A good – and overdue and delayed – catchup with Bernd Gross, chief technology officer at Software AG, at Hannover Messe some months back gave pause to reflect on broader developments with Industry 4.0, and with 5G as an adjunct to it, as well as about Software AG own progress in the market. Speaking back then, in April, Gross said the whole industrial world has taken on the lessons of open software platforms and, importantly, of more open and speculative collaboration at last; that its old paranoia and intransigence has been eroded, slowly.
Speaking at the big German trade fair, he said: “This show really visualises the fundamental transformation everyone is talking about. A lot of these industry players used to be closed vertically-integrated shops. They created world-leading products – tooling machines and wind turbines, and all the amazing stuff you see here – and they saw value creation as their own private responsibility. Whereas the software world thinks about open platforms, and how to capture value from outside, as much as how to innovate from within.
“These are completely different approaches. But this show gives a view of how the industrial world has changed, to embrace openness and ecosystems, and value-creation with partners. Industrial companies have realised they cannot survive anymore by creating value on their own, and they have started to open their customers to their partners. How they do that is the big question; how to open up data to partners to create value for customers – and in theory to create value for the whole ecosystem. That’s the fundamental strategic change you can see here.”
It is very interesting; it is, maybe, as always with Gross, the best conversation for RCR Wireless at any show, whenever we meet (which is rarer since the closure of Enterprise IoT Insights). Gross is compelling company; his views on the market are candid, progressive, helpful (for one trying to make sense of its dynamics and dysfunction). “In 2023, something that we have discussed for many, many years has come to pass – at least as far as this trade fair goes,” he says. It is an important conclusion, and also a happy one for the Industry 4.0 movement.
So can we just play that back through a 5G lens, if you will – just because that is, as per the editorial news beat, the start-point for RCR Wireless? Because when asked about 5G, the response from exhibitors at Hannover Messe was decidedly mixed; a third shrug like they don’t care, a third nod slightly like they might do, and a third are practically effusive. It is anecdotal, of course; but the same straw poll suggests half of this crowd does not want data to leave its premises, ever, and the other half is comfortably reconciled with the idea of the public cloud and open software.
Actually, industrial attitudes are easily changed – reckons AWS, speaking separately at Hannover Messe – so long as enterprises are sold real solutions to their troubles. “The whole industry has matured,” says Gross. “In terms of software-driven change, value-driven concepts, open partner ecosystems. None of that is seen as a threat anymore; it is an opportunity – to speed up innovation, share responsibility, lower investment. Because partners invest into your ecosystem, and your customers. You see that with people talking about use cases and business drivers.”
He adds, pointedly: “And, if I may say so, by not talking about 5G – which is a tiny enabling link in a whole chain of enablements to capitalise on data, in order to improve ROI and time-to-market, and to improve your product and service, and to reduce customer churn. You know, in the internet world, in the software industry, the first thing you do is add data points, so you know how people are using your software – where the mouse goes, what they’re clicking. You optimise your service based on data insights. And you can see this mindset in all different industries now.”
As quoted previously, but never credited properly, Gross has a good line about Tesla, a company that every salesperson and marketer likes to reference; except Gross’ point about it is in service of his bigger one. “I mean, Tesla used to be a good example, but you have Teslas in every industry now. That data mentality, and monetization of it, is almost mainstream in industry now,” he says. Gross, also chief executive at Software AG’s IoT platform business Cumulocity IoT, has been talking like this for five years, at least (since RCR Wireless got to know him).
“The point is when we started Cumulocity, as a startup or scale up, we needed to be ahead of the majority. You cannot be a leader by following. My vision was a few years ahead of the majority, you know, so we needed to capture the early adopters in the technology life cycle. Because if you cannot succeed with early adopters, you will not have enough experience to capture the late majority. That’s exactly what I mean. We are now in that majority curve, seeing the platform driven approach, where the data [insights and collaboration] is becoming mainstream.”
Software AG has its own proof point, it would suggest. The average compound annual growth rate (CAGR) for its Cumulocity IoT unit has settled at 55 percent over the last five years; it retains growth of more than 50 percent, says Gross, on a more substantial base today. The company’s other IoT analytics units – TrendMiner and Apama, deliver time-series and streaming data analytics, respectively – are also growing at pace. “That unit – IoT analytics – is the fastest growing business area we have. Which underlines the point I’m making.”
He says: “When I started talking about it five years ago, our relative growth was enormous, but the start point was smaller. But now we are talking about a substantial business. And we’re still growing solidly with over 50 percent. And that is also because the market underneath is moving.” But this category, IoT and analytics, remains the smallest discipline for Darmstadt-based Software AG, a €958 million business with a 20 percent profit margin and 5,000 staff, expanding into the US with €344 million from private equity and a first deal under its belt.
Its legacy data management and integration division, webMethods, which acquired US outfit StreamSets last year, remains its single biggest concern; its database business, ADABAS Natural, is its second biggest. So will IoT overtake these others, at some point? “Well, eventually yes – if you think about the growth rate in IoT and analytics. I can’t say when, but it’s not too far off – at least to overtake the ADABAS Natural. The modernisation of the integration business, with the acquisition of StreamSets also, means we are reshaping that into a growth concept.”
