November 18, 2015

Investment Insight: the heart of the machine

The growth of the industrial internet phenomenon and its impact on our automated life. We look at how this trend is evolving the structure of companies that manufacture hardware and software technology.

As the runway approaches and your aircraft descends, you tighten your seatbelt. Engines whistle as they slow, landing gear clunks as wheels extend, wing panels buffet against the rush of wind while at the same time data flows directly from the aircraft, reaching land well before you do.

On the ground, teams of aviation technicians study gather to study the instant flow of data from your aircraft, tracked through various sensors attached to each industrial component of the machine, fed in real time via the internet and transposed via analytics software, so they can assess how well the machine is performing.

The process is called the industrial internet – and it has big implications for how we assess the heart of our machines and evolve industry today and in the future.

It’s a term coined by consulting firm Frost & Sullivan and draws together a range of fields, such as big data analytics and machine-learning techniques, to interpret and analyse data from sensors attached to different machines, as well as the use of such data to adjust the machine’s operations, improve its productivity and reduce its downtime.

Sensors embedded in a single jet engine generate around 500 gigabytes of data for each flight, by continuously monitoring temperature, pressure, fuel consumption and other variables. The engines communicate with technicians on the ground so that by the time the plane lands, ground crew already know if something needs to be serviced. Given that approximately 10% of all flight cancellations and delays are caused by unscheduled maintenance, costing the global airline industry US$8 billion annually, even a small improvement in jet engine reliability and performance can lead to big savings for airlines.

Wind farms provide another example of the industrial internet at work. Electricity generator E.ON uses advanced analytics to connect sensors on its turbines through software which enables remote management and real-time diagnostics. Working collectively to generate energy, the wind turbines can communicate with each other, adjust the angle of their blades depending on wind and weather conditions and if a single turbine’s wind sensor fails, for example, it can receive wind data from other turbines nearby. Following the introduction of the industrial internet analytics package, E.ON experienced a significant increase in power output of 4% across 60% of its turbines.

Falling prices of technology inputs such as advanced sensors and silicon chips, wireless communication equipment and falling costs of cloud data storage has enabled the industrial internet to recently flourish. Industrial manufacturing giant, General Electric (GE), predicts exponential growth in the industrial internet in the next 5 years, including an increase in the number of actual devices connected to the internet from around 12 billion devices at present to 50 billion devices by 2020. These devices will generate rivers of data that then need to be analysed, interpreted and acted upon, bringing growth right through the process, from machine sensors, through software analytics, to people who can respond to the data with appropriate action plans.

GE has its own software platform for managing industrial internet data, called Predix, a cloud-based open-source software connecting machines, data and people that enables industrial scale analytics for asset performance management and operations optimization. Predix currently generates around US$1 billion in revenue and, like Apple’s operating system iOS, it will soon be open to outside developers to create their own industrial software apps that run on the Predix platform.

The growth and adoption of the industrial internet means that traditional industrial equipment and automation companies like GE, Siemens, Honeywell and Rockwell will evolve to become more like technology companies – not only manufacturing industrial equipment such as turbines, MRI scanners and jet engines, but also plugging into software and services to analyse data generated from that equipment. These companies also stand to benefit from the network effects that lock customers into a platform-dependent product, and evolutionary benefits as the number of users grows and learning are shared, in much the same way that companies like Apple, Facebook and Google enfold consumers into their ecosystems.

The landing gear is down, the runway is fast approaching and it’s not just wind rushing over those wings out into the ether – its real data, and it may well make your next flight even better.



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