FRAMINGHAM, MA – Worldwide spending on Internet of Things (IoT) is forecast to reach $737 billion in 2016, as organizations invest in the hardware, software, services and connectivity that enable IoT, says International Data Corp. Global IoT spending will experience a CAGR of 15.6% from 2015 to 2020, reaching $1.29 trillion in 2020.

The industries forecast to make the largest IoT investments this year are manufacturing ($178 billion), transportation ($78 billion), and utilities ($69 billion). Consumer IoT purchases, the fourth largest market segment in 2016, will become the third largest segment by 2020.

Meanwhile, cross-industry IoT investments, which represent use cases common to all industries, such as connected vehicles and smart buildings, will rank among the top segments throughout the five-year forecast. The industries that will see the fastest spending growth are insurance, consumer, healthcare, and retail.

Given manufacturing's position as the leading IoT industry, it's no surprise manufacturing operations is the IoT use case that will see the largest investment ($102.5 billion) in 2016, says IDC. Other IoT use cases being deployed in manufacturing include production asset management and maintenance and field service. The second largest use case, freight monitoring ($55.9 billion), will drive much of IoT spending in the transportation industry. In the utilities industry, combined investments in smart grid for electricity and gas will total $57.8 billion in 2016. Consumer smart home investments will more than double over the forecast period, reaching more than $63 billion by 2020.

In the insurance industry, telematics will be the leading use case, while remote health monitoring will see the greatest investment in the healthcare industry. Retail firms are already investing in a variety of use cases, including omni-channel operations and digital signage, says IDC.

"A fairly close relationship exists between high growth IoT use cases in consumer product and service-oriented verticals like retail, insurance, and healthcare," said Marcus Torchia, research manager, IoT, with IDC's Customer Insights and Analysis team. "In some cases, these are green field opportunities with tremendous room to run. In other verticals, like manufacturing and transportation, large market size and more moderate growth rate use cases characterize these verticals. As a whole, the IoT opportunity is a diverse developing marketplace for vendors and end users alike."

From a technology perspective, hardware will remain the largest spending category throughout the forecast, followed by services, software, and connectivity. And while hardware spending will nearly double over the five-year timeframe, it represents the slowest growing IoT technology group. Software and services spending will both grow faster than hardware and connectivity. Hardware spending will approach $400 billion by 2020. Modules and sensors that connect end points to networks will dominate hardware purchases, while application software will represent more than half of all IoT software investments.

Asia/Pacific (excluding Japan) is the geographic region that will see the greatest IoT spending throughout the forecast, followed by the US, Western Europe, and Japan. Nearly a third of IoT purchases in AP will be made by the manufacturing industry, while utilities and transportation will change places as the second and third largest IoT industries by the end of the forecast. In the US, manufacturing will be the industry with the largest IoT investments throughout the forecast but with a lower share (roughly 15%) of total spending. In Western Europe, consumer IoT spending will overtake transportation and utilities to become the second largest IoT industry in 2020.

"It is great to see that the Internet of Things will continue to fuel both business transformation and innovation acceleration markets such as robotics, cognitive computing, and virtual reality," said IoT research fellow and senior vice president Vernon Turner. "The investments by China and the United States in IoT solutions are driving these two countries to account for double-digit annual growth rates and over half of the IoT spending."