Trend analysis: IoT, sensors & smart infrastructure — where the value pools are (and who captures them)

The global IoT market in smart infrastructure reached $312 billion in 2024, with projections indicating a compound annual growth rate (CAGR) of 13.2% through 2030 (McKinsey, 2024). Europe alone deployed over 2.1 billion connected sensors across buildings, utilities, and transportation networks by Q3 2024, representing a 34% year-over-year increase. Yet despite this explosive growth, only 26% of IoT deployments achieve their projected ROI within the first three years. Understanding where value actually accrues—and who captures it—has become essential for investors, operators, and policymakers navigating this rapidly evolving landscape.

Why It Matters

The intersection of IoT, sensors, and smart infrastructure represents one of the most significant opportunities to decarbonize the built environment and optimize resource utilization. Buildings account for approximately 37% of global energy-related CO2 emissions (IEA, 2024), while water utilities lose an average of 30% of treated water to leaks and inefficiencies. Smart sensors and connected infrastructure offer a path to dramatically reduce these figures—but only when deployed strategically.

The European Green Deal's commitment to climate neutrality by 2050 has accelerated regulatory pressure on asset owners. The EU's Energy Performance of Buildings Directive (EPBD) recast, finalized in early 2024, mandates smart building readiness indicators (SRI) for new construction and major renovations. This regulatory push creates a compliance-driven demand floor for IoT solutions, fundamentally reshaping market dynamics.

From an investment perspective, the convergence of declining sensor costs (down 78% since 2015), maturing 5G and LoRaWAN connectivity, and advances in edge computing has shifted the economic equation. The question is no longer whether to deploy smart infrastructure but rather which layers of the value chain offer sustainable competitive advantages.

Key Concepts

Value Chain Segmentation

The IoT smart infrastructure value chain comprises four primary layers, each with distinct margin profiles and competitive dynamics:

Hardware Layer (Sensors, Gateways, Edge Devices): Characterized by commoditization pressure and thin margins (typically 8-15%). Value accrues to companies with proprietary sensing technologies or vertical integration capabilities.
Connectivity Layer (Networks, Protocols): Increasingly dominated by LPWAN technologies. LoRaWAN and NB-IoT have emerged as de facto standards for smart city deployments, with private 5G networks gaining traction in industrial settings.
Platform Layer (Data Aggregation, Analytics): The highest-margin segment (35-55% gross margins), where data integration and analytics capabilities create switching costs and recurring revenue streams.
Application Layer (Vertical Solutions): Domain-specific applications in building management, water utilities, and transportation where deep operational expertise drives value.

Critical KPIs and Benchmark Ranges

KPI	Description	Good	Average	Poor
Device Uptime	Sensor operational availability	>99.5%	97-99.5%	<97%
Data Latency	Time from sensor to actionable insight	<100ms	100ms-1s	>1s
Energy Savings	Reduction in energy consumption post-deployment	>25%	15-25%	<15%
Payback Period	Time to recover investment	<2 years	2-4 years	>4 years
False Positive Rate	Accuracy of anomaly detection	<5%	5-15%	>15%
Integration Time	Days to full system deployment	<30 days	30-90 days	>90 days

Additionality and Measurement Integrity

A persistent challenge in the sector involves demonstrating additionality—proving that observed improvements (energy savings, emission reductions) are directly attributable to IoT deployments rather than baseline trends or confounding variables. Best-practice approaches now incorporate controlled A/B testing, synthetic control methods, and third-party MRV (Measurement, Reporting, and Verification) protocols aligned with ISO 14064 standards.

What's Working and What Isn't

What's Working

Integrated Building Operating Systems: Companies that offer holistic building operating systems—integrating HVAC, lighting, access control, and occupancy sensing into unified platforms—are demonstrating the strongest unit economics. Siemens' Desigo CC platform, deployed across 450,000+ buildings globally, exemplifies this approach, achieving average energy reductions of 28% in commercial office retrofits (Siemens Sustainability Report, 2024).

Predictive Maintenance in Water Utilities: IoT-enabled leak detection and predictive maintenance have achieved compelling ROI in water infrastructure. Thames Water's deployment of 400,000 acoustic sensors across its London network reduced leakage by 15% within 18 months, saving approximately £45 million annually while preventing 250 million liters of daily water loss (Thames Water Annual Report, 2024).

