CHAPTER 10

THE INTERNET OF THINGS: SMART NETWORKS EVERYWHERE

The Internet of Things (IOT) is about technology convergence. In this chapter I will show how smart developers have used a combination of sensors, data analytics, and powerful cloud networks to make warehouse floors more efficient and households more accessible—and have even taken steps toward solving out-of-control healthcare costs. I will also discuss three IoT infrastructure companies that have secured a spot on the ground floor of this exciting new industry.

The Hive Mind

The “hive mind” is science fiction utopia. Keys are never lost, no fact unremembered, and no communications unsent. Imagine a state of total awareness.

Over the next 15 years, the IoT promises to connect every tangible item in the world and every person to immersive webs of dynamic intelligence. Your alarm clock will wake you early when traffic is slow, commercial aircraft will automatically schedule required maintenance, and misplaced personal items will alert you before you realize they’re missing—and that is only the beginning of what is possible. Billions of connected devices continuously exchanging data will yield stunning productivity, environmental, medical, and human benefits, while also unearthing new security vulnerabilities.

It’s one of the most lucrative investment opportunities of our lifetimes.

With changes so massive coming, you would think it would be easy to figure out how to take advantage. Most white papers at think tanks focus on the connectivity of the things, such as network equipment and sensors.

And to be sure, the recent spate of big semiconductor company mergers—i.e., Avago buying Broadcom, Intel buying Altera, and NXP Semiconductor buying Freescale—are aimed at scaling up to dominate the next phase of profound connectivity.

Yet most of the value of this brave new world will be in the software that compiles, analyzes, and instantaneously leverages the data collected by billions of sensors.

The IoT is a natural fit for General Electric, for instance. As the world’s largest maker of jet engines, diesel trains, and other large industrial goods, finding ways to manufacture more efficiently is in its DNA. Developing a mesh of sensors and software was a logical step. So in 2013, GE unveiled a productivity software platform called Predix in conjunction with Amazon Web Services, Accenture, and EMC. The goal was to bring penny-pinching predictive data analytics to the industrial sector at scale.

Luckily, GE had a willing guinea pig for this project: itself. Since 2013, Predix has had a profound impact on GE’s production lines. In 2015 it was able to save $500 million through predictive maintenance. And by 2020, the company is expecting savings of better than $1 billion as the software and sensors are connected to more machines.

Elsewhere, BMW and Ford expect connected cars will communicate with each other and the network, relaying key data points like speed and destination. Using that data the network will not only rout traffic and govern speed to relieve congestion, it will reduce accidents by constantly monitoring safe distances given weather and road conditions. In the nearer future, smart assist features like automatic braking will slow vehicles to avoid accidents even if the driver fails to reduce speed.

Johnson Controls (JCI) wants to take automation one step further with embedded sensors in roads, street lamps, traffic lights, buildings, and other infrastructure. It will collect, analyze, and make data useful, so lights and air-conditioning units shut off when nobody is around, traffic lights will change to moderate the flow of cars, and icy road conditions will be relayed to oncoming cars, alerting them to slow down. If the drivers blow off the information, the cars will automatically reduce speed.

Sensors alone are not enough; they merely collect data. When they are connected via software to empower real-time decision making, the magic begins.

IBM (IBM) is building a major presence in data analytics—particularly in healthcare—with its Watson computing platform. In 2015 the company launched the Watson Health Cloud. The idea was to build a secure, open platform in which corporations and researchers could build systems and exchange data using application program interfaces (APIs).

Already, pharmaceutical and medical device firms like Johnson & Johnson (JNJ) and Medtronic (MDT) are using it to develop new drugs. Apple (AAPL) and Under Armour (UA) are using Watson analytics to decipher the deluge of data from connected watches and fitness bands. And medical facilities like Memorial Sloan-Kettering Cancer Center have made Watson the centerpiece of oncology research.

The size of the potential market for IoT solutions could be huge. In 2015, research firm IDC predicted the total market would grow to $1.7 trillion in 2020, from just $655.8 billion in 2014. And the company is predicting a staggering 29.5 billion connected devices.

As the paradigm shift continues, many old business models will be upended, leading to new services, products, and industries.

Naysayers argue that IoT is only hype. They are wrong because their focus is the things, the machines. The power and promise is leveraging data. Sensors, machines, and real-time analytics mean we’re entering an era when reaction times will be smaller than at any time in history.

