According to International Data Corporation’s Worldwide Internet of Things Spending Guide, worldwide spending on the Internet of Things (IoT) is forecast to be $805.7 billion in 2023, an increase of 10.6% over 2022. Investments in the IoT ecosystem are expected to surpass $1 trillion in 2026 with a compound annual growth rate (CAGR) of 10.4% over the 2023-2027 forecast period.

“The last few years have shown that connecting with a digital infrastructure is no longer a luxury but a necessity,” Carlos M. González, research manager for the Internet of Things at IDC, said. “For organizations to excel in data-driven operations, investing in IoT projects is essential. Connecting devices to data networks to gather insight, expand operations and increase performance are the hallmarks of executing an IoT ecosystem.”

Discrete and process manufacturing are the industries that will experience the largest investment in IoT solutions in 2023 and throughout the forecast period, accounting for more than one third of all IoT spending worldwide. Professional services, utilities and retail are the next largest industries in terms of overall IoT spending with roughly 25% of the worldwide total. State/local government and telecommunications will deliver the fastest spending growth over the five-year forecast with CAGRs of 12% and 11.7%, respectively.

IoT investment is a key building block to supporting an increasingly digital and distributed organizational footprint. Most of these investments are seeking solutions that can help organizations achieve a specific business goal or customer challenge, such as cost savings or supply chain efficiency. As such, use cases are the focus of most IoT investment plans.

The two IoT use cases that will receive the most investment in 2023 are both closely tied to manufacturing operations ($73.0 billion) and production asset management ($68.2 billion). The next largest use cases — inventory intelligence ($37.6 billion), smart grid (electricity) ($36.9 billion) and supply chain resilience ($31.6 billion) — will benefit from strong investments from the retail and utilities industries. The use cases that will experience the fastest spending growth include electric vehicle charging (30.9% CAGR), next generation loss prevention (14.5% CAGR), agriculture field monitoring (13.9% CAGR) and connected vending and lockers (13.8% CAGR).

“Updates to the IoT use case taxonomy in this release of the IoT Spending Guide reflect the evolving digital transformation investment objectives of enterprises. Thematically, greater investment in goods production and supply chains resulting from the COVID-19 pandemic and global reactions that caused massive business and societal disruptions are evident in the new use cases. These production and supply chain related use cases can be seen in the discrete manufacturing, process manufacturing, retail and transportation industries,” Marcus Torchia, research vice president with the data and analytics group at IDC, said. “Meanwhile, digital business investments are ramping up in other industries, such as the resource industries. For example, IoT is helping to improve upstream supply chain processes in agriculture, such as growing, harvesting and delivering higher quality produce to market.”

This release of the IoT Spending Guide also includes a video analytics overlay forecast that is intended to provide high-level insight into a broadly adopted use case (i.e., found in most or all enterprise industries). Video analytics refers to the use of artificial intelligence (AI) and other advanced algorithms to recognize, detect and analyze live or stored video feeds in a variety of uses, including business analytics, security surveillance and other rapidly evolving adaptations of this technology. These uses are found in numerous settings (e.g., business analytics in manufacturing and retail, in government for crowd management and traffic congestion management, and broadly for security surveillance). Video analytics requires IP networked capable cameras to support the advanced software whether embedded in hardware or provided by third party vendors.

IDC expects spending on video analytics solutions across all industries to be more than $23.5 billion this year. Future releases of the IoT Spending Guide will include additional broadly adopted use cases, such as smart buildings.

From a technology perspective, IoT services will be the largest area of spending in 2023 and through the end of the forecast, accounting for nearly 40% of all IoT spending worldwide. Hardware spending will be the second largest technology category, dominated by module/sensor purchases. Software will be the fastest growing technology category with a five-year CAGR of 11% and a focus on application and analytics software purchases.

Western Europe, the United States and China will account for more than half of all IoT spending throughout the forecast. Although western Europe and the United States currently have similar levels of spending, western Europe will expand its lead with an 11% CAGR over the 2023-2027 forecast compared to an 8% CAGR for the United States. China’s IoT spending is forecast to surpass the United States by the end of the forecast due to its 13.2% CAGR.