At one point Steve Jobs offered to buy Dropbox, explaining to the founders that their cloud-based file system was really a feature, not a product. In my view Jobs was right with respect to Apple’s definition of a product. But what he failed to understand was that the Internet had fractured the meaning of the word product. Dropbox and many other companies have proved it is possible to build a great business around a simple service. Dropbox may or may not be a product the way Jobs used the word, but it certainly is a business.
This week, I attended the PTC Global Live conference. I learned that the transformation of the word “product” continues to accelerate as the already fast-paced evolution of product development technology has been put on steroids by the Internet of Things (IoT). The result is that almost every manufacturer has had to rethink what they are making and selling. Now product can mean a device, a service such as Dropbox powered by software or other technology, a service provided by people, a flow of data, a software application for monitoring, automation, or analysis, or in many cases all of the above.
In the industrial sphere, companies that make devices have for decades made large amounts of revenue selling parts and servicing equipment after the sale. Selling parts and offering Break/Fix services are the most basic types of services offered by manufacturers. But now a much larger group of companies is finding that when they connect their devices to the Internet, they have a flow of data about how the product is working and who is using it. As Jim Heppelmann, CEO of PTC puts it, “Vendors no longer have to act as if the products are on the dark side of the moon after they are in use.” The products send lots of data back home to the manufacturer, and this data can be used to create new types of applications that help operate and maintain the devices, but also create value in new and unexpected ways.
All Traffic Solutions, for example, converted its traffic signs into smart connected products that gather data and allow creation of numerous types of apps that were never before possible. See “All Traffic’s Journey to a Connected Device Ecosystem” for details on how All Traffic has extended these applications into an ecosystem that supports data from devices from other manufacturers.
Ingersoll Rand’s Trane division, which specializes in HVAC products, has surrounded its systems for air cooling with services that monitor the equipment and optimize its performance. See “IoT Impacts Trane’s Product Development Strategy” for the details.
The Service Imperative
Some research performed by Oxford Economics and PTC left little doubt that the rising awareness of the business value of the IoT is driven by a deep thirst on the part of manufacturers to make services a much larger part of their product offering.
The research defined five stages of increasing service models that Oxford Economics called the service continuum:
1. Product Model: Selling the product is the focus. (Lagging.)
2. Service Parts: Parts are sold but maintenance is done by the customer. (Formative.)
3. Field/Service: The manufacturer takes responsibility for break/fix and maintenance when service is required. (Moderate.)
4. Service Contracts: The manufacturer maintains products to meet a specific SLA. (Advanced.)
5. Outcomes-Based Services Model: The manufacturer provides the outcome such as air at 72 degrees or working jet engines. (Best in Class.)
The research showed that right now based on a five level framework for maturity along the continuum, 70% of the 300 respondents were considered lagging, formative, or moderate in their maturity, and 30% were progressive or best in class. But when asked how fast they wanted to accelerate service strategies, 91 percent said they wanted to be best in class within three years.
Because such a transition requires a transformation not only of tools and methods, but also of processes and culture, it is unlikely that most companies will achieve that goal, at least on such an aggressive timeline. But it is clear that manufacturers are eager to transform the shape of their products to make services a much larger part of what they offer.
At a session on the details of the how Trane has expanded into services, Joe Bergman, Vice President and General Manager, North America Compressed Air Systems and Services, said that one of the major challenges is that companies are often set up to own products, not to consume services, and it takes a while for this new mindset to take hold. The same is true for manufacturers, which must increase intimacy with how customers use products and the large processes those products support in order to successful offer services.
Creating a Full Stack for Designing, Operating and Servicing Smart, Connected Products
Heppelmann has made it PTC’s mission to support the transformation of manufacturing in this new IoT-era. At the end of 2013, PTC purchased ThingWorx, a technology platform used to quickly create IoT applications. That acquisition completes the stack of capabilities available to manufacturers to design, implement, and support smart, connected products. But at the conference, Heppelmann explained how ThingWorx’s ability to create IoT applications also turns the way that product development technology can be adopted on its head.
Up until now, Heppelmann pointed out that adoption of product development technology has been an engineering driven process that gradually moves along the sequence defined by the following set of capabilities:
<) Computer-Aided Design (CAD) systems are used to create detailed models of products that accelerate design and manufacturing.
<) Product Lifecycle Management (PLM) helps design, manage, and automate the entire lifecycle of a product from inception, through engineering design and manufacture, to service and disposal of manufactured products.
<) Application Lifecycle Management (ALM) helps manage the design, construction, and maintenance of software embedded in products or applications that are delivered along with them.
<) Service Lifecycle Management (SLM) helps design, manage, and automate the service lifecycle after a product is in the field.
<) Connectivity/IoT. Enables connectivity between devices in the field, model their capabilities, operations and interconnections, manage and analyze the flow of data, andreport back to the company.
Given that ThingWorx’s IoT application capabilities are the most recent addition to the PTC technology stack, Heppelmann’s hope that companies move from SLM to IoT applications is aspirational, and the evidence in the Oxford Economics study suggests there is substantial momentum in this direction.
After describing this pattern of technology adoption, Heppelmann explained the ability to create IoT applications also offers a new on ramp to product development technology. Rather than being the end goal of a product development strategy, it can be the start. Instead of engineers starting with the most internally focused design and modeling processes of CAD, now businesspeople can start with customer focused applications that take advantage of the IoT . This can then lead to the definition of supporting services using SLM, and the needed software in ALM, and then onto the creation or enhancement of products using PLM and CAD. Heppelmann admits that most companies making products have some CAD and PLM capabilities, which means the progression breaks down a bit at that point. But the news in Heppelmann’s analysis is the way that the IoT makes the entire product development technology stack something that is more relevant to business leaders than ever before.
Heppelmann drove home the strategic potential of the IoT combined with product development technology in a session with Michael Porter, the business strategy guru from Harvard Business School. Ray Kurzweil, technology visionary and director of engineering at Google, also weighed in on the implications of acceleration of change on business strategy.
In essence, the entire conference was an effort to connect the evolving strategic needs of manufacturers to the product development technology stack. While PTC’s portfolio of products can be used and thought of as a stack, Heppelmann strongly rejects the idea of an obligatory stack that only works if all components are deployed. Each of PTC’s products can work as a standalone system with integrations to the other PTC systems and to applications and systems of record from other vendors if desired. The advances in the Creo 3.0 product, PTC’s CAD product, were focused on allowing models to be copied from other CAD products or to be used in place, allowing the master version of the object to still be managed and updated in the other product. Heppelmann is allowing ThingWorx to operate as a standalone subsidiary so it can pursue customers wherever they are and not be too tightly bound to PTC’s existing market.
Just like Steve Jobs did, many executives are going to face situations where an unexpected collection of functionality makes something new possible. The question really is not whether that collection is a product or a feature, but whether it is a business. Russ Fadel, President of ThingWorx suggested taking a bottom up approach to figuring out what the IoT and a more proactive, integrated service strategy mean to a manufacturer. “This space is too new and complex to figure out in a top-down way,” said Fadel. “We’ve designed ThingWorx to lower the cost of building applications so companies can do experiments, succeed or fail fast, and get evidence about what their smart, connected products can do and what customers want. If you want to make money from the IoT, get your hands dirty right away.”
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Dan Woods is CTO and editor of CITO Research, a publication where early adopters find technology that matters. For more stories like this one visit www.CITOResearch.com. Dan has performed IoT-related research for PTC, ThingWorx, Intel, SAP, Cisco, Attunity, Neo Technologies and other vendors.