IDC forecasts that global Internet of Things (IoT) spending will reach $805.7 billion in 2023, up 10.6% from 2022. Investments in the iot ecosystem are expected to exceed $1 trillion by 2026, with a compound annual growth rate (CAGR) of 10.4% over the forecast period 2023-2027.

The past few years have shown that connected digital infrastructure is no longer a luxury, but a necessity. Investing in iot projects is critical for businesses to stand out in data-driven operations.

Industry perspective

Manufacturing and Process manufacturing will be the industry with the largest investment in iot solutions in 2023 and throughout the forecast period, accounting for more than a third of total global iot spending.

In terms of overall iot spending, professional services, utilities, and retail are the second largest industries, accounting for about 25% of total global spending. Government agencies and the telecommunications industry will see the fastest spending growth over the five-year forecast, with CAGRs of 12.0% and 11.7%, respectively.

Iot investments are a key component in supporting an increasingly digital and distributed organizational footprint. Most of these investments are looking for solutions that can help companies achieve specific business goals or customer challenges, such as cost savings or supply chain efficiency. As such, use cases are the focus of most iot investment plans.

Use case

The two iot use cases that will receive the most investment in 2023 are both closely related to manufacturing: manufacturing operations and production asset management. The second largest use cases are inventory intelligence, smart grid, and supply chain resilience, which will benefit from strong investment in the retail and utility industries.

The use cases with the fastest spending growth represent diverse applications of iot technologies, such as electric vehicle charging, next-generation loss prevention, agricultural field monitoring, and connected vending machines and lockers.

The impact of digital transformation is clear

IDC said the update to the iot use case classification in this release of the iot Spending Guide reflects enterprises’ evolving investment goals for digital transformation.

Thematically, in the new use case, the global response to massive business and social disruption caused by COVID-19 has led to increased investment in commodity production and supply chains.

These production and supply chain related use cases can be seen in the manufacturing, process manufacturing, retail, and transportation industries, while other industries such as the resources industry are seeing increased investment in digital businesses. For example, iot is helping to improve upstream supply chain processes in agriculture, such as planting, harvesting and delivering higher quality products to market.

Technical view

From a technology perspective, iot services will be the largest spending area by 2023 and account for nearly 40% of global iot spending by the end of the forecast.

Hardware spending is the second largest technology category, led by module/sensor purchases. Software will be the fastest growing technology category, with a five-year CAGR of 11.0%, with a focus on procurement of application and analytics software.

Area view

Western Europe, the United States, and China will account for more than half of all iot spending throughout the forecast period.

Although Western Europe and the United States are currently spending at similar levels, Western Europe will extend its lead with a CAGR of 11.0% over the forecast period 2023-2027, compared to 8.0% CAGR for the United States. By the end of the forecast, China’s iot spending is expected to surpass that of the United States, with a CAGR of 13.2 percent.