Jet engines have always belonged in the clouds—but in the cloud?
In fact, jet engines are just one of a slew of industrial machines that have gone, metaphorically speaking, airborne. That is, they have successfully transitioned from being sold as “things” to being sold “as-a-service,” managed and operated in the cloud. Dubbed the Industrial Internet and “Product-as-a-Service” (XaaS), it’s a trend that’s sweeping up everything from locomotives to wind turbines to MRI machines—even entire factories.
And it could have a massive impact on our lives. According to a 2015 report by Accenture, the Industrial Internet could contribute over $14 trillion of global output by 2030—with obvious appeal to manufacturers and buyers alike. Imagine MRI machines that are priced “per-MRI,” saving hospitals from forking out millions of dollars upfront. Or power plants that can predict when they will break down and call for preventive service in advance. Or locomotives that are continuously re-designed based on user feedback.
“We’re on the cusp of major change in every industry as data becomes more available, sensors become more sophisticated and computing power becomes less expensive,” says Amy Shah, senior vice president and chief marketing officer at TE Connectivity, a maker of connectivity and sensor solutions.
Who’s adopting products as a service?
The vast majority of organizations (88 percent, according to a 2015 survey by the World Economic Forum) are still struggling to understand what this Internet of Heavier Things means to them. Who should take advantage of it? How will it affect existing business models? What are the risks and rewards?
Simply put, companies wishing to transform to a services-centric business need to make technological and business model changes, says Dima Tokar, co-founder and chief technology officer at MachNation, which provides insights and application development for the Internet of Things (IoT).
On the tech side, that means finding a way to track and monitor usage of an asset, usually through embedded communications and a series of applications, as well as a way to bill usage of the asset. On the business model side, it means employing new processes and a revised organizational design, as well as aligning marketing, sales, operational and support teams behind the new business model.
“If the transformation will lead to higher revenue or lower costs, enterprises will find a way to make it happen,” Tokar says.
Sticky Services: The leasing model
The XaaS model is not exactly new. Decades ago, Rolls Royce transitioned from selling jet engines to selling power-by-the-hour. In some respects, establishing a connected service is not unlike leasing, except that it’s more focused on the service than the asset, says Ken Forster, chief operating officer of PLAT.ONE, which develops enterprise-grade software and industrial solutions.
“It truly is a win-win for both manufacturer and buyers of an asset or service,” Forster says. “The manufacturer has a more ‘sticky’ relationship with steady, long-term income from a wider set of service offerings. Buyers enjoy a lower cost of access and entry for large capital goods.”
Who should take advantage of the Industrial Internet?
Forster says that depends on the type of product and industry, as higher-value goods selling into service industries will lend themselves more readily to XaaS models. But he adds flexibility in supporting any model a customer could want will always improve one’s ability to sell.
“I expect every manufacturer of industrial equipment will need to consider to what extent they will make their goods more intelligent, more connected and thus better able to support XaaS models,” Forster says.
Opportunities and challenges
The Industrial Internet is still in its early stages, similar to where the Internet was in the late 1990s, according to the World Economic Forum report. Its most widely cited applications to date are predictive maintenance and remote asset management, which can reduce equipment failures or unexpected downtime based on operational data.
Consider, for example, that GE’s latest locomotives are equipped with more than 250 sensors that measure 150,000 data points per minute. The resulting torrent of real-time information on everything from weather and oil pressure to temperature and speed provides a running mechanical health check designed to minimize downtime and loss of revenue to customers like BNSF or Union Pacific.
Another key opportunity embraced by early adopters of the Industrial Internet is improved worker productivity and safety. For example, drones are being used to inspect oil pipelines, monitor food safety using sensors, and minimize workers’ exposure to noise, chemicals and hazardous gases—especially in traditional heavy industries like oil and gas, manufacturing and chemicals.
But opportunities like these are offset by challenges ranging from a lack of vision and leadership, a paucity of proven business models, and companies’ tendency to delay large investments due to the sheer speed of technological change, among others cited in the World Economic Forum report.
Shah, of TE Connectivity, says companies that innovate and move quickly will gain the most, while those that are comfortable in their positions as industry leaders could lose out. “They worry me,” she says. “Competition is global and sometimes unknown until you are the victim of the change.”
“The most conservative industries will be slower in adoption, especially until the risk models are developed,” says PLAT.ONE’s Forster. “But I see the move to XaaS as inevitable.”
MachNation’s Tokar agrees, but predicts a somewhat turbulent ride. “We are changing the wings on an airplane in mid-flight,” he says.