Businesses will use smart networks to predict and remedy potential problems in real time. That state of total awareness is going to lead to unprecedented control over resources. In a business climate plagued with margin transparency and widespread disruption, this is more important than ever.

If All Else Fails, Blame Amazon.com

Back in 2012, Amazon.com bought Kiva, a robotics pioneer, for $775 million. At the time the company was building out warehouse infrastructure all over the world. The Kiva implementation was eye opening because its tiny motorized robots moved entire shelves. Very quickly, humans became the minority at the new state-of-the-art fulfillment centers. They were relegated to picking products from shelves whizzing by.

Now Amazon wants to replace the pickers too.

Every year, the company hosts the Amazon Picking Challenge. It is an international competition that honors engineering teams for building robots with human-like dexterity. In 2017, a Dutch robot with two fingers, a suction cup, and a network connection prevailed.

None of this plays well against the current political backdrop. Anxiety is high. Politicians on both sides of the political spectrum are looking for scapegoats. So they peddle a narrative steeped in gloom. The entire system is rigged. The forces of globalization are stealing jobs, destroying the future, they harangue.

The truth is that our economic system, capitalism, isn’t predicated on providing jobs or bright futures for workers for that matter. Those things are happy by-products. Capitalists are supposed to disrupt and innovate, mostly by looking for efficiencies, ways to replace high-cost jobs with low-cost machines. On that count, according to most, they’re about to really hit their stride. That may play even worse.

What Amazon.com did was digitize its business before digital became a thing. It invested in processes and machines that turned real-world analog events into data. Then managers added everything to their giant network and used the software to optimize.

The Kiva acquisition in 2012 was an inflection point.

The robotics company was building an ecosystem around its nifty little orange robots. Companies began to build software and hardware as layers. However, when Amazon scooped up Kiva, it decided to bring the whole operation in-house. Existing contracts were allowed to expire. Competitors were forced to scramble for new solutions.

Thankfully, they innovated. San Jose, Boston, and Europe are now full of automation start-ups anticipating the next wave of retooling. Honeywell (HON) bought Intelligrated in 2017 for $1.5 billion. Today these companies are stronger, smarter, and more agile. They’re also ready to prune more humans than ever as they integrate drones and other logistics devices armed with artificial intelligence.

In fairness, Amazon has been a good corporate citizen. Founder Jeff Bezos talks with pride about Career Choice, a job training program started in 2012. The program allows warehouse workers to train for high-demand jobs beyond Amazon. The Seattle warehouse has a glass classroom visible to most parts of the site.

There, workers retrain for jobs in nursing, aircraft mechanics, and truck driving. This year Amazon is open-sourcing the program, encouraging other Fortune 1000 companies to do the same. Clearly, it’s under no obligation to help workers find other or better jobs.

According to Bezos, this program exists so that workers can build careers in fields where demand is high and wages firm. He doesn’t want workers to feel trapped at Amazon. Putting the classroom in a glass box on the edge of the warehouse floor sends a clear message: There are choices beyond the warehouse.

Automation and other productivity measures will take a toll on the rate and quality of employment in the future. While a quirky Dutch robot isn’t likely to change the world, it does set the tone. Many future jobs in the IoT era belong to robots.

Businesses that network the things of the enterprise to inform decision making are likely to be rewarded with cost savings and productivity. It should not have come as a huge surprise. The process began long ago. Apple took a fledging digital media movement and gave it grace with iTunes. FedEx and United Parcel Service streamlined package delivery with digital waybill scans and automation.

However, Amazon.com took the best of both and put almost anything we could imagine just a few taps or clicks away with its giant online storefront. Bringing the physical warehouses inside the network was brilliant.

Now it is bringing predictability and unimaginable cost efficiency.

Walmart, Target, and GM Choose IoT

In 2017, the Electronic Engineering Times ran a story featuring Chris Enslin, a vice president at Walmart (WMT). His team of 500 is actively exploring ways to bring IoT, robotics, and artificial intelligence to the retailing giant’s global network.

The idea that billions of connected sensors are going to change the face of commerce is not novel. Analysts and consultants have been predicting the emergence of IoT for several years.

In 2015, McKinsey, a global consulting firm, estimated the worldwide impact of smart systems could reach $11 trillion by 2025. The firm predicted enormous cost savings for healthcare due to preventative maintenance for general interoperability. There was a lot to like, with very little downside. Or so it seemed.

