Heavy equipment, machinery and medical manufacturers have yet to feel the full brunt of technological disruption. However, as the Industrial Internet of Things (IIoT) demands more connectivity of machinery and equipment to keep pace with the digital era, manufacturers must open up their APIs to an open developer platform to meet the needs of their customers. If they don’t, a tech company surely will.
Over the past couple of decades, platform monopolies and startups have disrupted a wide range of industries such as retail, hospitality, and entertainment. During that time, manufacturers
(especially those of heavy equipment and machinery) may have felt relatively safe from disruption. But as connected technology makes its way into these industries, this is no longer the case. With this shift, software ecosystems start to replace product features as the key competitive differentiator.
In the late 1990s and early 2000s, cellphones competed on quality and product specs, until Apple’s and Google’s app stores changed the nature of the competition. As soon as users could choose from thousands of third-party apps to suit their every need, they prized that utility over product specs. Sure, the Blackberry’s product specs were top of the line, but could it download Angry Birds? And this story is primed to play out again in the car industry, as Tesla and Android Automotive both threaten to disrupt automakers with their hyper-connected cars and third-party apps.
To stay ahead of the tech disruption curve, manufacturers must capture the software side of their products through a developer platform. If successful, this platform has great advantages for the first mover, the industry as a whole, and customers.
As the Industrial Internet of Things (IIoT) demands more connectivity of machinery and equipment, manufacturers must open up their API to an open developer platform to meet the needs of their customers.
Nowadays, specialized equipment and machinery is more than mechanical. There’s software in tractors, factory robots, lab centrifuges, and medical diagnostic tools. According to Forbes,
“Driven by price wars and commoditized products, manufacturers have no choice but to pursue smart, connected machinery that enables IIoT technology stacks across shop floors. The era of the smart, connected machines is here, bringing with it the need to grow services and software revenue faster than transaction-based machinery sales.”
For manufacturers, capturing software revenue is an excellent long-term strategic plan, but it’s difficult and costly to anticipate every use case for any particular piece of equipment. Just like with smartphones, uses vary and native apps often fall short of users’ goals. Manufacturers need a low-cost way to meet evolving demands, while still priming a software revenue stream. Whichever company races to providing an IIoT development platform first will solve this huge pain point for customers, while also capturing revenue from its new platform business.
For manufacturers, capturing software revenue is an excellent long-term strategic plan, but it’s difficult and costly to anticipate every use case for any particular piece of equipment.
Currently, manufacturers who tether customers to a single piece of software risk aggravating a customer pain point and generating bad headlines. Take for example John Deere (by no means an outlier), who made headlines when its customers were breaking tractor software and using pirated software from Poland and the Ukraine to make necessary repairs. In several articles, John Deere’s software restrictions are described as draconian. Ouch. But a company like John Deere could satisfy customers and get out ahead of competitors by investing in an open software developer platform.
By opening up an industrial app store, manufacturers grant customers access to a wide range of apps built by software experts, and they can capture a fee from all transactions on the platform. Of course, that platform needs to be attractive to software developers too, which means that the platform needs to have access to a large share of customers for any given piece of equipment.
By opening up an industrial app store, manufacturers grant customers access to a wide range of apps built by software experts, and capture a fee from all transactions on the platform.
Typically, if a manufacturer has less than 40% of the marketshare, it simply isn’t worth it for software developers to make apps for a small slice of market share. Take Apple v Google’s Android for example. Apple limits the App Store to run on just its phone, and can get away with that limitation because its market share, especially with affluent consumers, is too big for software developers to ignore.
Android took a different approach by combining an ecosystem of competitors. When Android first launched, Google did not manufacture its own phones and Apple already had a sizable head start. So rather than make a “Gphone,” as was often speculated, Google created the Open Handset Alliance, which includes phone manufacturers like Samsung, Motorola, Sony, HTC, and others. These mobile competitors willingly banded together in an alliance to run on the same developer platform in order to compete with Apple.
Any manufacturer who is thinking of building its own dev platform must make an honest assessment of its market share. If it is under 40%, it may be too small on its own to entice app developers (a rough rule of thumb).
Agricultural equipment manufacturer AGCO has already experimented with an open app platform called Fuse Smart. However, it’s limited to AGCO products. No app developer wants to make an app for 22.74% of the heavy agricultural equipment market.
If AGCO truly wants Fuse Smart to succeed, they must open Fuse Smart to competitors to create apps – thereby benefiting from the winner-take-all dynamic of platforms. Sure, competitors will also be able to offer their customers an open development platform solution, but Fuse Smart would, in this example, get a cut from all those software purchases on the platform as well. And, most importantly, Fuse Smart simply won’t work as a business without more connected devices.
Any manufacturer who is thinking of building their own development platform must make an honest assessment of its market share. If it is under 40%, it may be too small on its own to entice app developers.
For many companies, the idea of opening a platform to competitors is hard to reconcile with a long history of fierce competition. However, the first developer platform to hit critical mass (40% or greater market share) will be handsomely rewarded not only financially, but in other smaller but important ways too.
For example, the development platform only works well if certain equipment features are standardized in order to operate properly with app commands. Thus an open market that is hardware agnostic and embraces all brands forces products towards a greater level of standardization. The first mover who owns the platform has the advantage of creating these standards as the default. Its competitors will need to play catch up and retool their products to work seamlessly with the dev platform, or risk being left behind.
An open market that is hardware agnostic and embraces all brands forces products towards a greater level of standardization.
The trend towards designing hardware with software in mind has already begun. From the Forbes article mentioned above,
“Machines are being re-engineered starting with software and services as the primary design goals to support new business models. Machinery manufacturers are redefining existing product lines to be more software- and services-centric.”
While a first mover would benefit in the ways described above, there is also the option to work with competitors in designing the platform. In the finance industry, 30+ banks including Bank of America, Wells Fargo, JP Morgan Chase, and others, banded together to create Zelle, a person-to-person payments platform that competes with Venmo.
Depending on the industry, the level of fragmentation, and the specifics of the platform, collaboration may be the best, or sometimes only, way to get to critical mass.
Whether a company builds a platform alone or cooperates with other stakeholders, it must first ensure that it has third-party developers on board from the start.
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