Value Chains in the Internet of Things

The Internet of Things, or Industry 4.0, as its Industry-focused cousin is called in some parts of Europe, promises great things to all mankind. What those great things are, and to what whom they will deliver salvation, is often left a bit in the unclear. It will do, they say, to our machines and devices what the Internet has done to our PCs back in the 90s – make them immensely more feature-rich and useful by connecting them to each other, allowing free flow of information, etc.

Nobody debates the usefulness of the Internet today, though it is worth remembering that it was first funded by the military for reasons not quite that noble, and got its commercial jump-start by providing a suitably anonymous playground for the sleazier ends of the online trade business (incidentally, just like Satellite TV, and VHS). It is hard to imagine that the same would hold true for connecting industrial machinery.

So, what will drive IoT or Industry 4.0?

History is not short of great ideas and technologies that never took off because there was no single person, business, or point within the value chain that could capitalize on its advantages to a sufficient degree to warrant the necessary investments; and it better be one to drive it, rather than many, as there is a danger that we end up waiting for each other to take the investment. As an example, consider the famed so-called “Walmart Mandate” of 2003 on Radio-frequency tracking of physical goods. The base technology – RFID – had been around for at least a decade and by the early 2000s promised the ability to track items, potentially on an individual identifiable basis, through a supply chain; the benefit for such a solution was, of course, immediately obvious to everyone – suppliers knew where their goods were, logistic companies could guard against theft and optimize truck routes, customers and OEMs knew what was coming when and could coordinate shop-floor logistics accordingly. The benefits were so obvious that – believe it or not – nobody did anything: the benefits were great for the industry overall, but not so great for each individual player, leading everybody to wait that somebody else takes the first, likely bitter, bite.

Then came Walmart, then as now the heavyweight in the retail industry, and thought to break the vicious circle by simply mandating that the industry get their act together, which they finally did. All Walmart suppliers were obliged first by 2006, then by 2007, and finally by 2008 to put RF-ID tags on their goods should they further want to be supplier to the retail giant. Details of the mandate and how it panned out are well documented – suffice to say here it was not easy, not all successful, and not all good. But it shows that good ideas need a kicker to make them reality, and the question remains who is the “Walmart of the manufacturing industry” that can give Industry 4.0 the needed kicker?

The first question to answer, of course, is who benefits. “Everybody” is not a good answer.

Naturally, integrating machine information to provide advanced functions, higher efficiency, and predictive powers over the machine’s future behavior will be more beneficial when these machines are larger, more important, and more expensive. Such machines will consist of many components, each component, with its data, providing a small piece of the puzzle that would enable these functions towards the top. Many of these components will themselves contain other components – a seemingly endless integration of information and data is thus needed to achieve full digitization of the machinery at the top. And therein lies the complexity: to enable the value at the machine level, many component suppliers must provide base information with receiving adequate benefits.

So, akin to the Walmart mandate, the search is on for the Gorilla in the manufacturing house to mandate the adoption of Industry 4.0. Airbus, Boeing, General Motors, Daimler, who will PLEASE step forward to get us going?

And when they do, WHAT are they going to mandate? Unlike RFID, there is no commonly agreed base technology that could be mandated, but a host of non-compatible, competing vendor products.