The holdup is sensors. They are still too expensive for wide adoption. Enslin admits IoT strategies remain immature at Walmart. Engineers have trials up and running at only a handful of its 12,000 stores. Even then, the applications are rudimentary.

They use heat and vibration sensors in refrigerators to increase food safety and provide preventative maintenance. Scanners and computer vision systems now read codes for packaged products, replacing legacy log management systems.

It’s a start. And it’s a baby step toward the next-generation end-to-end systems.

But at the right price, sensors could be attached to every product Walmart sells. “Intelligent packaging someday could help reorder products from home when they get low,” Enslin says.

That would be valuable. And it is going to happen, sooner than later.

The company is locked in a fierce battle with Amazon.com for retail superiority. Although the online giant has only a fraction of Walmart’s annual sales, it has leapfrogged the Arkansas company in market capitalization. Despite the often razor-thin margins at its core business, Amazon.com was early to adopt IoT. And it is exploiting its advantages.

We take distribution and e-commerce for granted, but the beauty of the model is loss elimination. Items are rigorously tracked throughout the supply chain, resulting in better inventory management. There is no need for seasonal sales to clear backroom stock. There is less shoplifting.

Walmart is not the only retailer investing in IoT strategies. In 2015, Target began the process of outfitting 100 stores with LED ceiling lights that track customers after they enter, then guide them to products by using their smartphones.

It is even stranger than it sounds. The system uses something called visible light communication (VLC). VLC uses the wavelengths in LED lighting. These flickering wavelengths are imperceptible to the human eye yet robust enough to encode product information and transmit that data to a smartphone camera.

Proponents say the system can pinpoint products and users far better than Bluetooth. VLC is being backed by Philips, GE, Acuity, Qualcomm, and PureLiFi, a Scottish start-up. The obvious benefit, in addition to low-cost LED lighting, is putting customers on the network, where the experience can be personalized, promotions might be tailored, and data tracked.

General Motors has big plans for its Lake Orion manufacturing plant, 30 miles north of Detroit. The plant is home to its Chevy Bolt. The electric vehicle is considered vital to the longer-term health of GM.

As plants go, Lake Orion is a gem. It has 800 modern robots in place. From welding to lifting and painting, the bright yellow machines are constantly twisting and buzzing. Partners Rockwell Automation (ROK), Cisco Systems, and Fanuc, the Japanese robotics manufacturer, have worked hard to wring out efficiencies.

In 2016, the Lake Orion plant got the ultimate upgrade. GM installed a “mother brain”—a software stack that connects all of the hardware and data. Plant managers say for the first time, robots, conveyor belts, and even the HVAC are being run with the same software centerpiece. That computing center is located in a cloud set up by Cisco, running custom algorithms developed by Fanuc. The result is predictable manufacturing bliss and big cost savings.

Alexa Will Pay Your Bills

Echo, the smart speaker developed by Amazon, is on a roll. Not long after Echo became the top choice for consumers looking to automate their home, and after two voice-activated companions were added, Amazon set up a clever collaboration that makes it more useful for financially conscious users.

Capital One Financial (COF) announced a new skill for Alexa Voice Search at SXSW in 2017. The tiny software hack allows enabled Amazon Echos, Taps, Echo Dots, and Fire TVs to interact with a person’s financial information.

This helps bank customers stay on top of their credit card account by checking their balance, reviewing recent transactions, or making payments, as well as get real-time access to checking and savings account information, all hands-free.

Instead of using your computer, smartphone, or tablet to log into your online banking account or physically going to the bank, you can simply ask Alexa for the information.

To do this, users must first enable the Capital One skill in the Alexa app. After enabling the skill, users can ask questions such as:

•   “Alexa, ask Capital One for my Quicksilver Card balance.”

•   “Alexa, ask Capital One for recent transactions on my checking account.”

•   “Alexa, ask Capital One to pay my credit card bill.”

To avoid any confusion, Alexa will use pre-linked funds to pay bills. Though one would hope Alexa could use her own funds to pay your bills, that’s not going to happen.

Though this latest IoT innovation from Capital One may demonstrate the company’s commitment to creating better experiences, products, and tools for customers, one cannot help but wonder how secure this new connection is. Is it really wise to have a voice assistant blurt out your finances? Alexa, don’t tell my wife I bought another fairway wood for my golf bag.

