Factories & Manufacturing

The Problem

“If you went to bed last night as an industrial company, you’re going to wake up this morning as a software and analytics company.”

– Jeff Immelt, Chairman & CEO, General Electric

Manufacturing has changed a lot over the last century, yet it still hasn’t truly bridged the digital divide.

Most firms that provide factory equipment today still think of themselves as hardware companies. The ones who are furthest along have started building software and may even call themselves a “software company.” However, no company in this space has yet become a platform business.

As a result, despite some digital transformation efforts, the gap between Operational Technology and Information Technology is as wide as ever. Truly digital businesses operate as platforms, not just software that can be commoditized and easily replicated.

While software may allow you to start collecting data, keeping that data siloed prevents manufacturers from unlocking its full value and potential. It also prevents manufacturers from truly closing the OT/IT divide.

With companies like Amazon and IBM taking an interest, it’s merely a matter of time before a platform connecting the Internet of Big Industrial Things (IBIT) becomes a reality in the factory.

Given the nature of platform businesses, this looming eventuality presents an existential threat to the top factory equipment providers today. They risk becoming commodity providers of hardware and/or software in an industry dominated by one or two major platforms per vertical.

The Opportunity

That a tech company will own this space is not a foregone conclusion. Many incumbents have legacy software that could be modernized and turned into a platform business opportunity.

The first step is bringing the factory into the twenty-first century by connecting the industrial machinery to a common operating system via sensors and bringing the factory online.

The next step is to open up that data that starts flowing in and the inherent operating system to external developers, including some potential competitors today, to own the ecosystem for the modern factory.

This closed development platform would allow third-party developers and equipment manufacturers to create apps for optimizing performance, maintenance, and energy consumption, improving productivity, and automatically placing orders for repairs and upgrades, among other opportunities. It would also enable other manufacturers to creates software that brings them closer to their customers on a real-time basis.

The Endpoint

An incumbent manufacturer that builds the closed development platform for the IBIT will own more than half of the market share as the operating system for the modern factory.  

If an industrial leader decides to act and are among the first, they have a good chance to prevail given their extensive resources, industry knowledge, and existing relationships. However, several tech giants are not far behind on building this future and they could turn manufacturers into low-margin hardware suppliers.

The opportunity is clear. The question is who will take it.

By Drew Moffitt

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