connected thermostats, smart appliances, and self-guided vacuum cleaners. As these devices evolve, we expect that the greatest economic impact from the Internet of Things in the home will be in chore automation, which we estimate can cut 100 hours of labor per year for the typical household. That could be worth nearly $135 billion globally in 2025. The next-largest impact would come from energy management (up to $110 billion per year), followed by security, which would have an impact of more than $20 billion per year, based on injuries and deaths avoided. In total, we estimate that IoT applications in the home could have an economic impact of $200 billion to $350 billion per year in 2025.
 
In the home setting, we assess the impact of Internet of Things applications relating to the operation of homes, such as energy management, security, and automation of domestic chores.
 
We estimate that IoT applications in the home could have an economic impact of as much as $350 billion per year. The potential economic impact in the home setting is less than in settings such as factories, but it could change how consumers interact with their surroundings and spend their time at home.
 
By far the largest opportunity in the home setting is in automating domestic chores. This work is not counted in national productivity data, but has an enormous impact on how people spend time and money. In the United States alone, household activities (cleaning, washing, preparing food, gardening, caring for pets, and so on) and purchasing home goods and services require 230 billion labor hours per year. Globally we estimate the value of time spent on domestic chores will be more than $23 trillion in 2025. We also estimate that devices such as self-guided vacuum cleaners and lawn mowers can cut the time required for household activities by 17 percent.
 
Adoption of IoT-based home automation and management systems will depend on the development of affordable and easy-to-use devices and systems. Consumers will also need to be convinced that these systems actually save time and effort. Interoperability will likely be very important for widespread adoption, so consumers can easily manage multiple devices.
 

Potential economic impact

In the home, the Internet of Things has the potential to create an economic impact of $200 billion to $350 billion annually in 2025. Promising uses are chore automation, energy management, safety and security, usage-based design, pre-sales analytics, and personal loans.
 

Chore automation

Household chores today take up the equivalent of an estimated $11 trillion a year in consumer time, a figure expected to reach about $23 trillion in 2025. We estimate that smart appliances that can operate independently to complete tasks such as vacuuming floors and chopping food can reduce that workload by 17 percent. With sensors, computing power, and Internet connections, home appliances can do more than offload work from humans; some may even be able to predict what the homeowner needs. Smart home appliances could gather data about daily usage patterns and, with additional data and analytics on the Internet, determine the household’s preferences and begin scheduling their own work routines—mowing the lawn every Saturday morning, for example. Household chores that can be automated with the use of IoT technologies include housework (cleaning, laundering), food preparation and cleanup, and lawn and garden care. Based on the 17 percent time savings estimate, that could be worth $135 billion to $200 billion per year globally in 2025. On the basis of consumer surveys, we estimate that 7 to 9 percent of households in advanced economies could adopt some IoT-enabled chore-automation devices by 2025 and that adoption in developing economies could be up to 2 percent.
 
Another indication of demand is the uptake of robotic vacuum cleaners, which now account for 18 percent of vacuum cleaners selling for more than $200 in the United States.
 

Energy management

Using sensors and predictive algorithms, smart thermostats can detect when no one is home and adjust the temperature to conserve energy. Over time the smart thermostat could learn about usage patterns and adjust heating or cooling to have the home at the right temperature when residents are due home. Connected washers and dryers (working with smart meters installed by utility companies) could get information about energy prices to delay cycles during peak energy consumption periods.
 
IoT-enabled energy management applications could have an economic impact of $50 billion to $110 billion globally in 2025 through savings on heating, air conditioning, and overall electricity use. IoT devices could help reduce electricity bills by ensuring that devices are powered on only when necessary and by reducing usage when energy is most expensive.
 
Nest claims that its smart thermostats save 20 percent off heating and air-conditioning bills by turning on these systems only when occupants are expected to be home. Additional savings are possible through the use of smart meters and smart appliances, which would allow automatic shutdown of appliances during times of peak electricity demand.
 
We estimate that adoption rates for IoT energy-control applications could reach 25 to 50 percent in advanced economies in 2025 and 4 to 13 percent in developing economies.
 
