Worldwide spending on the Internet of Things (IoT) is forecast to reach $737 billion in 2016, as organizations invest in the hardware, software, services and connectivity that enable the IoT, according to a new survey produced by the International Data Corp. (IDC), Framingham, Mass.

The study, “Worldwide Semiannual Internet of Things Spending Guide,” reveals that global IoT spending will experience a compound annual growth rate (CAGR) of 15.6% over the 2015-2020 forecast period, reaching $1.29 trillion in 2020.

The industries forecast to make the largest IoT investments in 2016 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, such as connected vehicles and smart buildings, will rank among the top segments throughout the 5-year forecast. The industries that will see the fastest spending growth include consumer and retail, among others.

Given manufacturing's position as the leading IoT industry, it's no surprise that manufacturing operations is the IoT use case that will see the largest investment ($102.5 billion) in 2016. 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 the 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. Smart home investments will more than double over the forecast period, reaching more than $63 billion by 2020. In the Insurance industry, telematics will take the lead, 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.

"A fairly close relationship exists between high-growth IoT use cases in consumer product and service-oriented verticals like retail, insurance and healthcare," says Marcus Torchia, research manager, IoT. "In some cases, these are Greenfield 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 market place 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 5-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)(APeJ) is the geographic region that will see the greatest IoT spending throughout the forecast, followed by the United States, Western Europe and Japan. Nearly a third of IoT purchases in APeJ 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 United States, 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.

The “Worldwide Semiannual Internet of Things Spending” guide forecasts IoT spending for 12 technologies and 49 use cases across 20 vertical industries in eight regions and 52 countries. This comprehensive spending guide was designed to help vendors clearly understand the industry-specific opportunity for today’s IoT technologies.