Faculty & Research

Insights

When General Electric Co coined the term Industrial Internet in 2012, the concept, viewed as the most important investment outlet following the Consumer Internet, attracted the attention of governments and industrial companies. However, despite years of research and practices, the Industrial Internet’s development has not been as smoothly as expected.

What are the obstacles? What are the differences between Predix, the Industrial Internet platform, and Windows as the Consumer Internet platform? Professor Liu Xue with Peking University’s Guanghua School of Management and Liu Xianyue with Huaqiao University’s Business School offer their answers as well as tips on the digital upgrade and the transformation of the Industrial Internet.

The Windows operating system is the most important infrastructure in the IT age, and it serves as a platform for the interactions between software developers and clients. Such interactions,realized completely in the virtual realm, encompass games, antivirus and other types of softwares. Windows can be viewed as a typical Consumer Internet platform. Meanwhile, Predix is a typical Industrial Internet platform and a crucial industrial infrastructure in the age of Internet. Considering the complex structure and functions of Predix, GE often compared Predix to Windows when promoting the platform to clients in Predix’s early stage. While Predix is still in its early stage of development and has yet to show its full capabilities, a comparison between Windows and Predix will help us identify the challenges in the future development of the Industrial Internet and map out investment strategies accordingly.

WINDOWS-PREDIX COMPARISON

Platform construction and resource requirements:

Windows: originating from DOS, with the same programming language and similar resource requirements

Predix: a brand new system built with a new language;partner with Microsoft and Amazon to make up for resource inadequacy

Platform marketing:

Windows: pre-installed via partnership with PC makers, retail and authorized re-sales

Predix: direct selling, in-depth communications required to explain the mechanism of value creation and sharing and reduce data security risks

Value creation:

Windows: clients’ demand similar; transactions between cross-side clients mark the transfers of value

Predix: clients’ demand diversified and customization required; process re-engineering within an organization required to create value

Construction cost and expenditure structure:

Windows: cost low in early stages and gradually increases during upgrades; very low marketing cost after reaching critical mass

Predix: high cost; high-level critical mass, very high marketing cost before reaching that stage

Income sources and cashflow structure:

Windows: sales of operating systems and software bundles such as Office

Predix: value shared with clients after providing them with platforms and solutions, uncertainty involved

Network effects:

Windows: strong, positive same-side and cross-side effects

Predix: a certain level of positive cross-side effects; very low same-side effects

Returns to scale:

Windows: remarkable progressive increase

Predix: relatively low progressive increase

Customer stickiness:

Windows: high

Predix: high

TIPS ON INDUSTRIAL INTERNET

Many startup owners adopted the time-tested operation model of the Consumer Internet in their operation of the Industrial Internet. However, most of these attempts ended in failure because they had not taken into account the notable differences between the two in various aspects such as construction, marketing,network effects, returns to scale, clients’ demand and value creation. For traditional manufacturing firms currently in digital upgrade and Consumer Internet firms entering the Industrial Internet, following issues deserve special attention.

First, it is not enough to have only IT talents in Internet thinking, artificial intelligence and big data processing,while solely relying on people familiar with traditional manufacturing knowledge and clients’ demand is even a bigger no-no. However, those well-versed in both fields are in extremely short supply. Thus it is of crucial importance to create a culture and a mechanism in which two types of talents can share knowledge and cooperate with each other in a highly efficient manner.

Second, prevent data breach and abuse by defining and protecting data property rights as well as setting up an accountability mechanism for data development and utilization combined with other cyber security methods. Such efforts also aim to address data providers’ security concerns and are crucial for the healthy development of the Industrial Internet and reducing the platform’s marketing cost.

Third, real value can only be created when solution providers and platform operators, with the help of bid data, go deep into industrial clients’ work environment to understand their strategic motives, draft high-precision, customized plans and assist them in process re-engineering and organizational reform. Otherwise, this platform can only help visualize clients’ asset operations and related financial services such as asset leasing and insurance. As a consequence, platform operators must figure out how to boost cooperation and interactions between clients on both sides by reducing information asymmetry and cutting transaction cost after attracting them to the platform.

Fourth, cross-side effects are there but limited; notable positive same-side effects are lacking; with high construction and marketing cost, critical mass of the platform is of a very high level. As a result, clients on both sides have to invest far more than on the Consumer Internet in order to push the platform beyond critical mass. However, once surpassing critical mass, returns to scale does not increase notably and the number of clients on both sides can hardly witness exponential growth like those on the Consumer Internet do. All this means that the Industrial Internet requires larger investment and its investment cycle is longer, for which investors should be fully prepared.

Last, although the Industrial Internet aims to serve clients’ specialized and niche demand, interactions, as big data shows, are frequent and customer stickiness is high, and those taking preemptive actions are in advantage.

To sum it up, while the Industrial Internet is a crucial infrastructure in the Internet age and boasts huge investment potential, people must know its differences from the Consumer Internet and are fully prepared for the risks and challenges in its development in order to see its success.

© 2019 Guanghua School of Management Peking University