As the market for the Industrial Internet of Things becomes more competitive, a variety of areas are offering huge opportunities for players to stand out from the crowd.
The market for the Industrial Internet of Things (IIoT) is expected to see explosive growth over the next few years—from about $1.6 billion in 2018 to more than $12 billion by 2024. With this in mind, a variety of technology and equipment providers are setting their sights on the best way to win in this dynamic space. Effectively competing will require taking a customer-back view along with understanding the problem you’re trying to solve and knowing what consumers are looking for.
This article highlights insights on the value game and the key players in the market, the winning value propositions, and the role of partnerships with the broader ecosystem to create lasting value for your business and your customers.
The IIoT game and the players.
In the simplest of terms, the IIoT brings together embedded intelligence, ubiquitous connectivity, and deep analytical insights to create a unique and disruptive value for companies. These outcomes can be anything from cost efficiencies and reduced product waste to more sophisticated business models and new revenue streams. IIoT is not a technology; it’s a strategy that empowers new business models.
Kearney’s The State of Industry 4.0 report highlights the rise of IIoT-enabled applications and the platforms that have been bolstered by cloud computing, allowing for the collection and storage of vast amounts of big data from connected devices. This trend, complemented by edge computing, enables real-time data processing closer to the asset, enabling faster and more automated decision-making.
The IIoT ecosystem has seen rapid changes over the past few years, with new entrants and providers—from digital natives and large high-tech businesses to telcos and software companies—shifting their positions and expanding their offerings to move up and down the technology stack.
Five categories of players are positioning themselves either as full-stack providers or niche players across each segment:
Business process enablers. These firms are traditionally dominated by incumbent enterprise software providers that have transformed into cloud-based and software-as-a-service (SaaS) offerings. Many of them are now trying to move down the stack and get involved in functional analytics solutions and platforms.
Domain insight generators. This is a fragmented space with multiple new entrants differentiating by offering robust domain-specific solutions that focus on desired business outcomes and solutions.
Platform players. Typically dominated by hyper-scalers and niche platform providers with data ingestion and data lake abilities, this space requires having additional capabilities in distributed compute and storage, data orchestration, and third-party applications.
Edge aggregators. This space requires having deep expertise in devices and connectivity and a strong data and contextualization focus to enable shop-floor connectivity and automation. Most of these players are trying to move up the stack and offer analytics or functional solutions built on top of connectivity through inorganic growth or partnerships.
Ecosystem orchestrators. These firms have in-depth domain knowledge, bringing together all the other players with the right technology, partnerships, platforms, and delivery methods to ensure a smooth and value-based approach. Relayr is a perfect example of an ecosystem orchestrator, with insurance, finance, and technology solutions put together with minimal risk and an outcome-based focus.
“As we move further into the world of Industry 4.0, it is increasingly clear that undertaking a digital transformation is a necessary move in order for us to continue to serve our customers with the world-class electrical expertise that FLANDERS is known for. Relayr’s expertise and thought leadership in IIoT, combined with our application knowledge, will yield solid business outcomes for our customers.” – Shawn Collins, CRO of smart maintenance for FLANDERS
Positioning to win in the IIoT business: think as a service.
Subscription-based “as a service” commercial models are rapidly gaining prominence in this space as customer demands shift from the traditional “purchased and maintained assets under fixed-fee models” to the emerging subscription model, which shifts responsibility and ownership to companies that provide, maintain, and operate assets as a service. This model, often referred to as equipment-as-a-service (EaaS), reorients the traditional customer–provider relationship into a co-dependent partnership with customers paying for and receiving outcomes. Providers take over these outcomes with clear direction and an idea of what customers expected from them.
The benefit is not only capturing new customer segments and differentiated offerings but also enabling a recurring and predictable revenue stream with the ability to sense and respond to consumers’ changing needs. For example, in the mining industry, where the uptime of motors and generators is crucial, an original equipment manufacturer can become a one-stop shop for business and repair needs with guaranteed availability and uptime. With stagnant asset profitability and an average life span of five to 20 years for machinery, EaaS enables a recurring revenue stream with the ability to get to know customers’ needs better and pivot as needed.
However, it’s easier said than done. Adoption of subscription-as-a-service models has been limited because the implementation and management are quite complex. Kearney’s experience working with a variety of companies has revealed four foundational steps that can ensure a successful adoption:
Lock in control and confidence over outcomes. With skin in the game and customers relinquishing control to trust the provider’s capabilities and business decisions, this step requires having the ability to manage operations, make decisions, and take over outcomes with a great deal of confidence.
Align on quantifiable measurements of value. Have an internal structure and discipline with standardized processes for creating, customizing, and tracking not only the value but also the leading indicators of value to manage the expected outcome. This becomes even more complex when multiple stakeholders are responsible for defining the values and metrics. It’s also important to acknowledge that the values and outcomes might shift as the baseline or macroeconomic drivers change.
Transition the go-to-market mindset from a product-centric to a customer-centric outlook. It is crucial to understand customers’ pain points and deliver a sales pitch that aims to solve the problem rather than pushing a product or solution. Internally, it is important to align and train the go-to-market teams and define new sales incentives to push this new mindset and create the necessary behavior changes.
