The industrial world has witnessed three paradigm transformations: mechanization of manufacturing in the 18th century; mass production and assembly lines due to electricity in the 19th century; automation systems due to advances in electronics and computing in the 20th century. Today, we are at the cusp of the 4th paradigm shift. This shift, referred to as Industry 4.0, is the new panorama. Broadly it concerns the convergence between the physical world and the digital world. Fueling this convergence is the hunger for disruption in business models and revenue channels based on new digital technologies. These digital technologies invariably include software, data, algorithms and sensors. They are expected to steam-roll existing practices in the industrial world and re-define the value proposition of existing goods and services. This paradigm shift was prophesized by many. Marc Andreessen, former co-founder of Netscape and co-founder of Silicon Valley venture capital firm Andreessen Horowitz famously said that “Software is eating the world”. He clarified with the following remark.
“Today, the world’s largest bookseller, Amazon, is a software company — its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary. On top of that, while Borders was thrashing in the throes of impending bankruptcy, Amazon rearranged its web site to promote its Kindle digital books over physical books for the first time. Now even the books themselves are software.”
For the software industry and other related industries, these observations and prognosis were obvious. However, for the traditional heavy industries like chemical, manufacturing, and many others, the implications of the remark were far from obvious. One of the early symptoms of the software bug biting the heavy industry was demonstrated by General Electric (GE). GE introduced the concept of industrial internet and openly declared that GE will be amongst the top ten software companies by 2020. This was particularly loud under the leadership of Jeff Immelt who re-branded GE as a 124-year-old software startup poised to disrupt the industry. Jeff has openly spoken on the influence of Marc Andreesen.
“The two things that influenced me the most were Marc Andreessen’s 2011 Wall Street Journal article, ‘Why Software Is Eating the World,’ and ‘The Lean Startup’ — Eric Ries’s book, which I literally read in a day”. He continued, “”In 2011 we decided to hire Bill Ruh from Cisco to lead our industrial internet effort; to establish a major software center in San Ramon, California, that would support the transformation; and to insist from day one that we would infuse the effort with outside talent — our original goal was to hire a thousand software engineers”.
The company spent billions on developing software solutions and platforms including Predix, its industrial cloud and applications platform. Like GE, and even inspired by GE in many cases, several industrial manufacturing companies embraced software in the 2010s. Software in the heavy industrial world include automation and control software, data management software, enterprise resource planning, data analysis software, cloud and edge platforms and much more. Machine manufacturing companies like GE, Siemens, Rolls Royce, ABB among many others are investing heavily on cloud and edge platforms for Industrial Internet of Things (IIoT). Asset heavy companies like Shell and others are buying more software solutions focused on IIoT data collection, storage and computing for optimizing their costs, production and processes. In some cases, the asset-heavy companies are also investing heavily into building and managing software solutions in-house. Interestingly, there is already a clear verdict that their investments into software are paying off.
Traditional software companies like Google, Microsoft and Amazon are relentlessly pursuing the trillion-dollar opportunity in this heavy industrial space. Per se, they do not show signs of indulging in the hardware businesses of the automation and machine suppliers. However, they are disrupting the space with massively efficient and cheaper storage and control of manufacturing and process data, enterprise resource planning solutions and other software solutions. For instance, Microsoft, Google and Amazon are now offering IIoT data creation, collection, storage and computing solutions at a fraction of the existing price. Note that until recently, traditional industrial automation companies like GE, Honeywell, Aspentech have evaded price competition in this space.
The incursion of the software giants is also disrupting openness and interoperability in the industrial world. In the consumer world, we have openly embraced competition between the different applications and platforms. Be it iOS vs Android, MS Office vs Google docs, AWS vs Azure, Uber vs Lyft, Netflix vs HBO, Apple music vs Spotify, switching between different applications and platforms is easy and cheap. In the industrial world, this has never been the case. Closed, traditional offerings from the automation and industrial companies made it costly or almost impossible to switch vendors. This was also partly because the data would be generated from their proprietary components, sensors and software applications. But this established order is being uprooted. The software companies are re-formulating rules for cost and interoperability in the market for all types of software solutions including cloud and edge solutions, planning software and much more.
In summary, the war-cry from the conch shell is loud and clear. Software and software companies will “eat” the heavy industries by uprooting and disrupting the established order. It is anticipated that in the decade of 2020s, the top 10 market capitalization companies in the industrial world will have software at the core supporting their value proposition and revenues. In a companion article, we will review how software, data and algorithms are eating the industrial world. Stay tuned.