The go-to-market strategy for Cumulocity IoT, frequently sold in combination with Apama and TrendMiner, has not changed much since Gross talked (repeatedly) with RCR Wireless about signing with mobile operators like Deutsche Telekom, NTT, and Telstra, or machine makers Dürr, DMG MORI, and Zeiss, or indeed variously with the likes of AWS, Microsoft, SAP, and Siemens. But the emphasis has shifted, in line with growth – and probably away from the telco set, to an extent. “We still have 15 or 20 telcos utilising our technology,” explains Gross.
“It is a segment which is absolutely important to us, and which we are serving, and which works well. But the growth is not the same as with the others.” Nevertheless, its portfolio of telco customers is rather impressive: Spain-based Telefónica, Netherlands-based KPN, Austria-based A1, plus Du, Oreedo, and Saudi Telecom in the Middle East, among others. All of them are white-labelling the Cumulocity IoT platform for their own ends – for data management, microservices, and industrial IoT applications.
Gross says: “They’re embedding our technology for very specific use cases. And the use cases are all slightly different. Most of the telcos look at a use case where they can sell hundreds of thousands of connectivity points; think about smart metering, smart cities, connected cars; these types of use cases. So they’re using our technology to combine their SIM connectivity management technology with the data analytics and device management capabilities. So they’re combining to help differentiate, but what they’re really after is connectivity.”
The telco play is one of two ‘direct’ channel groupings for the Cumulocity IoT team. The other one is with equipment makers, such as those already mentioned – all cornerstone companies, incidentally, in Software AG’s seminal ADAMOS project, which corralled a stable of industrial progressives around novel co-creation practices (ADAptive Manufacturing Open Solutions). But its portfolio also includes the likes of Swiss elevator manufacturer Schindler Group, turbine makers Nordex and Enercon, and medical equipment makers Boston Scientific and Eppendorf.
“Equipment makers are really important for us; they represent our fastest growing segment,” comments Gross. “They face a challenge to differentiate. The real game for them is on the data side. They need digital insights and digital services, almost like a service wrap around the equipment. And they are using our technology for building these solutions. Some of them use only Cumulocity; some use Cumulocity and TrendMiner; some use Cumulocity and Apama. It depends on the use case.”
The ‘direct’ categorisation with mobile operators and machine makers is based on the idea that the selling is done directly to these two groups, which embed the Cumulocity IoT system into their own offers to end users, and then stops. At least, that is our understanding of it. Its other channel tactic, says Gross, is focused on ‘indirect’ sales – or semi-indirect and completely-indirect. In the first instance, Software AG goes (fully branded) in partnership with a hyper-scale cloud client like AWS and Microsoft, or an integrator client like Tata Consultancy Services or Wipro.
In the second, it goes completely under the radar, embedded and obscured into a juggernaut digital-change scheme from the likes of SAP or Siemens. Why this fourth categorisation is not classified as a full-stop direct sale is not clear; but the client solution is of a different order, nevertheless. “The fourth is an embedded OEM play, where you cannot see our brand at all – and we do not even sell together. We empower the core capabilities – like SAP’s asset performance management, or field service management. The automation in the background is based on our tech.”
A word on this ADAMOS co-creation project, which formed with 20-odd of Software AGs formative machine-maker customers in 2017 – in light of the Hannover Messe assessment at the start of this article. If anything, ADAMOS is the proof point for Industry 4.0’s belated maturity, reckons Gross. The programme has collapsed, organically, as its participants have no longer required the leg-up with open collaboration and software; it has since reverse-”morphed” into the parallel Open Industry 4.0 Alliance with the likes of Beckhoff, Busch, Fujitsu, KUKA, Microsoft, NTT Data, SAP, Schneider Electric, Siemens, TRUMPF, and Weber.
Gross says: “ADAMOS was set up originally because these machine makers were struggling to digitalise – to have that open mindset. So they created this joint venture – with us, as the only IT partner, and with 20 companies in total in the end. But it turned out the biggest value from it was not the technology, or not just the technology, but the networking, and the shared experience – the ecosystem. We met with the CEOs from all these companies every six weeks to talk about what was working and what wasn’t working. And that aspect became more and more important.
“I mean, the question is always why change is so hard. But if you are a mittelstand enterprise, in business for 40 years, a world leader in your niche, then why do-different? Why change if it is not broken, right? But gradually, over time, the penny dropped. It took many years – and lots of examples, use cases, learnings, and failings – for them to realise what to do. But the thing was, the technology was already deployed in these companies; and so the technology was removed from ADAMOS, and the whole basis of the venture was reviewed – and then discontinued.”
He closes:“Which is natural, of course. But we created this cluster in the process, and that basic cluster continues. It just kind of morphed into this Open Industry 4.0 Alliance, without any technology attached – even though it was running in parallel for a while. Which has grown into about 200 companies now, including all of the original ADAMOS partners. Because these companies want to share their experiences; they want that more than the technology stack. We are one of the founding members, and really the idea of the foundation was the key learning from ADAMOS.”
