Industrial Internet of things: Policies to manage information flow & the emergence of data aggregators
Eric Buatois (General Partner at BGV) described in the first part of his blog the creation of a new industrial IOT highway that will remove the friction of connecting, gathering and aggregating data. In this blog he discusses the need for policies to manage cross industry information flow and the emergence of data aggregators in the industrial IoT. Michael Porter states in his blog – “Smart, connected products raise a new set of strategic choices related to how value is created and captured, how the prodigious amount of new (and sensitive) data they generate is utilized and managed, how relationships with traditional business partners such as channels are redefined, and what role companies should play as industry boundaries are expanded.” (http://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition/ar/1). Currently in the industrial IoT eco system only 1% of the data generated by installed industrial equipment is processed while large Consumer Internet companies process about 70% of the data that is generated. If big data is the result of human interaction with corporate applications and consumer web sites, then similarly the industrial machines will generate a new category of smart data. Large industrial companies such as Siemens, Tyco, GE will use this IOT highway to build specific services using their domain knowledge and by leveraging proprietary algorithms. These services will generate a new data set that will become the basis of novel value creation. This scenario raises an important question – Will this data belong to the equipment vendors i.e. Siemens, GE or the energy utility or hospitals owning the equipment? This raises several policy concerns: what kind of data can be available and to whom and for what purpose? Following the Snowden scandal, the importance for clear public policies to define who owns what data and how that data is protected has come under increasing scrutiny. The massive amounts of data collected by the industrial IoT will create the need for aggregation centers that will process the data locally before centralization. Can this information cross national borders? What kind of encryption and security should be implemented? Third party data aggregators will emerge as independent companies that will on one side protect the information of specific cities, medical centers, public utilities but make it accessible to their suppliers and partners under well-defined policies. In the past a similar trend unfolded in the credit card industry. When the credit card was launched in 1958, no one forecasted the emergence of new companies performing credit checks, credit scoring, consumer and business data aggregation and payment processing, We are now using these services on a daily basis without giving them a second thought. Large market segments such as Transportation, Energy generation, Oil & Gas, Manufacturing, Retail, Smart cities, will see a similar transformation with IOT. The information created by the deployment of IOT infrastructure and highway will be aggregated by companies either funded by Venture Capital funding or as spin offs from large industrial corporations. These new companies will benefit from a massive network effect where more data aggregation will generate increasing value. These new data aggregators will have a direct impact on the GDP growth of countries and also be a source of job creation for highly skilled labor. During the next 5 years, we will see an intense co-opetition between large industrial corporations; industry associations, governments and VC backed companies to get access and control to this new source of wealth creation. But the source of entrepreneurial and software talent to build these data aggregator types of companies is in Silicon Valley. The key talent that understood, built and monetized the data of the Internet consumers is likely to understand and grasp the opportunities of industrial IOT data aggregation rapidly. BGV is actively involved in identifying investment in industrial IOT as well as establishing pro-active partnerships with industrial corporations to assist in the transformation of the Industrial Internet of Things.