Aim for disciplined risk mitigation. One of the biggest challenges in implementing a successful subscription model is de-risking, or the ability to take ownership of the risks associated with potentially unfavorable outcomes. From the outset, providers need to take ownership of the risks and be clear to customers about where and how the services or assets provided could put an outcome at risk. The leading providers manage that risk internally or look for opportunities to partner for financing and underwriting the risk. Conducting financial due diligence on the balance sheets is essential, as is determining if the risk can be mitigated internally or if it should be offloaded externally.
Insurance is all about managing the potential risks and turning them into strengths. Working closely with HSB and Munich Re, relayr offers numerous warranties and insurance-backed guarantees. Options include completion warranties that ensure the delivery of interoperable IIoT solutions, retrofit warranties that guarantee the performance of older equipment, and business outcome warranties that cover operational efficiencies, maintenance cost reductions, and zero unplanned downtime.
Immediate impact and sustained value: partner to differentiate.
Kearney’s work with high-tech providers and industrial companies around the world reveals that the top differentiators for firms that capture a significant share of the IIoT market are domain expertise, process know-how, and the depth and breadth of the offering. With the growing acceptance of subscription or as-a-service models, we expect to see the market consolidate in the mid to long term. More firms are partnering with other stack players to get to market faster, differentiate their offering, and share more of the risks.
Many companies wrestle with effectively managing partnerships with multiple technology providers, including niche start-ups, hyperscale cloud providers, and software companies. The biggest challenge is converting these partnerships from transactional relationships to a co-dependency and demand generation model.
In a world of more complex digital solutions, a strong partner ecosystem is vital to winning in the market. A partnership ecosystem with a set of connected services or offerings allows customers to fulfill end-to-end needs through a single channel. Partnerships with multiple players, such as equipment manufacturers, niche start-ups, and hyper-scale cloud providers, also help diversify product portfolios and expand or strengthen the offerings to move up and down the stack. They help the go-to-market solution reach a wider audience with existing offerings or new co-created solutions and drive innovation at different stages of the value chain.
So how do you maximize the value of partnerships? The trick is to define the objectives and then determine how partnerships can best meet these objectives. A general three-step approach is to define the ideal partner ecosystem (who to partner with and why), determine an operating model for partner management (who to manage and how), and then translate that into objectives and key results.
Every partnership has a purpose; select an archetype based on the partnership’s objectives
There are three major archetypes (see figure). The first is alliance and certification. This is where service providers seek verifications to reflect qualifications or competencies across relevant technologies or solutions. This partnership alone is not enough to differentiate in the market, and many providers and customers consider this the minimum offering.
The second archetype is a collaborative partnership, or reselling. In these partnerships, providers resupply a partner’s services or products without making major modifications. These types of partnerships are best for gaining channels for volume growth. Success in this type of collaboration requires putting the correct incentive structure in place.
The third archetype, and at the extreme end of the spectrum, is true co-dependency—co-selling and co-creation. Providers and their partners work together to innovate and develop new offerings and take these to market together. This allows them to generate aggressive demand by taking advantage of joint go-to-market and innovation efforts in building specific business solutions. Senior stakeholder buy-in is crucial.
Transitioning to a co-dependency partnership model requires clarity on “what’s in it for you”
To move toward more transformative partnership models, providers need to develop and articulate a partner thesis. This needs to highlight “what’s in it for you” rather than “what’s in it for me”—focusing on the benefits for those involved to create a persuasive case for partnership.
Ideally, providers tell their partners why this will be a mutually beneficial relationship with aligned priorities, goals, and a clear definition of success for both parties. It’s also necessary to define the offering’s complementarity: how well and to what extent the products and services complement those of their partners, such as geographic coverage, target industries, or key accounts.
Lastly, having the right incentives and aligned goals is essential. The potential for initiatives to not align with the desired goals makes it even more important to set those at the beginning of any partnership so that everyone knows what they are working toward. The simplest approach is to determine at a high level why potential partners would want to be part of this relationship.
No partnership can succeed without executive sponsorship from all sides
Senior executives must understand that their businesses cannot succeed in the new digital world without partnership ecosystems. This means being fully engaged and invested in activities such as co-delivering solutions or co-authoring publications.
Three elements are vital to the partnership’s success:
- Sponsors are actively engaged in the collaboration from beginning to end. Without this level of involvement, teams may wander off course during complex programs, producing initiatives that don’t align with the desired goals.
- Sponsors lead decisions through conflict. The inevitable push-and-pull dynamic between partners often means that sponsors have to step in and make difficult decisions.
- Sponsors take advantage of external perspectives and outside experiences. By vocally championing their partnership to the outside world across multiple platforms and publications, sponsors communicate its significance and spotlight the successes. This crystalizes the partnership and inspires confidence within internal teams and potential customers that it is a value-driven, transformative relationship.
Thinking ahead: your next steps.
As the competitive landscape changes and more players enter the IIoT game, the business and the associated delivery models will evolve. Whether it’s more resiliency through strengthened partnerships and predictable revenue streams, a greater emphasis on sustainability, or formalized strategies around the voice of the customer and vertical supply chain integration initiatives, an array of areas offer tremendous opportunities for firms to create differentiated value.
Alanna Klassen Jamjoum
Specialist Vice President, New York
Partner, San Francisco
Senior Vice President, General Manager AMER
Vice President of AMER Sales