In the fall of 2016, a manufacturer of industrial soap dispensers approached McKinsey & Company for advice on making a dramatic shift in its business model. The manufacturer wanted to get ahead of the great industrial Internet of Things (IoT) disruption by adding sensors and connectivity to the soap dispensers – giving them away –and instead making money on replenishing soap.
Then McKinsey did the math.
The high cost of putting connectivity over cellular on every soap dispenser would ruin the business. The manufacturer would not be able to recover the cost of giving away the dispenser, even if it sold soap over the dispenser’s lifetime, Mark Patel, a McKinsey partner, told me.
So goes the rise and fall of industrial IoT over the last couple of years. Promises plummeting from their lofty heights. Projects stalling, or at least scaled back. Manufacturers returning to their conservative ways. And the bellwether of industrial IoT, GE Digital, beating a hasty retreat.
Today, though, there are signs that hint at an industrial IoT resurgence. It’s being carried out by the best the channel has to offer. Top-tier systems integrators (SIs) are beginning to turn the corner with industrial IoT projects — that is, pilots into full-blown rollouts and point solutions into digital-transformation journeys.
“We’re seeing a broader shift, a real critical mass,” says Forrester analyst Paul Miller.
These top-tier integrators, such as Accenture, PwC, Deloitte and Ernst & Young, are growing their investments in their IoT services practices, tightening relationships with vendors such as GE Digital, and elevating their game.
Case in point: At the end of 2017, one of GE Digital’s advisory partners scored a big industrial IoT win with a large power-generation utility, Guy Taylor, vice president of global SI partnerships at GE Digital, told Channel Futures. A year earlier, the partner completed a pilot project and made a couple million dollars for itself — and the same for GE Digital. After 12 months, the utility finally signed off on a rollout seven times the dollar value of the pilot project.
“We’re seeing a big uptick in the pipeline, deals [and] projects underway,” Taylor says. “I see the ball moving.”
Of course, the ball appeared to be dropping for GE Digital last year.
GE Digital’s Bumpy Ride
In many ways, the rise and fall and rise again of industrial IoT mirrors the story of GE Digital itself.
In 2015, GE Digital opened its doors on the eastern outskirts of Silicon Valley, in San Ramon, California. GE Digital’s main job was to develop Predix, the operating system for industrial IoT, in hopes of becoming a software company on par with platform giants such as Apple and Microsoft. GE Digital also planned to build Predix data centers.
At its annual Minds+Machines event in San Francisco, GE Digital showcased customers in manufacturing, energy, aviation, oil and gas, mining and transportation. They were tapping into IoT data-driven insights about predictive maintenance and customer experience — and disrupting entire markets.
The underlying message to industrial companies: If you have the courage and wherewithal for IoT, you can be a digital disruptor too.
“GE Digital almost had to create this market from scratch, so they did an awful lot of very impressive messaging around the potential of IoT,” Forrester’s Miller says. “They promised the earth, which they were never going to be able to deliver on, because they had to get people excited.”
Last year, the threads started to unravel.
A Forrester survey found that less than half of executives in the manufacturing sector see digital technology as a major driver of business strategy. They struggle to bake digital talent, digital capabilities, and a digital mindset into the company, Miller says. It’s not easy creating a digital center of excellence inside a manufacturing plant.
As a result, many manufacturers only dipped their toes in IoT. They put a few sensors on machines in the factory floor, in a production line or a piece of the supply chain to do some simple predictive maintenance. While they gained operational efficiencies and marginal cost savings, they missed out on the game-changing benefits of a digital transformation.
For GE Digital, problems surfaced on multiple fronts, according to a Reuters article last summer. From lagging profits to technical problems with Predix, GE Digital had to course-correct. Plans to build its own data centers were scratched, in favor of running Predix on a public cloud, Microsoft Azure. Reuters reported last November that about 100 salespeople inside GE Digital were being laid off.
Predix, too, underwent a “strategic adjustment,” Taylor says. “We realized going through 2017 that it’s hard to sell a platform; you go to a customer and search for a problem. We pivoted to asset-performance management and field-service management and driving optimization around those assets, such as increased uptime [and] increased output.”
What hasn’t changed, however, is GE Digital’s belief in the channel.
Taylor, who spent two decades at Accenture, joined GE Digital in the spring of 2016 to run its alliance program. So far, hundreds of SIs have signed statements of intent to partner with GE Digital. Taylor wants SIs to handle 70 percent of the services and implementation work related to Predix.
“We want to get to a 30-70 split by the end of this year, in terms of services, and a very significant percentage of our sales influenced or sourced by SI partners,” Taylor says. “The ideal model is for SIs to subcontract back to us, pulling in our experts where they might need support on. In early projects, they’re going to be doing that a lot because they need to build the muscle, skills and experience.”
Industrial IoT Makes a Comeback
It’s a muscle SIs would do well to strengthen. Forrester’s Miller says early industrial IoT projects seeking marginal cost savings have captured the attention of the CEO. That’s because the CEO is thinking hard about digital transformation – perhaps a competitor has caused disruption in the market – and views IoT as a potential starting point.
For instance, industrial IoT started out as a relatively minor predictive maintenance solution at Trenitalia, Italy’s primary train operator, Miller says. Industrial IoT helped cut maintenance costs by 8-10 percent, but the bigger benefit was the reduction in unanticipated train failures and what this means to the passenger waiting on the station platform. After boarding, the passenger also won’t have to endure overflowing trash bins and empty toilet-paper rolls, because IoT sensors monitor them.
More reliable trains and a better customer experience will help high-speed, long-distance train operators better compete with low-cost airlines, Miller says. All of this puts IoT at the heart of the business, and that’s good news for channel companies.
As the nature of industrial IoT work expands, SIs will be relied upon to stitch together different pieces in the enterprise.
“The organization is on this digital journey and starting to think very seriously about how connecting parts of the process can help them reach, serve and understand customers better,” Miller says. “The channel has to be important here, partly because these large industrial players can’t do it all themselves and also because it’s a mixed environment.”