IoT Customer Spotlight: Colfax survived the stormy seas of IoT after righting its ship, and its story can serve as a navigational aid for peers still caught in the squall

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Colfax is an industrial conglomerate with two operating companies under it, ESAB and Howden. ESAB produces equipment and filler metals for most welding and cutting applications, and Howden delivers precision air and gas handling equipment for numerous industrial applications. Both are worldwide industrial suppliers with multiple manufacturing plants and globally distributed support apparatus.

I learned about the conglomerate during a PTC customer panel at PTC’s LiveWorx 2018, where Colfax was represented by Ryan Cahalane, the company’s vice president of digital growth. I found his story, among others, to be an intriguing view into the development and deployment of Internet of Things (IoT) applications by an actual customer of vendor IoT solutions. Often, the real stories get lost in the marketing morass of the larger IT and operational technology (OT) companies pushing solutions. Cahalane and I connected over our thoughts on the importance of solving “the business problem” (and our intriguingly similar last names), and I took the opportunity to learn about Colfax as a customer (one could argue it could increasingly be placed as an ISV) and its experience implementing IoT.

Colfax began its journey like many of its peers: IoT was the buzz, and the company tried to react as fast as it could. Like many manufacturers or those in heavy industry, Colfax’s leadership kicked around the idea of harnessing IoT to drive new growth and differentiate from peers in a competitive marketplace, primarily via new IoT-enhanced products or digitally enabled service offerings. However, Colfax ran into challenges.

Internally, Colfax experienced the same roadblocks that plague most companies investigating IoT, especially federated ones like itself:

  • Colfax had a sizeable number of people working on IoT, but the company lacked communication and alignment across the various business units and initiatives.
  • Plenty of good ideas were being developed via shadow IT, but the company lacked cohesion and developments were technology-focused — not guided by business problems. This failed to differentiate the company, and Colfax’s messaging got lost in a crowded market.
  • Colfax initially tried to go it alone with a do-all solution, but that led to generic offerings that were not best-in-class, and handling all of the components, including design and management, was difficult for a diverse, distributed organization.

Externally, the company faced the usual challenges of the market. Its customers were interested in IoT, but Colfax found itself in proof-of-concept limbo as customers continually kicked the tires on IoT but never walked away with a key in hand. Cahalane explained that Colfax had trouble navigating customer cultures, such as garnering agreement from line-of-business, OT and IT managers from a technology viewpoint, and ultimately proving ROI for its digital solutions, from a business viewpoint, to C-level executives.

Many companies have shared the same struggles, and are now washing out, including behemoths such as General Electric, indicating no company is safe from the volatile and hypercompetitive IoT market. Colfax has persevered, however, because the company was quick to perceive the changing market dynamics. Here are my takeaways from my conversation with Cahalane around the company’s pivot:

  • I’ll begin with something that Cahalane, being humble, didn’t share with me but that I believe was an important step for Colfax: The company established Cahalane’s position of digital growth VP to coordinate IoT initiatives across the company and foster knowledge sharing, ultimately helping Colfax organize for IoT. Instead of offering a number of distributed, unfocused and perhaps competing IoT initiatives, Colfax, with Cahalane’s help, is focusing and acting on key opportunities.
  • What are those key opportunities? Colfax’s competitors would certainly like to know! Cahalane did share, however, the company’s new thought process for developing them: focus on the business challenges of its customers and narrow them down to what Colfax can best service with its technology and expertise. It’s no longer about developing fancy new technology and telling customers why they need it. It’s about listening to customers and solving their problems.
  • Colfax is going to market with the technology discussion on the back burner. Instead, the company is approaching customers with a business-problem-solving outlook, fishing for the all-important CEO buy-in and leaving the technology details to be sorted out later. As Cahalane stated, “We are staying very focused on the business message, the real value that you get from the solution. The tech is just a vehicle. A business message allows us to really spend time on bringing our knowledge to more customers. The customers finally see how it all fits together. It’s in their language.”
  • Cahalane noted that companies, such as Colfax in its early days, are often afraid of working with vendors or partners. Cooperation and coopetition among partners or working with a new vendor can be intimidating when a company knows it’s on the verge of a vertical breakthrough or solving the next use case, causing companies to keep their cards close to their vest. Laying the cards on the table and sharing technology, techniques, and customer relationships or entry points is a daunting step. Cahalane emphasized how Colfax had to shift its thinking from “How do we compete?” or “How do we keep this in-house to avoid paying for technology?” to “How could [a partner or new vendor] help?” or “How can they accelerate our goals?” Using the technology, expertise and capacity of Microsoft, OSIsoft and PTC now allows Colfax to focus on the solution components it knows best and to layer them on best-in-class platforms and tool kits provided by its vendors. This approach not only provides customer validation — for example, attaching to a well-known brand such as Microsoft for IaaS makes customers more comfortable — but also spreads out development and management. Instead of trying to support the entire load, which would be a challenge for an organization of Colfax’s size and structure, the company relies on its partners and vendors to take responsibility for their own components.
  • Finally, Cahalane emphasized the need for companies such as Colfax to remain agile in the quickly moving and erratic IoT-enhanced products market. The company constantly looks for acquisition candidates that can not only increase its expertise in its core digital initiatives and target verticals but also deliver new business models.

