The Industrial IoT: Turning the Hype into Competitive Advantage

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by Isaac Brown, Lux Research

There is tremendous hype around the burgeoning Internet of Things (IoT), but the IoT is not a singular entity as the value proposition, timeline, and technological needs vary widely across its three major domains – industrial, consumer, and healthcare. The hype across all three of these IoT domains is palatable, with talk of industry 4.0, smart homes, and digital healthcare, respectively, increasing on a daily basis; this makes finding the right IoT markets and bets an enormous challenge.

For those seeking near-term returns, the Industrial IoT is an attractive candidate, as hype is beginning to give way to value – manufacturers, utility providers, farmers, oil producers, and other industrial stakeholders are witnessing returns from investments in sensing, connectivity, analytics, systems integration, and process transformation. Nearly every industrial organization stands to benefit in one way or another from these developments, leaving those that act too late at a significant competitive disadvantage.

Fueling the hype of the Industrial IoT is its ability to deliver value in many different value propositions from increasing supply chain visibility to improving worker safety. Among the many value propositions of the Industrial IoT, asset optimization is one of the most promising. For many years, organizations have remotely monitored individual internal assets to understand their performance. The cloud has made it possible to monitor a fleet of globally separate assets and analyze their data in conjunction, which is becoming a common practice for forward-thinking organizations. While many organizations have analyzed their own internal operations over the Internet for years, the ability for industrial OEMs to draw data from their product fleets in the field is completely revolutionary. A major airline may have hundreds of aircraft in operation at a given time: the three major US airlines – Delta, American, and United – have fleets of 820, 938, and 715, respectively. In contrast, GE Aviation and its partner companies ship over 3,000 jet engines per year – if GE can collect data feeds from all of its jet engines once they are in the field, it can develop a far deeper level of insight into engine performance than any other single airline could accomplish on its own. This new practice – monitoring and analyzing equipment after it has been deployed in the field by customers – is a key aspect of the Industrial IoT revolution.

Connected machines come with new business models – Caterpillar will roll out a suite of web- and mobile-based predictive diagnostics and fleet optimization services over the course of 2016, aiming to draw data feeds from 3,000,000 Caterpillar engines and machines worldwide. Kaeser Compressors, a German manufacturer of air compressors, has a few experimental pay-per-use customers; it gives customers compressors for no up-front cost, monitors them remotely, guarantees a service-level agreement, maintains them when necessary, and charges them for the quantity of air they compress. This model is very appealing to both OEMs and their customers, but proper pricing structures must be put into place. Not to mention, customers also must be comfortable with having their equipment monitored over the Internet by their providers.

However, challenges exist beyond a strong value proposition and business model. According to a recent Lux Research survey of over 120 operational leaders, organizations like Kaeser Compressors may see more cultural pushback than organizations like Caterpillar – heavy industry tends to be comfortable with remote monitoring, with 61% of respondents reporting that they were comfortable with OEMs monitoring their machines over the Internet, compared to 50% for energy organizations and only 47% for manufacturers.

We asked these respondents whether they were comfortable with OEMs monitoring their equipment remotely over the Internet – manufacturing was least comfortable as an industry, while Asia proved least comfortable regionally. Smaller organizations also reported discomfort with Internet monitoring.

Regional preferences turned out to be an important factor as well – 61% of North American respondents accepted remote monitoring over the Internet, compared to only 38% of Asians. Organization size proved to be another strong factor – only 40% of organizations with less than 100 people reported being comfortable with monitoring over the Internet; this number rose steadily with increasing employee count to 62% for organizations with over 15,000 employees.

As OEMs develop their connected product strategies, it will be essential for them to understand the value proposition, business model, and customer culture. Examining the extremes, connected products and solutions targeting large, heavy industry organizations in North America must have very different forms than connected products targeting small manufacturing firms in Asia. Users should be able to deploy products and solutions in whichever format makes them most comfortable – the major buckets would be products that connect over the Internet, products that connect to local intranets, and products that do not connect to any network at all. Industrial IoT solution deployment will experience some hiccups along the way as vendors iron out these cultural kinks.