2. General findings:
2.1 The state of the market
Analyst firm Gartner recently declared that the Internet of Things (IoT) was the most hyped technology in 2014.2 Much of this hype centres on consumer applications, such as smart homes, connected cars and consumer wearables like wristband activity trackers. However, it is the IoT’s industrial applications, or the Industrial Internet”, which may ultimately dwarf the consumer side in potential business and socioeconomic impacts. The Industrial Internet will transform many industries, including manufacturing, oil and gas, agriculture, mining, transportation and healthcare. Collectively, these account for nearly two-thirds of the world economy.3 As society evolves towards an integrated digital-human workforce, the Industrial Internet will redefine the new types of new jobs to be created, and will reshape the very nature of work. Given the greater significance, this report focuses exclusively on the Industrial Internet.
The Industrial Internet is still at an early stage, similar to where the Internet was in the late 1990s. Our survey results underscore this point: the vast majority (88%) of respondents say that they still do not fully understand its underlying business models and long-term implications to their industries. While the evolution of the consumer Internet over the past two decades provides some important lessons, it is unclear how much of this learning is applicable to the Industrial Internet given its unique scope and requirements. For example, real-time responses are often critical in manufacturing, energy, transportation and healthcare. Real time for today’s Internet usually means a few seconds, whereas real time for industrial machines is often sub-millisecond. The engineering rule of thumb dictates that a 10x change in performance requires an entirely new approach, not to mention the 100x change that the Industrial Internet will likely need.
Another important consideration is reliability. The current Internet embodies a “best effort” approach, which provides acceptable performance for e-commerce or human interactions. Unexpected server glitches at Google or Amazon cause delays in email or streamed video. However, the failure of the power grid, the air traffic control system or an automated factory for the same length of time would have much more serious consequences. This strong bias towards real time and reliability, which has contributed to a conservative culture among industrial companies in embracing change and new technologies, together with the high cost and long life span of typical industrial products, are all critical factors in shaping how the Industrial Internet will evolve.
Despite these barriers, adoption of the Industrial Internet is accelerating. During the past three years, for example, the number of sensors shipped has increased more than five times from 4.2 billion in 2012 to 23.6 billion in 2014.4 Much attention is drawn to the efforts by large companies such as Cisco, GE, and Huawei, and government initiatives like Industrie 4.0 in Germany. The second Internet of Things World Forum hosted by Cisco featured more than 250 real-world deployment examples showing how companies and municipalities from around the globe are already applying the Industrial Internet to drive efficiencies, create new revenue streams and improve quality of life for citizens and consumers. In addition, the event’s steering committee, comprising more than 100 leading organizations from the user and provider communities, introduced a seven-layer IoT reference model as a common framework and vocabulary to drive efficient collaboration and future deployments.5 In another example, GE announced that it has realized more than $1 billion in incremental revenues in 2014 by helping customers improve asset performance and business operations through Industrial Internet capabilities and services.6 Outside of the US, Huawei recently announced the acquisition of Neul — the UK-based Industrial Internet startup that was one of the key supporters of the Weightless standard for low-power M2M communications.
In Europe, the German government is sponsoring Industrie 4.0, a multi-year strategic initiative that brings together leaders from the public and private sectors as well as from academia to create a comprehensive vision and action plan for applying digital technologies to the German industrial sector. China has also recently proposed its “Made in China 2025” strategy to promote domestic integration of digital technologies and industrialization. High-level dialogue is underway between the German and Chinese governments on how the two manufacturing powerhouses can work together to accelerate the realization of the Industrial Internet in their two countries.7
Another sign of strong industry momentum is the emergence of consortia to address the growing need for industry collaboration on common concerns such as security and interoperability. Among these are the Industrial Internet Consortium (IIC), the AllSeen Alliance and Open Interconnect Consortium (OIC). While AllSeen and OIC focus on device-level connectivity, the goal of the IIC is to accelerate the adoption and deployment of Industrial Internet applications through technology test-beds, use cases and requirements development. Since its establishment in March 2014, IIC has expanded its member base to include more than 100 organizations, with one-third from outside the US. The rapid growth and diversity of IIC membership shows both the value of and strong need for high-level industry collaboration in this area.
The Industrial Internet has also attracted increasing levels of venture capital, with an estimated $1.5 billion in 2014.8 Unlike in other technology sectors, venture capital funding for the Industrial Internet comes primarily from large corporate venture funds, such as GE Ventures, Siemens Venture Capital, Cisco Investments, Qualcomm Ventures and Intel Capital.
Siemens, for example, recently launched a new $100 million “Industry of the Future Fund” to fund early-stage start-ups in industrial automation and other digital technologies that can transform future manufacturing.9 Meanwhile, dedicated and hybrid funds are also emerging in this market. McRock Capital is one of the first such funds devoted to start-ups in advanced manufacturing, grid automation, smart cities and digital oil fields. And GE recently announced a partnership with big data incubator Frost Data Capital to create Frost I3, which will fund and incubate 30 Industrial Internet technology start-ups in the next three years.10
Workshop Highlights – San Jose, California, USA, 23-24 July, 2014
- The near-term opportunity lies in operational efficiency and productivity gains.
- Over the long-term, new business models around products-as-a-service, pay-per-use models and monetization of data will emerge.
- Industry verticals will blur through shared relationships with customers, partners and data.
- New data aggregation will fuel the platform economy.
- Increase in automation will take over lower-wage and lower-skilled jobs that are repetitive and unsafe for humans.
- The required education level will rise and necessary skillsets will shift. Demand for higher- skilled and higher-wage resources will increase.
- There will be a heightened need for engineers to develop robots, and for data scientists and managers to analyze data and draw insight.
- At the current stage of development, government regulations should be designed to spur innovation and be responsive to changing market conditions.