What is next for Colfax? Cahalane noted that there is still a lot of work for Colfax and its partners to do to develop, and educate customers about the power of data. This means not only tying data together inside one organization but also sharing data across organizations. For example, Colfax’s welding solutions could be used by customers to apply predictive and prescriptive analytics to real-time operational data to have alerts sent to supplies manufacturers for automatic resupply. Cahalane also hinted that Colfax sees the importance of shifting toward prepackaged solutions, which reduce customization costs and complexity and are built around proven ROI, to induce more customers to buy Colfax IoT solutions.

That’s the Colfax story. Why is it important? Not only does it validate concepts we have been sharing since we began our IoT coverage, but more importantly, it serves as an example to companies similar to Colfax across all verticals that may still be spinning their wheels with IoT. As Cahalane explained, true IoT success stories can be few and far between, with numerous IoT projects stuck in the mud due to vagueness, overambition, immature IoT, or lack of organization or maturity among vendors and customers to apply IoT.

However, TBR’s survey work and the insight gained from my discussion with Cahalane, among others, suggest that many projects that start with a specific business challenge, are smaller in scale or divided into digestible parts, and are led and received by companies mature in IoT, are working and delivering actual IoT revenue. TBR believes vendors and customers should take lessons from companies such as Colfax: focus on the business message, organize your business’s digital and IoT efforts around key opportunities, and use vendor partners to fill gaps while focusing initiatives around core strengths. While Colfax, as Cahalane noted, isn’t gaining explosive IoT revenue, TBR believes it’s certainly on the right path.

Samsung heads in the right direction

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Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.

The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.

Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.

Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.

There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.

The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.

Is ‘cloud repatriation’ real?

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Cloud repatriation is real, but not real enough to change the prevailing cloud trajectory. Think of it as the exception, and not the rule.

It’s a question I’ve heard multiple times: “We heard that [insert giant company name] is taking their apps/data off [insert giant public cloud vendor name] and moving it back into their own data center. Is this the beginning of a big shift?” If your job is in any way related to selling products or services for enterprise data centers, “cloud repatriation” sounds like a promising concept. Amazon Web Services (AWS) and Microsoft have been eating the lunch of a whole bunch of IT companies, and those IT companies would like that lunch back, thank you very much. But is the exodus of customers from public cloud really happening? Well, I have some good news and some bad news.

Bad news first: Cloud repatriation is not a market-changer

Cloud repatriation is not real in the sense of being a major, market-shifting trend worthy of its own buzzword. I will not deny the existence of one-off customers making a monumental shift away from public cloud. TBR sees anecdotal evidence of companies leaving public cloud environments, but we don’t see a wholesale move to strictly on-premises environments. The numbers tell it all: TBR estimates the PaaS and IaaS market grew 16% overall in the second quarter, with the big three juggernauts (AWS, Microsoft, Google) growing 58% on average within the segment, accounting for about $10 billion of the quarterly segment revenue. If anything, the public cloud market is moving toward an oligopoly as it consolidates. But it’s not shrinking. The market growth is far outpacing the loss of any customers that may be defecting.

The good news: Companies continue to use on-premises data centers, negating the need for repatriation

Very few companies see a future without owning some kind of data center. Apps that never leave the data center do not need to be repatriated in the first place (although they will likely need to evolve to a more agile and scalable delivery method). As you can see in Figure 1, the bulk of companies expect to maintain a roughly even mix of on-premises apps and those in hosted cloud environments. Smaller companies are most aggressive in their desire to reduce their on-premises footprint while the largest companies make it clear they don’t see a future in hosting everything. These projections make sense to me, especially based on my conversations with IT execs in small and large enterprises. Smaller companies tend to be concerned about the proficiency of their own data center while larger companies are full of complexities that make moving to a new environment a challenge.

