November, 2020, By Alan Griffiths and Joe Brooker of Cambashi in conjunction with Andrew Kukhnin and Iris Zheng of Credit Suisse
Cambashi has conducted a series of years-long set of interviews with leaders in the industrial IoT and Digital Transformation leading to a report to provide statistics and trends in the Industrial Internet of Things and Digital Transformation.
We have uncovered nine Market Areas within the Connected Applications in the IIoT: Building, City, Infrastructure, Product, Production, Supply Chain, Transportation and Worker. Although the internet is often involved in connecting these applications, that is not always true – as in the case of production control systems within a factory
We are now combining our insights with those of Credit Suisse, who address the market from an investor perspective, and publishing aspects of this ongoing research. In this paper we focus on four trends observed in the initial report:
- Manufacturing companies will look to their enterprise providers for solutions
- Industrials will move into the software business using IoT technology
- IoT will be used as a catalyst for ‘digital tranformation’
- There will be consolidation amongst the IoT providers
MAIN TRENDS AND NEW OBSERVATIONS
From the point-of-view of a business system provider, the IoT is just another data source. The data needs to be collected, collated, analyzed, and presented in the right context to people in the business. Canny providers were using the sizzle of IoT to sell their existing products, while building solid, out-of-the-box ‘connected’ solutions for use cases that their customers could easily deploy. Providing these solutions as part of existing enterprise systems helped overcome two of the main inhibitors to industrial IoT success; ‘lack of expertise’ and ‘complexity.’ Also, these out-of-the-box solutions usually incorporate security throughout, thus countering another big objection; ‘concerns about security.’
As IoT becomes pervasive, people in industry expect their business systems to ‘just work.’ That is, their existing enterprise systems should be ‘IoT enabled’ just as they now expect them to be ‘internet-enabled’ and ‘data-enabled.’ People will expect to access IoT solutions that deliver business value from within their existing, trusted enterprise systems. There will still be a market for ‘IoT platforms and components’ but most users will consume them in a packaged form.
In 2020 we can validate this trend with data collected over the intervening years and make forecasts based on other econometric sources and proven methods. Cambashi’s research shows that – unlike other, more mature markets such as CAD/CAM, PLM, MOM and BIM – this market is not dominated by a small number of providers. Instead we found that approximately 20 large, global ‘enterprise’ software providers take the majority of the revenue. These providers come from the ‘IT’ (Information Technology) stable – Microsoft, IBM, Oracle etc. and from ‘OT’ (Operational Technology) – Honeywell, Siemens, Bosch etc. The third group we tracked consists of smaller, IIoT technology providers or larger companies that are making initial investments in this area. Telecom companies provide IoT infrastructure and, increasingly, their own connected applications. The remaining revenue is in the ‘others’ category, comprising a long tail of providers from industries, including semiconductors and sensor manufacturers, with smaller revenues.
IoT technology providers are growing quickly but their market size is much smaller than OT or IT. Other data – see the infographic attached – shows that in 2020 the IT ($4.4billion) and OT providers ($6.2billion) overwhelm the pure IIoT technology providers ($471million) in terms of overall revenues.
CAMBASHI AND CREDIT SUISSE INSIGHTS
As in our earliest research a few years ago, it is still true to say that manufacturing companies expect their enterprise systems to be ‘IoT enabled’ and to access IoT technology from within their existing systems. This can partly be explained by the fact that the same piece of software can be licensed many times, whereas hardware can only be sold once (and it gets out of date if kept in stock). However, as OT companies – such as Siemens, GE Digital and Rockwell – move into software, the distinction between IT and OT providers is blurring. And because the quickest way for a large, well-funded company to enter a new market is by acquisition, we are seeing more takeovers of IT providers by OT companies such as AVEVA’s $5 billion takeover of OSIsoft, Emerson acquiring OSI Inc. for $1.6 billion and Nvidia bidding $40 billion for ARM.
The view from Credit Suisse Industrials Equity Research team is that:
“The trend of “Industrial Hardware Buys Software” has become well established in recent years with numerous acquisitions by traditional Industrial Automation vendors globally and especially in Europe into the CAx/PLM space. We expect this trend to continue and view its extension into Industrial IoT as natural. Furthermore, it may well become even more pressing as the IIoT technology layer interacts directly with manufacturing operations and processes and, in our view, has a potential to disrupt the traditionally close relationships between manufacturers and automation vendors. We also believe the IIoT market growth attractions have increased in the ‘World with COVID’ with a clear step up in demand in remote monitoring and remote operations, driving further IT-OT confluence. Finally, it is interesting to note that currently industrial automation vendors appear to have a ‘carte blanche’ from investors for acquisitions into software with deal announcements consistently generating positive share price reactions, almost regardless of valuation.”
Certain large ‘Telecom’ companies such as AT&T, Deutsche Telekom and NTT, are also becoming major ‘connected’ software players. This will have a major impact on the market – particularly at the infrastructure level but they will increasingly provide commercial applications such as AT&T’s vehicle communications solutions and NTT’s eBike rentals.
Overall, the industrial IoT (Connected Applications) market is continuing its rapid growth and beginning to mature as the applications become more powerful – including AI (Artificial Intelligence), ML (Machine Learning) and Analytic capabilities – robust and easier to deploy. Major players from IT and OT backgrounds will increasingly dominate the market either by growth or acquisition, although companies from different areas such as telecoms and semiconductors are also moving in.
We will continue to track all these players as well as software companies in the BIM, PLM and MOM space where similar trends can be observed. More information can be found here.
The graph above shows the size and growth of the PLM and CAx software markets. This shows the resilience – there is recovery in growth by 2022 – although detailed analysis indicates differences between sectors, for example, Aerospace & Defense and Automotive.