The US Energy Information Administration estimates that 37 percent of current US residences have programmable thermostats to control heating and that 29 percent have programmable devices for running cooling systems. Given the competition in this market, we expect smart energy control devices to come down to price points where owners of programmable thermostats will convert to IoT-enabled devices. We would also expect more consumers to seek energy-conservation tools.
 

Safety and security

IoT sensors and systems can greatly reduce losses to consumers from break-ins, fire, water leaks, and injuries in the home. Combining sensors, cameras, and powerful analytics, future IoT systems could sense when inhabitants are at risk and issue alerts to fire, police, or emergency services for prompt action. For example, cameras and sensors could be installed near pools so that parents are alerted immediately if children are in danger. Based on expert interviews, we estimate that willingness to pay for such security systems could be as much as $400 per year per household. We have used a more conservative estimate of $180 per year per household, to account for the higher adoption rates we would anticipate as prices fall. Through early detection, sensors could also help reduce property damage from water leaks and fire. Sensors to detect home leaks are already being sold. Use of such IoT systems could help reduce home insurance premiums by up to 10 percent, we estimate. In total, we estimate that the economic benefit of IoT-based safety and security systems could be $15 billion to $20 billion per year. We estimate that adoption rates for safety and security devices could be 18 to 29 percent in advanced economies in 2025 and 9 to 13 percent in developing economies. We base these estimates in part on consumer surveys.
 

Usage-based design

As in other settings, the opportunity for makers of home appliances and other equipment to monitor (and even improve) the performance of their products after sale provides an invaluable source of data for future product improvements. Home appliance usage data could be captured to help understand how consumers employ the product and use the information to improve performance and eliminate underutilized features. In the home setting, we estimate that such usage-based design could create value of $3 billion to $17 billion per year. This is based on the assumption that usage-based design could increase margins by up to 7 percent, through better product design.
 

Pre-sales analytics

By analyzing IoT usage data gathered from household devices, manufacturers could determine whether the consumer is a good prospect for upgrading to another model or might be inclined to buy another product or service. Based on how the customer is using one appliance, such sales opportunities could be worth nearly $5 billion per year.
 

Enablers and barriers

As noted, the Internet of Things has the potential to turn long-held visions about the automated home into reality. However, for IoT applications in the home to bring forth this reality and the economic value associated with it, technical and social issues will need to be addressed. In terms of technology, we expect that vendors will continue to drive down costs as they compete to develop the market. The more important issue will be ensuring interoperability to increase the appeal of IoT-based systems and maximize value.
 
For example, to ensure that cleaning is performed only when no one is at home to avoid disturbing the inhabitants, interoperability between presence sensors and automated vacuum cleaners would be needed. Consumers are likely to demand a single app or common user interface as well, which will also require interoperability.
 
While the ability to hand over household chores to smart devices is undoubtedly an attractive idea, consumers may be hesitant to embrace IoT-based systems if they feel that their privacy and data are at risk. Technology and service providers will need to prove that customer data are protected and will not be used in ways that the customer does not want—sold to third parties for unwelcome marketing leads, for example. Vendors will need to be careful never to appear to be violating the sanctity of the home. Given the amount and private nature of data captured, security for IoT home management systems would need to be robust to prevent criminals from gaining access—physically or electronically—to homes.
 
The adoption of IoT technology in homes will have significant implications for home appliance makers, technology companies, utilities, and telecommunications providers, as well as insurance companies, municipalities, and consumers.
 
As Internet of Things adoption in the home increases, consumers will start to look for more from appliance manufacturers than a reliable washing machine or stove. They will want to know how easy it is to program these devices from their smartphones and how they fit into a home network with a dozen other smart devices. This presents a unique opportunity for appliance manufacturers to offer services through home appliances. Innovative home appliance makers can create “stickier” relationships with consumers through the thoughtful use of valuable data and leveraging their direct access to consumers. Utility companies can expect consumers to start demanding interoperability between their smart meters and a range of IoT-enabled appliances and devices.
 
Telecommunication and cable/satellite companies that are already providing services to homes will have opportunities to upsell IoT solutions. Some IoT systems will require complex installation, and telecommunications and cable companies that have such capabilities could make IoT installation a line of business as well as a way to generate more subscription revenue. The challenge will be to provide consumers with convenience and to gain consumer trust so that service providers will be welcomed into homes to install more IoT devices and services.
 
Source: McKinsey Global Institute