 

The reality: Most companies seek a balance

By and large, companies are evaluating the best fit for workloads, acknowledging that there is no one-size-fits-all solution. Regardless of the type of cloud(s) being used, more than 80% of users will either maintain or expand their environments over the next three years. The proportion of buyers planning for public cloud expansion exceeds that of those engaging in on-premises private cloud expansion. But the fact remains that there is not a mass exodus from any specific environment. Regardless of environment, changes and evolutions will occur, even within self-built private clouds.

 

Given that business-to-business buyers are all over the map when it comes to cloud adoption, where can IT vendors succeed? There’s no easy answer, however, when discussing this topic with my colleague Senior Analyst Cassandra Mooshian, she had this to say:

“Recognizing there will be both exceptions and changes for most customers over the next three years is important for vendors, regardless of their cloud point of view. Yes, there will be workloads that have migrated to cloud that will move back to a traditional or on-premises delivery method. However, there will also be services deployed on premises that could eventually be moved to a cloud environment as customer needs and costs change. Something simple, yet critical, for vendors is to understand that no two IT environments are the same, especially across market tiers. Vendors may want their customers to go all-in on cloud, but that just is not feasible for larger organizations or even smaller companies in regulated industries or regions.

“The key to vendor success is to understand that there will be workloads best suited for cloud, while others may work just fine in legacy environments. The kicker will be in helping customers embrace hybrid, understand what works best where, and ultimately integrate and orchestrate it across each customer’s unique blend of legacy and cloud workloads. Once trust is established and there’s a mutual understanding around the idea that all options can and should be considered, that’s when long-term relationships start, and each company has a ‘favorite’ vendor or two.”

To discuss this topic further or learn about TBR’s cloud customer research, contact me at [email protected].

 

It’s time to stop calling IoT a technology

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Yes, we all do it. Every analyst, vendor and customer has referred to Internet of Things (IoT) as a technology. I have done it countless times, and so have my extremely talented and informed peers. However, it’s a misnomer, a shortcut, and a cop out, and if we actually think of IoT as a technology, it’s ultimately harmful to the adoption of IoT. IoT is actually a technique for solving business problems using a combination of technology components and services, rather than a technology in and of itself.

No one vendor does IoT alone ― it’s not a deliverable, self-contained technology solution. Rather, it often involves a “leader” company, generally a consulting company or an ISV, assembling a solution sourced from software, services and hardware components from partner companies. My colleague Ezra Gottheil likes to use a construction analogy. A general contractor will shop at Home Depot (the wide and increasingly saturated IoT marketplace) for all the components he or she needs to build a structure. The general contractor will also hire subcontractors (partners and specialized vertical ISVs) who have certain expertise. Even as we move closer to prepackaged IoT or shrink-wrapped solutions, multiple vendors will continue to be involved in delivery.

Some of these components can be grouped into the “new technology” bucket. As TBR closely monitors use cases and fills our use-case database, which currently has more than 360 entries, IoT projects are increasingly linked with augmented reality/virtual reality, blockchain and analytics. All of these new components, including IoT, are enhanced when used in cohesion.

But many of the components, such as servers, routers, mobile devices, sensors, connectivity, IT services and business consulting, have existed for decades. IoT is a new shiny label slapped on a technique IT companies have been using for decades: pulling together IT components to build solutions and help customers achieve their goals.

TBR believes when a vendor tells a customer “you should adopt this new transformational technology,” it is usually met with eye-rolling. IoT is no different. As soon as the “new technology” discussion comes to the table, customers instinctively rock back on their heels. It sounds like a large and long-lasting commitment, which leads to rip-and-replace cost fears, technology lock-in consternation due to a rapidly evolving market, and a general lack of understanding about the benefits.

TBR believes vendors should change the message. Begin with discovering what a customer’s business problems are, then suggest using the technique of IoT to begin strategically solving them in a stepwise manner. It’s not a rip-and-replace approach; it’s seeing where improvements can be gradually made to increase connectivity throughout an organization and ultimately deliver improved insight. It might mean adding sensors to legacy equipment, using IoT components and new analytic tools to tie together legacy data and create new insight, or implementing tangential technologies such as blockchain to better inform customers on their supply chain. Eventually, it could mean all of these combined.

