TechnologyNovember 12, 2019

Looking at the world of cloud vendors: industrial edition

Is software-led disruption is setting new expectations to the market for cloud storage & analytics.?

Automation vendors in the data storage business have enjoyed an advantage for years because their components, sensors and software applications generated the data. Now, software-led disruption is bringing a new set of expectations for cost and interoperability to the market for cloud storage and analytics.

Marc Andreeson, co-founder of Netscape and the venture capital firm Andreesen-Horowitz, wrote an editorial in the Wall Street Journal in Aug 2011 titled “Why software is eating the world.” Andreesen-Horowitz was an investor in Facebook, Slack and GoodStory Data, so the firm knows about software and disruption. Here is the thesis of the article:

“More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.”

However, in the intervening seven years the industrial world—contrary to Andreesen’s expectation—has largely missed out on the software-eats-the-world model. There hasn’t been a major disruption in the industrial software market like Blockbuster losing to Netflix, or Barnes and Noble losing to Amazon.

Not yet, anyway, but that will end, soon.

Beginning last summer, software disrupting established vendors is coming to the industrial market. Google, Amazon and Microsoft have each announced their intention to provide data storage and related services to the oil & gas and other process industries.

To be clear, I’m not referring to cloud-based DCS implementations for real-time control or futuristic visions. I am referring to cloud-based data storage, analytics and management services for manufacturing data. Cloud vendors claim aggregating data will make it more accessible to enable digital transformation and cross-plant analytics, unlocking improved outcomes in insights and production. And manufacturing data is an important business for them. Manufacturing—per McKinsey & Company’s 2011 report on big data—generates twice as much data as the next largest industry vertical (government).

One can see the focus of the large software vendors on industrial data at industry trade shows. For the first time in 2019 Google, Amazon and Microsoft all had a significant presence at IHS’s CERA Week event, and they are hiring employees with oil & gas expertise to add their roster of existing employees with experience at GE, AVEVA and other vendors.

So what will happen as software eats the industrial world? What the software platform companies want is to provide cloud-based storage for manufacturing data. It’s a big business, because “data has gravity.” Whoever stores data is able to provide ancillary services such as data management, security and business intelligence services. Therefore, automation vendors who hold customer data hostage and try to keep it from other vendors and analytics solutions will be put under pressure to change their business practices.

This is less strange than it sounds because proprietary hardware and software, and partner programs that lock out any potential competition, are the norm in the automation industry with its vertically- integrated offerings. There is a reason that ExxonMobil invested in Lockheed to drive an open control system initiatives: systems aren’t open today!

What else does disruption mean? For decades, industrial automation vendors have dodged the massive price decreases associated with data creation, collection, storage and computing achieved in consumer and IT markets. Now, price competition is coming to industrial markets, just ask Amazon CEO Jeff Bezos, who notably quipped “your margin is my opportunity”. As an example, Amazon has claimed their announced, but not delivered, Timestream time series data services offering will be one-tenth the price of existing offerings. And pricing will be visible to all customers like all AWS service pricing, bringing transparency as well as price competition to the industrial automation market.

Finally, disruption will impact the model for automation vendors with respect to expectations for interoperability and openness among systems. The software world thrives on “co-opetition,” which is a polite way to say, “I hate you but we’re going to work together.” Consider that AWS claims to run many more Microsoft Windows Servers on AWS virtual machines than Microsoft does on Azure. So, despite the fact Amazon AWS competes with Azure, AWS supports Microsoft customers. Similarly, Microsoft competes with Oracle in the database business, but cooperates with them in competing against AWS. Politics makes strange bedfellows, but it’s nothing compared to the oddities of co-opetition relationships in the software world.

As an example of the difference between the industrial automation and software markets when it comes to co-opetition, consider single-vendor user conferences. The last thing you’d expect to see at a Rockwell event is an AVEVA product booth, or a Rockwell booth at an AVEVA conference. After all, they compete.

But when you visit the Apple App Store, you’ll find Apple competitors everywhere. Google’s Maps competes with Apple’s Map application, Microsoft’s Office applications compete with Apple’s application and Spotify’s music service competes with iTunes.

That is co-opetition, with software companies deciding it’s better to hold some of the business than lose all of it when a customer goes elsewhere for a better user experience. And again, this isn’t a hardware or manufacturing application issue at this point, it’s a software company proposal to move data to the cloud for improved access and insights.

Automation vendors have enjoyed an advantage for years in the data storage business because their components, sensors and software applications generated the data. Today we are in the early stages of software-led disruption to the established order, with software companies bringing a new set of expectations for cost and interoperability to the market for cloud storage and analytics. The disruption begins now, but it will trickle through industry for many years, with waves of customer acceptance and adoption of software-based offerings.

Michael Risse, CMO and Vice President, Seeq Corporation