Digital Twins for Grid Optimization: The convergence of IoT sensors with digital twin technology is proving transformative for electrical grid operators. E.ON's grid digital twin initiative, covering 1.1 million kilometers of distribution network across Germany and the UK, has reduced outage duration by 23% and enabled 18% higher renewable integration without infrastructure upgrades.

What Isn't Working

Siloed Sensor Deployments: Point solutions that address single use cases without broader integration consistently underperform. The industry has seen numerous failed pilots where building owners deployed occupancy sensors for space optimization but couldn't integrate the data with HVAC or lighting systems, resulting in stranded assets and disappointing ROI.

Over-Reliance on Hardware Margins: Companies attempting to build sustainable businesses on sensor hardware sales alone face intense margin pressure from Asian manufacturers. The average selling price of commercial-grade temperature sensors declined 62% between 2019 and 2024, rendering hardware-centric business models increasingly unviable.

Inadequate Cybersecurity Postures: High-profile vulnerabilities in IoT deployments have created buyer hesitancy. A 2024 survey by Gartner found that 67% of enterprise IT decision-makers cite cybersecurity concerns as the primary barrier to expanded IoT adoption, up from 49% in 2022.

Key Players

Established Leaders

Siemens AG: Dominant in building automation with its Desigo and Navigator platforms, capturing approximately 18% of the European smart building market. Strong position in industrial IoT through MindSphere.
Schneider Electric: Market leader in power management IoT with EcoStruxure platform. 2024 revenue of €38.2 billion with 47% from digital and services.
Honeywell International: Forge platform serves as an enterprise-grade operating system for buildings and industrial facilities. Strong retrofit market position in North America.
Johnson Controls: OpenBlue platform integrates AI-driven building management with sustainability analytics. Notable partnerships with Microsoft and Accenture for cloud-native deployments.

Emerging Startups

Verkada (USA/Europe): Cloud-native physical security and environmental sensing. Raised $205 million Series E in 2024 at a $3.6 billion valuation. Differentiated by zero-touch deployment model.
Samsara (USA/EU expansion): Industrial IoT platform for fleet, equipment, and site visibility. 2024 ARR exceeded $1.1 billion with 45% year-over-year growth.
Haltian (Finland): Enterprise IoT platform specializing in smart office and workplace optimization. Key deployments with Nokia and several European government agencies.
Disruptive Technologies (Norway): Ultra-miniaturized wireless sensors (19mm form factor) for building and asset monitoring. Notable for 15-year battery life claims.

Key Investors & Funders

European Investment Bank (EIB): Committed €2.3 billion to smart city and infrastructure digitalization projects in 2024 under the InvestEU program.
Breakthrough Energy Ventures: Active investor in climate-focused IoT, with portfolio companies including Turntide Technologies and Amply Power.
Energy Impact Partners: Utility-backed VC with $3.5 billion AUM focused on grid edge and smart infrastructure technologies.
Horizon Europe Program: €95.5 billion research and innovation program with dedicated digital infrastructure and climate tech funding streams.

Examples

Copenhagen Smart City Initiative (Municipality of Copenhagen): Copenhagen's comprehensive IoT deployment encompasses 30,000 connected streetlights, 1,200 environmental sensors, and real-time traffic management systems. The integrated platform, developed in partnership with Cisco and TDC NET, has reduced municipal energy consumption by 76% for street lighting and decreased traffic congestion by 20% in pilot districts. The city achieved carbon neutrality targets for municipal operations in 2025, two years ahead of schedule, with IoT infrastructure cited as a primary enabler (Copenhagen Solutions Lab, 2024).
Anglian Water's Integrated Network Management (UK): Anglian Water's deployment of 100,000+ IoT sensors across its 38,000km pipe network represents one of Europe's most sophisticated water utility digitalization projects. The system uses machine learning algorithms processing 250 million data points daily to predict pipe failures 48 hours in advance with 89% accuracy. In 2024, the initiative prevented an estimated 1,400 pipe bursts, reduced leakage by 18%, and saved £52 million in emergency repair costs. The project achieved full ROI within 2.8 years, significantly outperforming initial projections (Ofwat Innovation Report, 2024).
E.ON's Grid Edge Intelligence Platform (Germany): E.ON's partnership with Microsoft and Bentley Systems created a comprehensive digital twin of its German distribution network, incorporating data from 850,000 smart meters, 45,000 grid sensors, and 12,000 distributed energy resources. The platform enables real-time grid balancing and has increased the network's ability to absorb renewable generation by 23% without infrastructure upgrades. The project demonstrates how IoT-enabled grid optimization can defer billions in capital expenditure while accelerating renewable integration—E.ON estimates €340 million in avoided grid reinforcement costs over the first five years (E.ON Digital Strategy Report, 2024).