At a recent vendor event, the CEO of a Boston-based IoT solution vendor asserted that IoT is now passe. True customer evolution, including problem solving comes from the bigger picture ― using the technique of IoT, tangential technologies, and internal and external data sources to supercharge efficiency and gain insight.

IoT as a technology is a lazy oversimplification. Let’s start messaging how the technique of IoT ―a new way of thinking about and applying technology ― can help solve current business challenges in an agile and cost-effective manner.

 

Predix is looking for a new owner

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Reports surfaced on July 30 that General Electric (GE) has contracted an investment bank to auction off the company’s GE Digital unit.

When former CEO Jeff Immelt aimed to diversify GE into the software space to take advantage of the synergies between Internet of Things (IoT) and the company’s industrial machinery footprint, GE Digital was created. The unit got some things right. It was one of the first IoT vendors to message the importance of operational technology (OT) inside the IoT technique, emphasizing that IT vendors couldn’t do it alone. It was also one of the first companies to highlight the digital twin, allowing engineers to run simulations or see the effects of an asset via its digital doppelganger, a technique now utilized by most IoT solution companies. It also promoted the idea that almost everywhere across a customer’s organization, from light fixtures to robots on the manufacturing floor, the addition of IoT could deliver insight. The unit carved the path forward for its OT peers, most of which were fast followers that gained an advantage by first witnessing GE’s successes and challenges.

TBR believes there were a few missteps. GE Digital made one of the more fatal mistakes among early IoT companies caught in the hype wave: It advertised that it was able to provide solutions for everything from manufacturing to healthcare and from utilities to transportation. It is understandable that GE Digital wanted to mirror GE’s wide industrial reach, but it led to a jack-of-all-trades, master-of-none messaging. In actuality, GE Digital likely focused on its Oil and Gas, Manufacturing, and Energy and Utilities segments, however, TBR believes the pivot to specialization in specific industries was too late.

This phenomenon of overextending can also be seen in the mechanics of Predix, which was marketed as a broad, do-all, edge-to-cloud platform with analytics. In reality, Predix was a do-all generic platform that needed a lot of expensive customization and developer time to build tailored solutions for customers. Because of this complexity and platform breadth, GE Digital had problems messaging what it was best at and how it could help customers. We believe the company overemphasized the platform’s  wide set of capabilities and underemphasized packaged IoT applications that solved real business problems. Ultimately, messaging of the platform got mired in discussions of technical features and functions, rather than the outcomes and differentiation of the company’s analytics and platform versus those of competitors such as IBM.

However, what tripped GE Digital up the most was that it wasn’t a great partner in a market that thrives on partnerships. Large IoT deployments will often have a multitude of vendors involved, all with expertise in a specific component of the holistic solution. Instead of focusing on enhancing areas where IT companies are weak, such as OT knowledge, GE Digital tried to do IT and OT. Because GE Digital wanted to do it all, it didn’t play as well as it could have with IT companies boasting deeply established roots in customer companies.

GE’s initial go-it-alone stance also had the company building from scratch, with its tools, such as analytics or cloud platforms, and feature sets always playing catch-up with IT companies that have been building these technologies for decades. For example, GE Digital initially tried building out its own cloud services mirroring Amazon Web Services (AWS) and IBM Bluemix. It ultimately ended up partnering, but we think the company’s initial focus on creating a PaaS cloud kept the company bogged down in services that didn’t add a lot of value. Ultimately, GE Digital proved to be an unattractive partner to bring into an IoT solution, and its platform failed to differentiate it enough to remedy partner apprehension. The platform was also much more expensive to build from scratch than just partnering with peers, making running-at-a-loss GE Digital look like a huge drag to GE leadership, which ultimately sealed its fate.

Where are GE’s Predix assets going? It’s hard to say for sure. As my colleague Ezra Gottheil noted, GE Digital announced it was standardizing on Microsoft less than two weeks ago. Microsoft has been looking for ways for Azure to outpace AWS in IoT and other emerging technology, and being a long-standing IT company, improving its OT expertise would make it more attractive in the industrial space. Perhaps Microsoft, or a Microsoft partner, such as Rockwell Automation or ABB, may be a purchaser.

