European IoT spending set to reach nearly $227bn in 2023 - IDC

IoT-related spending is expected to continue to expand at a five-year compound annual growth rate of 11 per cent

European organisations are expected to spend around $227bn (£179bn) on Internet of Things (IoT) technology in 2023, according to IDC.

IoT-related spending is expected to continue to expand at a five-year compound annual growth rate (CAGR) of 11 per cent, reaching almost $345bn (£272bn) by 2027.

IoT development in Europe reflects enterprises' evolving digital transformation investment objectives related to cost reduction, process streamlining, automation, and enhanced customer experience.

The guide however found that there are varying dynamics in regional markets.

Central and Eastern European (CEE) organisations' investments, for example, remain significantly below the European market average, with expected single-digit increases over the forecast period.

In the last three years, many investments were put on hold in CEE, due to the various challenges related to the pandemic, the war in Ukraine, and the overall pressured macro-economic environment.

However, as IoT has proven to be integral to cost reduction, process optimisation, automation, and enhanced management and monitoring capabilities, IDC expects investments to accelerate by the end of the forecast period.

From an overall industry perspective, European IoT spending will be driven by investments from manufacturing, utilities, and professional services organisations.

Prominent use cases will include production asset management, distribution automation, and infrastructure for smart buildings.

The fastest adoption of IoT will be seen across use cases such as irrigation management in the resources industry and fleet management in transport.

IDC found in its research notable updates were made to the use case taxonomy across multiple industries (i.e., discreet manufacturing, process manufacturing, retail, resource industries, transportation, and telecommunications).

Updates to the use case taxonomy reflect enterprises' evolving DX investment objectives, some of which were spurred by the COVID-19 pandemic and subsequent business and societal disruptions.

Where are investments going?

In terms of technology, modules and sensors will continue to drive IoT-related spending, followed by related services such as industrial maintenance to support the ongoing operation of device hardware ("things"), vertical business process outsourcing services, infrastructure as a service, and data as a service.

Low power wide area networks (LPWANs) will see the fastest-growing investments and will be a critical IoT area for telecom providers in the next few years.

Spending on analytics software will also increase, as organisations strive to turn data collected by connection endpoints into actionable insights.

"Due to the uncertain macroeconomic context, European organisations are expected to continue feeling pressure on budgets, with additional investments restrained in the short and medium term," said Alexandra Rotaru, senior research analyst with IDC's European Data & Analytics Team.

"However, IoT will remain a critical tool for improving performance and efficiency and increasing automation capabilities.

"It will continue to be a key investment area, helping organisations to reduce costs and enhance productivity despite challenges."

IoT spending is one of the few areas in European IT spending that is still growing, despite economic challenges. Earlier this year, IDC reported European IT security spending was set to continue grow to reach almost $47bn.

Similarly, the European AI market was reported to grow by 25 per cent in the next five years despite economic challenges.