The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers

08/07/2018

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Dr. Michael Mandel | Progressive Policy Institute

For all of the catchphrases about Industry 4.0 and the fourth industrial revolution, the truth is that digitizing manufacturing is a long and difficult slog. The issue is that engineers in manufacturing and other physical industries have to manipulate and fit together real-world materials in ways that are consistent with the laws of nature and the limitations of current technology. Software developers in digital industries like entertainment and finance—where the final product is reduced to bits and bytes—have a much easier time. Consider, for example, Tony Stark’s iconic Iron Man armor from the Marvel Cinematic Universe. To achieve $7 billion in global ticket sales—the total revenues from Marvel movies featuring Iron Man—the filmmakers only had to be concerned with projecting a believable two-dimensional image on a screen. That is a difficult but doable task. By contrast, actually building a flying suit of armor in real life would require a combination of metallurgy, robotics, and microelectronics that currently doesn’t exist. Digital objects— including even the most complicated software programs—are simple compared to the requirements of fully digitizing even the simplest of real-world objects. Manufacturers have taken the first step towards digitization by putting sensors into existing products such as turbines and tractors and using the resulting data to improve performance. The goal is to turn data collection and analysis into a new revenue stream. But data monetization is only one possible application of the Internet of Things to manufacturing, and perhaps not the most effective at creating sustainable new markets. After all, it’s not clear how much customers are willing to pay to have their data sold back to them. The cautionary tale here comes from GE, which bet huge sums on the industrial internet and the development of a software platform called Predix that uses data to help customers monitor and improve the performance of their equipment. GE Digital collected a sizable $4 billion in revenue in 2017. Nevertheless, a perceived shortfall in the performance of GE Digital relative to expectations led to the CEO being replaced and the stock price dropping by 50% over the course of a year. As of June 2018, GE was removed from the Dow Jones Industrial Average and replaced by Walgreens. At the time, the committee in charge of the Dow Jones explained its decision this way: “General Electric was an original member of the DJIA in 1896 and a member continuously since 1907… Since then the U.S. economy has changed: consumer, finance, health care and technology companies are more prominent today and the relative importance of industrial companies is less.”

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