TBR is seeing other large OT companies, such as Siemens, thrive as they focus on their strengths as OT-whisperers and enhance, not compete with, IT brethren. We are also seeing vertically specialized small ISVs pop up, in the OT and IT domains, that are focusing their expertise on a narrow set of business problems and are being brought in as essential partners. GE Digital blazed the trail for these peers, but also became a cautionary tale for those following in its wake: Enhance partners, don’t compete; be interoperable, not closed; message and provide expertise in your strengths, don’t provide a broad generic solution.

Earnings recap: Amazon, Microsoft and Google grow fast and keep hold on the market — for now

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Although the market is consolidating around AWS, Microsoft Azure and GCP, the trailing vendors are unable to match AWS’ quarterly revenue gains

Consolidation is occurring across cloud segments, with the most notable convergence occurring around the five leading PaaS and IaaS players, blending the lines between PaaS and IaaS. Customers and applications vendors are flocking to the leading players Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). This is evidenced by these three vendors collectively growing 58% year-to-year in 2Q18, while the total PaaS and IaaS market is expected to grow only 16% year-to-year in 2018. This consolidation is helping the largest players continually capture greater market share and, as a result, largely dictate the growth of the PaaS and IaaS markets.

With the leading vendors’ CY2Q18 earnings results now public, it is clear that AWS continues to rule the PaaS and IaaS spaces, sitting at almost three times the size of second-place Microsoft Azure and sustaining greater quarterly revenue additions. Google sits in third place in mindshare for many customers, but trails AWS and Microsoft Azure in revenue by a large margin. These three vendors face increasing competition from Alibaba, which continues to expand its global reach, and IBM, which has seen more success in private cloud and hybrid IT.

 

AWS maintains its public cloud lead through continuous innovation, but faces growing opposition as new and existing competition strengthens

AWS accelerated revenue growth for the third consecutive quarter in 2Q18, up 48.9% year-to-year to $6.1 billion, further extending its lead in PaaS and IaaS. AWS’ position as the far-and-away market leader causes the competition to fiercely innovate and expand to challenge the vendor. However, AWS’ mindshare has been secured, and paired with its portfolio breadth, innovation pace and global availability, inserts the vendor into the bulk of customer and partner evaluations. AWS’ determination to innovate with and ahead of customer needs continues to drive service and feature releases, aimed at winning new workloads without compromising profits. Halfway through 2018, AWS has released 800 new services and features, an accelerated pace of service innovation from 2017’s record level.

Microsoft Azure continues its fast-paced growth, but will remain behind AWS in revenue for the foreseeable future

Microsoft’s Commercial Cloud revenue, which includes public cloud and private cloud versions of Office 365 commercial, Dynamics 365 and Azure, approached $6.9 billion as Microsoft nearly doubled the number of Azure agreements worth $10 million or more over the last year. Azure revenue grew 89% year-to-year to $2.2 billion in 2Q18.

Microsoft’s combination of traditional software, public cloud and on-premises private cloud positions the company to be the backbone of customers’ hybrid environments — a label few competitors, especially AWS and Google, can claim. As such, Microsoft is uniquely positioned to help customers extract the value from their integrated data and has put itself at the forefront of innovation and commercialization of emerging technologies such as artificial intelligence (AI) and Internet of Things (IoT) to capitalize on this leading position.

Google will be unable to retain its third-place position as it fights to shift market perception and fend off strengthening competition

Relative to AWS and Microsoft Azure, GCP is far behind in the PaaS and IaaS space but is trying to prove to customers that it is as enterprise-ready as its main competitors. As Google solidifies its cloud portfolio and builds out key offerings, the company has also prioritized improving its large enterprise go-to-market efforts under its One Google strategy. Google Cloud, which consists of G Suite and GCP, increased revenue by an estimated 56% year-to-year, nearly reaching $1.42 billion. TBR expects Google Cloud revenue will increase to $1.6 billion in 3Q18 as the vendor continues to execute its One Google strategy.

While Google is investing in its go-to-market activities and shows progress through growth, its overall reputation in the market has been slow to adapt from consumer-grade to enterprise-ready. To combat that market perception, Google Cloud focuses its innovation on mastering four areas of expertise: machine learning and analytics, security, application developer tools, and connected business platforms. Recent investments in hybrid enablement and improved rendering capabilities demonstrate Google’s ongoing commitment to becoming a leading cloud vendor in differentiated areas of high-growth opportunity. While Google will succeed in these discrete areas, TBR expects Alibaba to emerge as the third-place general-purpose PaaS and IaaS provider.

