Marc Andreeson, co-founder of Netscape (the first commercial venture dedicated to selling an internet browser) and of the venture capital firm Andreesen-Horowitz, wrote an editorial in the Wall Street Journal, circa August 2011, titled “Why software is eating the world.” As context, Andreesen-Horowitz was an investor in Facebook, Slack and GoodStory Data, so the firm knows more than a little about software and disruption. Here is the article’s thesis:
"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 this software-eats-the-world model. There hasn’t been a major disruption like Blockbuster losing to Netflix, or Barnes and Noble losing to Amazon. To this point, it’s been business as usual for the automation vendors and their customers.
That will end soon.
Beginning last summer, software eating the world and disrupting established vendors is coming to industrial automation. Google, Amazon and Microsoft have each announced their intention to provide data storage and related services to oil and gas and other process industries.
One can see this in industry tradeshows as well because, for the first time, Google, Amazon and Microsoft all had a significant presence at IHS’s CERA Week event in March. And in its hiring, Amazon Web Services (AWS) presently has 50 job openings for employees with oil and gas expertise, to add to a roster of existing employees with experience at GE, AVEVA and other vendors. Microsoft and Google are similarly recruiting from across the automation ecosystem. Oil and gas is just the beginning, of course. There isn’t anything special precluding data service forays into petrochemicals, chemicals, pharmaceuticals, utilities and other process industries.
And to be clear, I’m not referring to the fantasy of cloud-based DCS implementations for real-time control, but instead about 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.
So, what will happen as software eats the industrial world?
First of all, software-first companies have no interest in the hardware businesses of the automation suppliers, including control valves, motors, turbines, sensors, distributed controls systems, etc.—or at this point, MES and other manufacturing applications. Instead, what they want now is manufacturing data and ancillary services. Therefore, vendors who hold customer data hostage and try to keep it away from other vendors will be put under pressure to change their business practices.
This is less strange than it sounds because proprietary storage systems and partner programs that lock out any potential competition are the norm in the automation industry with its vertically integrated offerings. There are exceptions—for example, OSIsoft’s partner program is the equal of anything in the software industry when it comes to an open ecosystem, but their approach is far from the norm.
What else does disruption mean? For decades, industrial automation vendors 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 its Timestream offering for time-series data storage will be one-tenth the price of existing offerings. The pricing will be visible, 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 openness and interoperability among systems. The software world thrives on “coopetition,” 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 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 coopetition relationships in the software world.
As an example of the difference between the industrial automation and software markets when it comes to coopetition, 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 user conference. After all, they compete.
But when you visit the Apple App Store, you’ll find competitors everywhere: Google Maps competes with Apple’s Map application; Microsoft Office applications compete with Apple’s application; and Spotify’s music service competes with iTunes. Not only that, you’ll see Apple developer events with Apple employees dedicated to supporting competitive efforts on the iPhone OS.
That's coopetition, 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 about moving data to the cloud for improved access and insights.
Manufacturing—per McKinsey & Co.’s 2011 report on big data—generates twice as much data as the next largest industry vertical (government), and that data represents billions of dollars in storage fees and related services. Since “data has gravity” and attracts additional services like management and analytics, any firm owning or storing data is in a position to extract additional revenues from related services.
This leveraged position has been dominated for decades by automation vendors because their components, sensors and software applications generate the data. Now we're 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 the industry for many years, with waves of customer acceptance and adoption of software-based offerings.