Automated Drones and Delivery Vans

In the future your package might be delivered by a drone, launched and tracked from a mobile data center.

That is not science fiction. It’s what the next generation of IoT logistics looks like according to Daimler, which has reported a $562.7 million minority stake in Matternet, a Menlo Park drone start-up.

It will work with Mercedes-Benz Vans, a commercial vehicle unit building a new class of electric vehicles with fully automated robotic shelves, rooftop drone launch pads, and an onboard, intelligent cloud-based data network. The concept underscores how much software and data has disrupted traditional business models. As stuff becomes a service, manufacturers have just two choices: Move up the value chain or die.

Mortality is a great motivator. All over the globe, automakers are frantically buying up software companies or working strategic IoT alliances. Toyota invested in Uber, Volkswagen took an interest in Gett, and General Motors advanced ride-sharing firm Lyft $500 million to work together.

MB Vans division chief, Volker Mornhinweg, put it succinctly: “We are looking beyond the vehicle to the whole value chain and the entire environment of our clients.”

Matternet is a good place to start. The company cut its teeth using rugged commercial drones to deliver medical supplies in the rough terrains and extreme climates of Haiti, Bhutan, the Dominican Republic, and Papua New Guinea. In 2017 it began testing package delivery with Swiss Cargo and the Swiss Postal Service. This year it announced it would start a trial delivery service with the European logistics giant, DHL.

Daimler will integrate the drones with a new cloud-based logistics platform that is, at least in part, operated out of its vans. Onboard systems will automatically load the payload, swap spent batteries, and monitor the coordinates of deployed drones even when they are out of the line of sight. Daimler expects that drones will be capable of carrying packages up to 4.4 pounds and travel about 12 miles on a single charge. If a package requires a signature, there is no problem; the driver is along to handle the pesky details.

Drone usage for IoT logistics is clearly gaining traction. Amazon and Alphabet are pushing the Federal Aviation Authority to relax regulations to permit more commercial use in the United States. Qualcomm and AT&T recently announced a joint venture to use wireless spectrum to help drones navigate beyond the line of sight.

Daimler’s investment is indicative of the promise for investors. Drones, cloud-based data centers, and IoT are converging.

Qualcomm is making a concerted effort to dominate the drone “system on a chip” market, integrating its mobile and IoT architectures.

Healthcare Makes the Connection

It was only a matter of time before companies started using powerful cloud-computing networks and connected devices to advance healthcare.

In 2017, Philips and Qualcomm announced a partnership to develop an important IoT healthcare ecosystem. Medicare estimates that $17 billion is spent each year on avoidable readmission costs. Frequently, the cause of readmission is patients suffering from the complications of multiple chronic conditions like diabetes. Qualcomm Life quietly developed the 2Net open device network and a suite of connected medication dispensers, biosensors, and self-care glucose meters. Philips Healthcare Suite is an open, cloud-based IoT platform for healthcare systems, providers, and individuals. The marriage of the two creates one massive, scalable ecosystem. It will also create a lucrative new healthcare sector, as providers move care from costly emergency rooms to the home.

PricewaterhouseCoopers suggests that the market for connected healthcare will grow to $61 billion by 2020. From current levels, that is an impressive growth rate of 33 percent annually. And all parts of the ecosystem are expected to prosper. Connected health devices should grow to $14 billion by 2020.

Connected services are expected to expand to $45 billion over the same time frame—from current levels that represent annual growth rates of 37 percent and 31 percent, respectively.

There is reason to believe the PWC numbers might be conservative. As healthcare costs rise at an unsustainable rate in most of the developed world, policymakers are reaching the broad consensus that maintaining health is just as important as treating conditions. Connected healthcare, especially for chronic sufferers, encourages patient self-management while at the same time reducing costs. It’s a win-win.

The timing is right for Philips and Qualcomm too. Healthcare Suite has industry-leading core capabilities in data storage, data aggregation, and analytics. Advances in cloud computing mean all of this can be delivered at scale. And 2Net allows healthcare providers to build custom IoT applications for personalized treatment through the patient’s medical device, smartphone, or, potentially, other wearable devices. It’s not hard to imagine a world where a patient with an Apple Watch is in constant, real-time contact with software at his or her healthcare provider.

Philips’ Jeroen Tas summarizes the prospects well: “Patient self-management combined with connectivity to a care network is an emerging model that enables scalable chronic disease management for patients and providers.”