Google goes after IHVs with Cloud IoT Edge

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Google’s Cloud IoT Edge hardware-software package for edge devices, announced on July 25, aims to be a comprehensive bundle for the edge ― for devices and for gateways. In this offering, Google leverages its two big assets in machine learning, TensorFlow software and the tensor processing unit (TPU) processor, to stake a position in edge hardware and software.

TBR believes the edge is the leading edge of Internet of Things (IoT) growth. There is competition for both edge hardware and edge software, but few vendors can offer both. There will be consolidation in hardware and software, and the companies left standing will have large and growing businesses and opportunities to expand. In the case of Google, as well as Microsoft and Amazon, capturing the edge helps drive the core cloud offering. By staking a big claim on the edge, Google is better positioned to compete with the other big clouds.

TensorFlow and the TPU processor are the keys to Google’s offering. TensorFlow is one of the most popular machine learning software libraries while the TPU processor is optimized for machine learning. Google claims advantages of the TPU over GPUs for machine learning tasks include lower power consumption and better performance on inference as well as learning tasks. These two benefits, power consumption and inference performance, are critical on the edge. Power consumption is important in edge devices, especially mobile and remote devices. Machine learning training is best suited to the cloud; edge devices need fast inference.

Google is targeting this offering to companies making IoT hardware, devices and gateways, ranging from narrowly specialized to broadly applicable, from custom-built to off the shelf. Companies producing off-the-shelf products are independent hardware vendors, and their offerings range from components for IoT solutions to end-to-end hardware and software solutions. Google’s Cloud IoT Edge is attractive to this market; it is a hardware-software solution with differentiating hardware and familiar software.

In the enterprise market for custom-built devices, Microsoft will often leverage its incumbency. However, there remain many market opportunities, especially in off-the-shelf smart devices with built-in machine learning. Video is a likely market for this technology, and Google will continue to make it easier and less expensive to build smart cameras.

Google’s Cloud IoT Edge is a well-conceived response to the challenge of the edge, and there is potential additional upside. The new Edge TPU is very small, and Google claims very low power consumption. Google will introduce tools and applications that leverage the processor to provide tangible benefits on smartphone, tablet and PC platforms. If successful, Google could own the IP to be a necessary component of edge computing.

It’s hard to grow up in IoT

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One of the most important governing factors in the adoption of Internet of Things (IoT) is the maturity of the companies considering, buying and implementing IoT. Vendors can improve their go-to-market (GTM) tactics by varying their approach to potential customers with different degrees of maturity. Assessment of maturity helps in predicting and targeting growth opportunities in vertical and geographic market segments.

A mature process for a single IoT solution is easy to describe but challenging to carry out. A team including members with business knowledge, operations technology knowledge and IT knowledge works together through the process of problem selection, solution design, solution implementation, and ongoing solution operation and refinement. As most IoT implementations present opportunities for enhancement and further integration, the team continues to work together indefinitely.

For an organization to be mature in IoT, it must be able to sustain multiple projects, at different phases in different parts of the organization and at varying levels of scale. The projects must be compliant with company and regulatory policies, secure and, ideally, scalable and efficient, leveraging to the extent possible organizational resources and standard practices. The data generated by the IoT projects must be secure, but it must also be visible and available to others in the organization who could benefit.

Additionally, the mature IoT organization keeps the process of continual distributed innovation going, with employees throughout the organization actively looking for opportunities to improve operations using IoT, as well as other innovative technologies. While encouraging broad innovation, the organization manages, prioritizes, allocates resources for and socializes the projects.

The organization described above is an ideal, but comparing an organization with this standard helps us know at what level a business is operating in IoT. This ideal process applies not only to IoT but also to all projects leveraging new technologies.

For vendors, IoT maturity can help with identifying potential customers and approaching prospects. With mature customers coordinating multiple IoT projects, there is the opportunity to be included in the company’s portfolio of vetted preferred vendors or products. With a less mature customer, the best outcome is engagement in a single IoT project. These two different scenarios demand different messaging, sales tactics and, sometimes, offerings.

In a growing market — and IoT will be growing for a very long time — the trailing edge is always much larger than the leading edge. Even as the average level of maturity increases, most target customers will be on the less-mature end of the spectrum. Vendors and offerings that fit the needs of the target market, including simplicity, extensive support and membership in robust partnerships, will have an advantage. Offerings that help develop the customer, moving them up the maturity ladder, will also have an advantage.

