The Road to Fort Mason: The Digital Shadow Lengthens
Business is fundamentally about creating value from resources. A previous post, The Digital Shadow: The Reality Beyond the IoT Hype, introduced the concept of “things” in the Internet of Things creating a “digital shadow” around people.
We see this digital shadow as a resource, from which digital leaders are already creating substantial value. As it continues to expand, the opportunity from harnessing it as an engine of revenue growth is profound.
The Apigee Institute benchmarks the digital shadow as the ratio of one device plus one gigabyte of data per human, worldwide. As with mobile access to the internet, a major milestone in the digital transformation of the market context for every global enterprise occurred within the last six to 12 months: this ratio exceeded one for the first time.
Based on Apigee Institute analysis, we expect the digital shadow to quadruple from 1.26 in 2013 to 5.23 in 2018, realizing an overall CAGR from 2010 to 2018 of 45% (excluding PCs).
Some argue that technical and policy challenges will prevent the IoT from “living up to the hype” about its value and transformative impact on work, play, and commerce. We disagree. While concerns about security, privacy, and safety have a legitimate basis, we believe these two key conditions for a growing of the “digital shadow” have been met:
- the “things” in question must provide utility to humans
- the digital shadows must provide value to enterprises
Estimates of its economic impact are both sizeable and relevant to issues individuals, governments, and corporations care about:
- McKinsey & Company expects $3 trillion in annual economic value-add from open data alone. The firm estimates that the equivalent of three billion metric tons of carbon dioxide emissions can be prevented through open data.
- Cisco estimates the “Internet of Everything” will put $14.4 trillion of value at stake over ten years. Based on a survey of medium and large enterprises, Cisco attributes $613 billion of corporate profit in calendar year 2013 to the IoE.
- GE predicts the “Industrial Internet” will add $10 billion to $15 trillion dollars to global GDP over 20 years. The company estimates there are more than three million “big things that spin” such as engines and turbines across which a 1% efficiency gain from instrumentation would eliminate billions of dollars in waste.
Not everyone is as sanguine. The Economist’s Babbage blog makes the case that the IoT will not “change the way people live, work, learn, shop and play…as currently conceived” because:
"…issues of standards, interoperability, integration and data management—especially privacy and protection from malicious attack, along with product liability, intellectual-property rights and regulatory compliance—are going to take years to resolve. Only when they are will the IoT have any chance of transforming society in a meaningful way."
As we see it, the historical pattern is clear. To be sure, the IoT presents challenges related to security, privacy, and safety. But consider the adoption and impact of other innovations well ahead of fully resolving equally serious concerns:
- Security: the World Wide Web. Notwithstanding the Heartbleed vulnerability recently compromising over half a million public websites, more than $1.5 trillion will be exchanged in B2C e-commerce in 2014.
- Privacy: smartphones. Nearly six in 10 U.S smartphone app users (57%) have either uninstalled an app over concerns about sharing their personal information or declined to install an app for similar reasons. But app users are unreservedly enthusiastic about phones and apps: nine out of ten U.S. smartphone users (91%) have positive feelings toward their smartphone and their apps, driven by very favorable feelings (75% for their phones and 52% for their apps).
- Health and safety risks: nuclear energy. Core damage events at nuclear plants have occurred on average every eight years since 1970. One such incident at Chernobyl caused 28 immediate deaths, contaminated 150,000 square kilometers of land, and is implicated in 1,800 cases of thyroid cancer among children. Nonetheless nuclear energy provides 11% of the worlds’ electricity (with a high of 75% in France).
We agree “when everything is becoming digital” cybersecurity “is a CEO level issue (See Risk and Responsibility in a Hyperconnected World: Implications for Enterprises by McKinsey & Company). The precedent has already been established that breaches of security can be a factor in costing a CEO his or her job (as evidenced in the resignation of Target's CEO in May 2014) But the challenges posed by the IoT will be risks to be managed, not a bar to the growth of the digital shadow around people and things—because the utility and value of the digital shadow to individuals, governments, and corporations is too great to pass up.
Digital leaders are acting on this assumption now to make the growing digital shadow an engine of their growth. Get a firm grasp of how the IoT can change your industry by joining us at the I ♥ APIs conference at Fort Mason in San Francisco, Sept. 8-10, and by joining the Apigee Institute.