Action Checklist

Conduct a comprehensive audit of existing building and infrastructure systems to identify integration opportunities and data gaps before investing in new sensor deployments
Prioritize platform investments over point solutions; evaluate vendors based on API openness, protocol compatibility, and ecosystem partnerships
Establish clear baseline measurements and define additionality frameworks aligned with ISO 14064 or equivalent MRV standards before deployment
Implement a cybersecurity-by-design approach, ensuring all IoT devices meet IEC 62443 industrial cybersecurity standards and incorporate regular penetration testing
Develop internal data science capabilities or establish strategic partnerships to extract actionable insights from sensor data; raw data collection without analytics delivers minimal value
Create a phased deployment roadmap with defined success metrics at each stage, allowing for course correction before full-scale rollout

FAQ

Q: What is the typical ROI timeline for smart building IoT deployments? A: Based on 2024 industry data, well-designed smart building IoT deployments in commercial office environments typically achieve ROI within 2.5-3.5 years, primarily through energy savings (20-30% reduction), reduced maintenance costs (15-25% reduction), and improved space utilization. However, ROI timelines vary significantly based on building type, existing infrastructure maturity, and the scope of integration. Retrofit projects in older buildings often see longer payback periods (4-5 years) due to higher integration complexity, while new construction with designed-in IoT capability can achieve payback in under 2 years.

Q: How do European data privacy regulations (GDPR) affect IoT sensor deployments? A: GDPR significantly impacts IoT deployments that collect personally identifiable information, particularly occupancy sensors, access control systems, and location tracking. Organizations must implement privacy-by-design principles, including data minimization (collecting only necessary information), anonymization or pseudonymization of individual-level data, clear consent mechanisms where required, and defined retention periods. Many leading vendors now offer on-device edge processing that aggregates data before transmission, reducing privacy exposure. Purpose limitation requirements also mean that sensor data collected for energy optimization cannot be repurposed for employee surveillance without additional legal basis.

Q: What connectivity technology should organizations prioritize for smart infrastructure? A: The optimal connectivity choice depends on specific use case requirements. LoRaWAN offers the best economics for low-data-rate, battery-powered sensors in building and city-scale deployments, with device costs under €15 and 10+ year battery life. NB-IoT provides better coverage in underground and indoor environments with carrier-grade reliability. Private 5G is emerging as the preferred option for high-bandwidth, low-latency industrial applications where existing cellular coverage may be unreliable. Most large-scale deployments now use hybrid architectures, with different connectivity technologies optimized for specific sensor types and locations. Interoperability and protocol translation at the platform layer have become essential capabilities.

Q: How can organizations ensure IoT deployment achieves claimed sustainability benefits? A: Rigorous MRV (Measurement, Reporting, and Verification) protocols are essential. Best practices include: establishing pre-deployment baselines using at least 12 months of historical data; implementing controlled comparison groups (similar buildings/assets without IoT) to isolate intervention effects; engaging third-party verification aligned with ISO 14064 or GHG Protocol standards; and utilizing digital twin simulations to model counterfactual scenarios. Organizations should be wary of vendor claims based solely on before/after comparisons without controlling for weather, occupancy, or operational changes.

Sources

McKinsey & Company. (2024). The Internet of Things: Mapping the Value Beyond the Hype. McKinsey Global Institute.
International Energy Agency. (2024). Global Status Report for Buildings and Construction. IEA Publications.
Siemens AG. (2024). Sustainability Report FY2024. Munich: Siemens Corporate Communications.
Thames Water. (2024). Annual Performance Report 2023-2024. London: Thames Water Utilities Limited.
Gartner Research. (2024). IoT Adoption Barriers Survey: Enterprise IT Decision Makers. Gartner, Inc.
Copenhagen Solutions Lab. (2024). Smart City Copenhagen: Five-Year Impact Assessment. Municipality of Copenhagen.
Ofwat. (2024). Innovation in the Water Sector: Annual Review. Water Services Regulation Authority.
European Commission. (2024). Energy Performance of Buildings Directive: Implementation Guidance. Brussels: DG Energy.