IoT maturation isn’t about the technology of IoT; it’s about businesses developing their capability to leverage technologies and techniques that are increasingly applicable to an increasing number of business problems. The same maturation encompasses things like analytics and artificial intelligence, blockchain, edge computing, and mobile computing. Looking at customers and prospects in terms of maturity in leveraging technology helps in selling and delivering technology products that drive businesses forward.

GE and Microsoft are getting more serious

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General Electric Co. (GE) and Microsoft have been strengthening their Internet of Things (IoT) partnership for at least a year, and a July 16 announcement documents a new, closer stage in their relationship. TBR believes this partnership benefits both parties. GE makes its Predix IoT platform more attractive to the growing number of customers standardizing on Microsoft Azure for cloud services. Microsoft improves its industrial IoT (IIoT) and operational technology (OT) credentials, as well as its ability to go to market in the IoT world where the collaboration of IT and OT create challenges for IT companies.

GE and Microsoft announced their “largest partnership to date,” according to a Microsoft press release, with GE standardizing its Predix solutions on Azure, and both companies integrating the Predix portfolio with Azure’s capabilities, including Azure IoT and Azure Data and Analytics. The companies will also co-sell and go to market together. GE will deploy Azure across its business for additional IT workloads. This latest partnership builds on last year’s announcements in July and October of closer cooperation between the two companies.

GE first introduced Predix in August 2015 as an end-to-end cloud IIoT solution. While the Predix cloud was interoperable with other cloud platforms, the emphasis was on a complete solution. Following a large investment and marketing effort, it became clear that competing directly with general-purpose cloud platforms was both unnecessary and counterproductive. Providing a complete platform wasted GE resources and placed the company in direct competition with huge cloud vendors. In 2017 GE adopted a strategy of focusing on its differentiated capabilities and highlighting Predix’s interoperability. The July 16 announcement makes GE’s relationship with Microsoft much stronger than its partnerships with other vendors.

While the newly announced partnership helps GE, the future is not clear for GE Digital, the division that offers Predix. In November 2017 the company announced cuts of more than 25%, about $400 million, within GE Digital. Predix development is increasingly focused on GE’s primary businesses — aviation, power and renewable energy — but as of April, a company spokesperson said only 8% of GE’s industrial customers were customers of GE Digital. TBR believes that a sale of GE Digital to Microsoft is likely, as GE narrows its focus and Microsoft expands its footprint in IoT and IIoT.

Hybrid, multicloud, reunited partners featured in TBR’s upcoming cloud & software research

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Going into the second half of 2018, TBR’s Cloud and Software Practice anticipates providing additional research around a few issues that have been top of mind among TBR’s clients and our analysts. The common theme across the three issues highlighted in this report is the growing focus on how cloud and software are jointly being used to deliver real solutions for customers. Highlights of the research center on how establishing hybrid capabilities is a primary challenge for enterprises and a growth driver for vendors, from the initial design and integration through to the ongoing management and optimization of the increasingly complex environments. Additionally, offering multicloud is the first priority for customers and creates opportunities for vendors other than category leaders such as Amazon Web Services (AWS) and Salesforce. Lastly, partnerships that were previously threatened by cloud are now realigning for new opportunities created by on-premises hybrid delivery and solution bundling. Look for more insight into these topics in our upcoming research.

Hybrid enablement is an increasingly critical predictor of vendor success
There is no question that cloud and software solutions are being increasingly deployed into hybrid environments and have been for some time now. The real customer pain point in regard to a truly hybrid environment — one or more cloud assets integrated with one or more on-premises assets for the seamless flow and sharing of data — is around enabling each of the solutions to fit into the environment and integrate with the others for optimal utilization.

Cloud and software vendors alike are investing to capitalize on this growing opportunity around empowering enterprise IT departments to integrate sprawling environments on their own, with the help of automated tools and platforms. Salesforce’s acquisition of MuleSoft is one of the more noteworthy examples as it has vast implications for both Salesforce and the market. This is because MuleSoft offers licenses alongside its subscription offerings despite Salesforce’s “No software” mantra, and because many organizations utilize one or more of Salesforce’s cloud offerings, which will soon feature and/or be integrated with Salesforce Integration Cloud, a solution that will be based on MuleSoft’s well-known Integration Platform as a Service (iPaaS).

