Connected consumer devices have captured the attention of the media, but the market for the Internet of Things (IoT) in enterprise and industrial sectors is poised be much larger—around $300 billion annually by 2020 compared to half that for consumer technology, according to research by Bain & Company.
Industrial applications for the Internet of Things may not be as visible in most people’s daily lives, but they are typically more complex than those in the consumer realm. Many industrial applications operate large physical devices, and failure carries greater risk. Consider robotic arms in an automotive factory or valves in an oil refinery. The technology operates in real-time and it cannot simply stop operating without serious safety consequences. “Blue screens” are just not acceptable in industrial environments.
This difference may help give an edge to the IoT programs of industrial giants like GE, Siemens and Bosch, which are investing billions in technology and acquisitions. These industrial leaders are capitalizing on their deep industrial knowledge, moving from the equipment layer up the stack into software and analytics, as they aim to build platforms that become the standard operating systems for heavy industry. Bosch’s IoT platform, for example, gathers and analyzes metrics that help measure quality and optimize production in real time. These platforms have real-time capabilities and a fail-safe mode built in from the start, and their roots lie in mission-critical industrial systems that can pose significant risks and physical danger if they fail.
Enterprise solution vendors like SAP and Oracle are also developing platforms that make it easier to integrate IoT data into their existing enterprise resource planning (ERP), supply chain and other traditional software solutions. These analytics leaders are trying to stay ahead of the demand of their customers, who see digitalization expanding from the office to the factory floor or retail outlet.
Some telecommunications companies are developing platforms that capitalize on their life-cycle management capabilities. Telcos have the deep experience necessary to connect and manage millions of devices, including maintenance, upgrades and decommissioning. With life-cycle management as a baseline, telcos want to extend their platforms to offer sector-specific solutions to industrial and commercial businesses. Network equipment vendors such as Cisco are adding functions like authentication, security and analytics to their appliances to improve their value proposition.
Based on the opportunities available and the direction set by market leaders, industrial companies have at least three clear options for choosing platforms, depending on their starting point, ambition and capabilities.
- Build your own platform. Large industrial vendors have invested billions developing prominent IoT platforms, including GE’s Predix, Siemens’ Mindsphere and Schneider Electric’s EcoStrucure. Success will depend not only on committing to years of investment before seeing any returns, but also on starting from a position of competitive advantage or unique customer base. But smaller companies can succeed here, too, if they have significant market share in a narrow domain. The German machine tool manufacturer Trumpf, for example, is developing its Axoom platform to help its small and medium-size customers control their equipment linked to the IoT.
- Partner with an existing platform. This path requires much less investment and allows companies to capitalize on the effort of the platform provider. Partners that join early can help shape the platform for their industry. For example, Schindler has partnered with GE as the premier elevator and escalator provider on the Predix platform. Schindler gets access to an established IoT platform and a broad developer base, along with the ability to shape the front end for the elevator industry. GE benefits by bringing an industry leader on board to extend Predix, tapping Schindler’s domain knowledge. Of course, not all partners need to be at the scale of GE: Start-ups with platforms aimed at very specific use cases may prove to be the most effective partners, and industrial companies should not rule out candidates based on company size.
- Develop a point application with common tools from cloud service providers. This is the most cost effective way to get access to a platform, such as Amazon Web Service’s Greengrass, and its developer base. Companies that take this route use the tools and infrastructure provided by AWS to build their own IoT solution, but they have less ability to shape the platform or its tools. They hit the ground running, but may find themselves locked in to the terms and development path of a market-leading cloud provider.
For technology providers who want to supply the tools to these industrial customers, the equation is just as complex, but several imperatives are emerging.
- Partnerships are essential, and industrial device and equipment makers are forging relationships with analytics leaders and cloud service providers that will be critical to success.
- Specialization across the industrial landscape will further complicate decisions about where to invest. Each industry has a distinct ecosystem structure: Some are more fragmented than others, while some are more global than local.
- Long replacement cycles for legacy equipment and embedded software make the transitions difficult, but proofs of concept are under way.
- Requirements are demanding, given the safety factors. Operations technology needs to operate in real time, be deterministic and include a fail-safe mode that prevent catastrophic failures from happening.
- Safety and data security are paramount, as breaches could have catastrophic consequences. The 2010 attack on Iran’s nuclear facilities by the Stuxnet worm, which infiltrates and compromises industrial control systems, demonstrated the potential damage that malware can cause to industrial systems. Worms like Stuxnet, which was programmed to attack the logic controller of the centrifuges, are a particularly dangerous risk for mission-critical operations.
It may take years to develop and scale a platform, but now is the time to make investment decisions and choose the right partners, as industrial companies define their digital strategy and their ambitions for the Internet of Things.
Peter Bowen is a partner with Bain & Company in Chicago. Asit Goel and Michael Schallehn are partners in Bain’s Silicon Valley office. Michael Schertler is a partner in Bain’s Munich office. All four work with Bain’s Global Telecommunications, Media and Technology practice.