Worldwide spending on the Internet of Things is forecast to reach $772.5 billion in 2018, an increase of 15 percent over the $674 billion that will be spent in 2017, according to a new report by International Data Corp.

IDC forecasts worldwide IoT spending to sustain a compound annual growth rate (CAGR) of 14 percent through the 2017-2021 forecast period, surpassing the $1 trillion mark in 2020 and reaching $1.1 trillion in 2021.

IoT hardware will be the largest technology category in 2018, with $239 billion going largely toward modules and sensors along with some spending on infrastructure and security. Services will be the second largest technology category, IDC said, followed by software and connectivity.

Software spending will be led by application software along with analytics software, IoT platforms, and security software. Software will also be the fastest growing technology segment, with a five-year CAGR of 16.1 percent.

Services spending will also grow at a faster rate than overall spending, with a CAGR of 15.1 percent. It will nearly equal hardware spending by the end of the forecast, the report said.

"By 2021, more than 55 percent of spending on IoT projects will be for software and services,” said Carrie MacGillivray, vice president, Internet of Things and mobility at IDC. "Software creates the foundation upon which IoT applications and use cases can be realized.”

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