Industrial alliances and the Internet of Things
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Some months ago in this column, I had argued that the Internet of Things, or IoT, presents a large opportunity for software services firms. IoT focuses on linking industrially produced, and in some cases, precision-engineered products like jet engines to the Internet, and then using the massive computing capability already present in these devices for them to talk to one another. This holds out the promise of increasing their performance, both as a single unit and in concert with other like devices. Each of these precision-engineered products already has a computing ‘brain’ so that it can function effectively on its own—like a jet engine would do in an aircraft. The trick lies in getting these ‘things’ to collaborate.
General Electric Co. (GE), a giant conglomerate that has a large proportion of its revenues linked to precision-engineered products such as locomotives and jet engines, has attempted to steal a march on others with an IoT platform (or “operating system”) named “Predix” which it is promoting heavily. Chief among this giant’s targets for Predix are alliances with large business houses which depend on machines produced by GE or others, since its success is predicated on as large a number of devices as it can actually first get on to the platform to later collaborate among themselves. A successful proliferation of Predix will increase its ‘stickiness’ much like Google’s Android or Apple’s iOS operating systems for smartphones lock in users.
Unlike smartphones, this proliferation does not depend on end-consumer uptake. Instead, it depends heavily on alliances that GE is able to forge with customers of its industrial products—which usually happen to be large business houses in their own right—and on GE getting software integrators such as IBM, Accenture, Wipro, Infosys and others to champion the Predix platform by setting up ‘alliances’ in order to integrate Predix at the large business houses that they now provide other information technology services to.
The commercial angle behind this is the same as that used by Cisco, which makes Internet routers and other hardware. In the early days of the Internet, Cisco needed to co-opt services firms such as IBM and KPMG in the US in order to increase the penetration of its routing devices into the telecommunications giants such as AT&T and NYNEX, which in those days were heavily invested into older technologies that ran telephone switches.
Similar commercial plays were used by SAP and Oracle, providers of behemoth enterprise resource planning or ERP systems, who signed up systems integrators worldwide in order to increase the uptake of ERP platforms across the world. In a symbiotic partnership, firms such as HCL Technologies Ltd, Satyam Computer Services Ltd (now Tech Mahindra Ltd), Tata Consultancy Services Ltd, Wipro Ltd and Infosys Ltd piggybacked on SAP and Oracle’s unwieldy platforms to build huge systems integration practices that contributed to their growth and success during the first decade of this century.
Interestingly enough, this success was not because the Indian service providers could integrate these systems any better than their Western competition. It was simply because in the early years at least, they could do so more inexpensively—since most of their programmers were India-based and were paid less than their US or Europe-based counterparts. Even so, in the initial years, the consulting and design of how these ERP systems would actually be integrated at clients stayed in large part with the Western service providers, since they were closer to the end customer and had a stronger understanding of the actual business processes in each industry that the new ERP platforms were being retrofitted into.
Reliance Industries Ltd has recently announced that it has forged a partnership with GE to use Predix. Reliance is attempting to see over the rise, and aims to take a parallel road after scaling it. It feels that after it has successfully integrated Predix into its own multibillion-dollar businesses, it can then take this self-transforming experience to other industrial houses and provide systems integration services to them on the Predix platform. For Reliance, this will in effect be killing two birds with one stone: getting its own industrial house transformed while simultaneously allowing it to enter the multibillion-dollar IT services industry, which unlike other Indian firms, it has as yet been unsuccessful in doing.
The issue with platform providers, however, is that they seldom make for chaste bedfellows. Just like Cisco, SAP and Oracle (and for that matter, Android) tied up with several firms in order to increase their market penetration, Predix is bound to want several systems integration partners. It has widely publicized alliances with EY, NEC and others, and its website claims that it already has over 200 partners.
So, Reliance’s game in the IT services space will be no different than the other partners who are all going to try to grab as much wallet share as they can—with one important exception: since Reliance is a large industrial conglomerate itself, it can claim to have had the experience of first integrating Predix within its own operations before it takes this knowledge and capability to other clients. This might just allow them to avoid the dichotomy between ERP “consulting” and ERP “implementation” that beset the early years of the adoption of ERP systems across the globe. Maybe this time around, the Indians will get to lead the charge rather than follow in someone else’s wake.
This requirement for ‘disrupting’ oneself first before attempting to help others in the digital space will be a resounding refrain—you need to be a convert before you can proselytise.
Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.