If you don’t like the term “Internet of Things,” you’re hardly alone. Kevin Ashton, the British visionary who coined the phrase in 1999, now regrets his choice of words. Instead, Ashton wishes he’d touted the “Internet for Things.”

The subtle difference in Ashton’s revised wording better describes the Internet of Things (IoT): It’s an information network. The IoT is the concept of basically connecting any device with an on-and-off switch to the Internet and/or each other. (That’s a simple definition, courtesy of Forbes.) Using sensors and actuators, these IoT devices—such as the drill of an oil rig or an 18-wheeler semi-trailer truck—produce data and transmit it to computers, where it can be analyzed and used for improved decision-making.

Each IoT instance, whether it’s a single device like the jet engine of an airplane or a sprawling environment like a manufacturer’s multi-level assembly line, produces unique and often-valuable information. And the companies that are taking advantage of the IoT’s capabilities are well positioned to outperform their competitors.

The number of IoT devices is predicted to grow to 26 billion units in 2020, which is nearly a 30-fold increase from the 0.9 billion IoT units that existed in 2009, according to Gartner. Gartner also predicts IoT adoption to grow steadily each year, with annual growth in the range of 15-20%.

For some perspective on how vast the IoT might be in just five years, consider this: Gartner estimates the total number of PCs, tablets, and smartphones in 2020 to be 7.3 billion units. That’s roughly one-quarter the number of IoT devices that will be transmitting data in 2020.

The IoT’s three core sectors are enterprise, government, and home. The enterprise is by far the largest of these three sectors, and is expected to include 40% of all IoT devices by 2019.

When it comes IoT adoption, the leading three verticals are manufacturing (15%), healthcare (15%), and insurance (11%).

6 Killer Apps

In their authoritative McKinsey report titled The Internet of Things, Michael Chui, Markus Loffler, and Roger Roberts see six distinct types of applications emerging from the IoT, which they place in two general categories: 1) information and analysis and 2) automation and control.

The Information and Analysis category—in which IoT devices’ data is analyzed and acted upon, often by humans, to make decisions—includes three applications:

Tracking behavior

Insurance firms, for example, are re-inventing their business models by putting sensors in customers’ cars and basing the price of a customer’s policy on her or his driving behavior, as opposed to their age, gender, or other general factors.

Enhanced situational awareness

Trucking companies are optimizing their business operations by installing sensors in truck fleets and using real-time information about vehicle location, traffic patterns, and other relevant information to adjust individual truck routes and increase the entire fleet’s efficiency.

Sensor-driven decision analytics

Healthcare providers are improving their medical decision-making processes by equipping patients with sensors so they can continuously monitor their medical conditions, thereby enabling the medical staff to better observe patients and respond more appropriately.

The Automation and Control category—in which the data and analysis generated from the IoT is used by automated systems to modify processes, sometimes without human involvement—includes three applications:

Process optimization

Paper manufacturers have increased their productivity by embedding sensors in lime kilns and, instead of relying on human operators to manually adjust a kiln’s temperature, use the sensor-supplied data to automatically improve a kiln flame’s shape and intensity.

Optimized resource consumption

Data centers are using sensors to monitor each server’s power usage, and software uses this information to balance the servers’ computing loads and, over time, it eliminates the need for underutilized servers and storage devices.

Complex autonomous systems

Automobile companies have developed autonomous systems that enable a vehicle to detect an impending accident and evade it, without relying on a human operator.

Looking Ahead

For CIOs and other C-level executives who are exploring the IoT, the McKinsey The Internet of Things report’s recommendations include:

  • Energy consumption efficiency and process optimization are good starting points for most organizations.
  • With emerging IoT technologies, conduct your experiments in development labs or launch small-scale pilots.
  • Is the IoT gaining traction in your industry? Establish partnerships with the tech companies that are creating IoT capabilities for your industry and build on their success.

Like any technology, the IoT is another tool for CIOs to use, as appropriate. The key, of course, is to continuously discover how to best-use it for your organization.