Software vendors are making similar investments, such as Red Hat announcing its own iPaaS — Fuse Online — and VMware’s continued updates to the vRealize cloud management suite. Additionally, many continue to expand their partnerships with cloud vendors and systems integrators to improve their hybrid technology and hybrid enablement portfolios, increasingly going to market with a software-led services approach.
Cloud brokerage and hybrid integration pure plays continue to generate buzz as well, providing attractive solutions for enterprise IT departments struggling to keep pace with integrations, orchestration and skill sets. We expect some of these vendors to be acquired over the next couple of years as cloud and software vendors look to quickly build out their hybrid integration and enablement tool sets.

Consolidation around leading PaaS & IaaS vendors does not reduce competition
The public cloud IaaS market, substantially made up of businesses that complement scalable infrastructure with general purpose PaaS, has consolidated around the four leading U.S.-based cloud vendors — AWS, Microsoft, IBM and Google — and one international vendor, Alibaba, which has been successful in the highly exclusive Chinese market and is diligently focused on effectively competing with these U.S.-based vendors on an international stage.

Among the insights gleaned from TBR’s upcoming Cloud Infrastructure & Platforms Customer Research, it is becoming evident that even in discrete use cases and niche industries, the general-purpose nature of these vendors has enabled them to be considered across needs. Many customers agree that there is a delicate equilibrium yet to be found in first balancing on-premises and cloud deployments, and then balancing vendor lock-in concerns, usage volume discounts, vendor specializations and multivendor environment complexity. TBR will closely watch and assess how each vendor overcomes its perceived downfalls and positions itself to help customers best weigh the benefits and drawbacks of increasing cloud adoption.

In particular, customers almost universally recognize Google Cloud as the third option behind AWS and Microsoft Azure, citing TensorFlow as a key technology that will drive Google’s growth into a more prominent cloud vendor, but in the same breath identify that Google’s enterprise vision has not matured from “talk the talk,” particularly outside of the executive office of Google Cloud CEO Diane Greene. Meanwhile, Azure has become a viable alternative to AWS for many customers that note general ubiquity in each vendor’s ability to support various enterprise needs. TBR expects the closeness in AWS and Azure functionality, strained by the maturation of Google’s enterprise vision and Alibaba’s increasingly competitive entry into Western markets, will cause the converging market to grow quickly around this competition.

Partnerships are being both stressed and created as the cloud market evolves
The increased focus on cloud delivery methods has certainly stressed many long-held partnerships between traditional hardware, software and service vendors. The model of solution creation, distribution, installation and support was one that had multiple participants in the traditional model but became more focused on the cloud provider in the transition to cloud. Cloud is also an opportunity for new or nascent vendors to take share in markets such as business applications, where SAP and Oracle have been dominant. SaaS vendors fill portfolio gaps and augment vendor offerings for verticalized use cases, enabling legacy players such as Microsoft and SAP to adapt and compete with born-on-the-cloud providers. An example of this shift in vendor landscapes comes with the release of Dynamics 365 Business Central, which will help Microsoft gain footing over SAP in the SMB space for business applications and provide new opportunity for Microsoft’s SaaS partners. However, as each vendor expands its cloud portfolio, its respective ecosystem will be required to adapt. SAP’s acquisition of CallidusCloud will improve the vendor’s position in the cloud front-office space, but it also places SAP in direct competition with its ecosystem of Configure, Price, Quote (CPQ) providers. Now more than ever, the market will see vendor shares susceptible to ongoing changes as the market for core business applications remains relatively immature for cloud.

Hardware and services partners were previously hard hit in the transition to cloud but will have more opportunities with a growing mix of public and private cloud options becoming available. Microsoft will continue to leverage hardware and services partners to deliver and implement its hosted private cloud, Azure Stack, which has already doubled its geographical reach in recent months. This new opportunity for longstanding hardware partners such as Dell EMC and Hewlett Packard Enterprise to collaborate in delivering Microsoft’s Azure Stack offering does little to offset the erosion those vendors have seen as Microsoft built out its own Azure public cloud offerings, reducing customer demand for hardware.

Note: TBR provides extensive, sustained coverage of the strategies and select performance metrics of all the vendors mentioned above, as well as their competitors and key technology partners. Contact the authors for additional details.

By Allan Krans, Practice Manager and Principal Analyst; Cassandra Mooshian, Senior Analyst; Meaghan McGrath, Senior Analyst; and Jack McElwee, Research Analyst