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An Equitable Business Model for the IIoT: Who Pays for What?

Varun Nagaraj,President and CEO
Sierra Monitor

To describe the evolution of control networking in industrial environments, many of us in the controls industry have been using the phrase, Industrial Internet of Things.The IIoT is a truly compelling vision of how the industrial world will look in the interconnected future. Some companies with foresight, like GE, are starting to implement this vision in a few target industries like aircraft engine maintenance. However, in my conversations with OEMs and facilities managers, I keep hearing the same question: So what does the IIoT mean for me and what should I do differently?

Not long ago, Professor Michael Porter and PTC CEO Jim Heppelmann attempted to answer the question by introducing a framework around Smart Connected Products in the Harvard Business Review. Theynoted that each industrial device now has an unprecedented amount of sensing, processing and communications capability built into the product itself. As a result, these products can produce a lot of useful data, which can be fed in near real time for analysis, which in turn opens up many strategic possibilities for players in the value chain.

Heppelmann further outlined how product manufacturers (OEMs) and users (the OEMs customers) could develop their IIoT strategy in an interview with McKinsey Quarterly recently. He recommended asking ourselves the following questions:

▪ How can I (the OEM, the user, or an intermediary) operate the products better?
▪ How can I (the OEM, the user, or an intermediary) service the products better?
▪ How can I (the OEM) make the product better?

IndusAssessing how the (smart, connected) product can be made, sold, operated, or serviced differently is critical and necessary for articulating a response to the IIoT, and in fact, as I workshop with my customers, these are exactly the questions I would use to frame the workshop. But the real issue on the table that OEMs, end users, intermediaries, and technology suppliers need to address is the lack of clarity around business models. Yes, there are legitimate technology questions around security or reliability of communications, or local versus remote decision-making. But in my opinion, it is the lack of business model definition that is the primary inhibitor to the adoption of IIoT. Open questions linger, such as:

  • How do you put a value on the fact that the product can be operated better or serviced better?
  • What is the value of insight into product usage that helps an OEM design a better product?
  • Who incurs the cost and who gains the benefit?
  • What is every extra byte of information worth (because the cost of transmitting and storing data in the cloud is not free)?
  • How should the cost of the incremental technology be recovered?
  • What percentage of the value captured by the end user should be shared with the OEM, by an intermediary, or by the OEMs technology supplier that makes the smart connected model possible?

Bluntly put: Who pays for what?

Consider an example highlighted by Accenture in a recent report on the IIoT. By adding sensors to their tires, Michelin now can sell tires-as-a-service by charging customers for actual kilometers driven. Also, Michelin has created a fuel consumption reduction service for its customers. Data on fuel consumption, tire pressure, temperature, speed and location is brought from each vehicle to the cloud, where fuel efficiency experts analyze the data and make recommendations to the fleet manager on how to use less diesel for driving. Also, the data is available to Michelin product engineers so that they can continuously improve tire performance and reduce tire cost.

At Sierra Monitor, we constantly explore use cases and equitable business models with our OEM customers, our facility-manager end customers, and our peers at industry forums. There is still much to learn collaboratively.

What are your ideas to speed up our industrys collective adoption of the IIoT vision?

As CEO of Sierra Monitor, Milpitas, Calif., Varun Nagaraj often speaks with OEMs who purchase protocol gateways; and with facility and safety managers who purchase fire- and gas-detection systems. Contact him at VNagaraj@sierramonitor.com .

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