Connected Home Still a Work in Progress

At the 2017 Google I/O developer conference, the search giant unveiled its latest attempt to finally bring a Google version of the connected home to consumers.

The promise of the household IoT is massive. Truly smart, connected appliances we control by just talking are the stuff of “The Jetsons,” the space age future we were all promised in the popular animated TV series. That explains the hype cycle and wild estimates from consultants and analysts who should know.

It also explains consumers’ disappointment with various connected refrigerators and wine bottles that are just dumb.

Google has not helped. Its Android@Home platform debuted in 2012 and quickly failed. Despite plenty of arm twisting, Google couldn’t get hardware manufacturers to adopt its standards.

The $3.2 billion acquisition of smart appliance maker Nest in 2014 also slipped into the standards quagmire. Even with the stewardship of Tony Fadell, the guy behind the iPod product development, Nest has disappointed.

Its woes with competing standards culminated in 2016 when it decided to brick devices running Revolv, an IoT platform it acquired to move its brand forward just a year previous.

With its new Home set of products, Google is taking a different approach. It’s playing to our inner child delight and the surprising success of Amazon’s Echo. Home is controlled by voice and leverages the things Google does really well.

Ask it to play music, a podcast, or even to watch something on your television and Home performs like a champ because it uses the protocols of the wildly popular Chromecast devices. Those same standards also allow the seamless coordination of multiple Home devices and connected speakers.

Ask a trivia question about the weather, a change on your calendar, or commute, and Home can do these things, too, because it’s built on Google Search and your personal Google services. It knows you have a dentist appointment Thursday or that there’s a traffic jam because of roadwork on your morning commute. You better leave earlier.

Home can also turn off the lights in Billy’s room adjust the thermostat in the basement, and activate security cameras outside based on the standards Nest has nailed down.

That might be the only obvious near-term failing of Home. As a controller for the connected home, it’s still reliant on Nest’s progress. As a result, Google is taking a cautious approach with Home. Unlike Echo, that has become a free-for-all with developers, Google did not announce any open application program interfaces at its 2016 I/O developer conference.

The company says it wants to wait until it has a chance to iron out all of the little wrinkles that plagued its previous connected home offerings.

The lack of open APIs means developers won’t be able to get Home to order Domino’s pizzas or a Lyft ride share. And it may not work with appliances on competing platforms like Samsung’s SmartThings. Google says it will eventually have open APIs—but it’s behind.

That’s not necessarily a terrible thing. It’s still quite early in the connected home segment. Despite the promise of the IoT, many platforms are islands unto themselves.

In some ways it is understandable. Many companies, like Google and Samsung, want tighter control over the end product, especially the software. More open devices have found trouble. They have been easy prey for hackers. However, if the IoT is going to reach its true potential, better standards and wider adoption must emerge.

Black Hats Storm IoT Device Makers

In 2017, Bruce Schneier issued a wake‑up call to the US Congress. Schneier is no Chicken Little. He’s a noted security expert and public policy lecturer at the Harvard Kennedy School. He’s also the chief technologist at an IBM security subsidiary. And he’s worried.

The IoT is the most complex framework ever imagined. It also empowers attackers.

In October 2017, hackers took control of millions of connected devices using code made available on the dark web. They targeted Dyn, a service provider to many large websites. Their distributed denial of service attack shut down Amazon, PayPal, Twitter, and Spotify in many parts of America.

“Attacks scale. The Internet is a massive tool for making things more efficient. That’s also true for attacking. The Internet allows attacks to scale to a degree that’s impossible otherwise. [. . .] And this is more dangerous as our systems get more critical,” Schneier said. “The Dyn attack was benign. A couple of websites went down. The IoT affects the world in a direct and physical manner: cars, appliances, thermostats, airplanes. There’s real risk to life and property. There’s real catastrophic risk.”

It is the rest of the connected world that worries Schneier. The IoT is only as strong as the weakest link, and there is no incentive for smaller companies making inexpensive devices to invest in security.

“These devices are a lower price margin, they’re offshore, there’s no teams,” he said. And a lot of them cannot be patched. Those DVRs are going to be vulnerable until someone throws them away. And that takes a while.”

The prescription, according to Schneier is not something many in Silicon Valley are going to like: Regulation. He sees the need for government to step in and make sure connected devices meet minimum standards.

It is a sentiment echoed by Brian Krebs, a veteran cyber security expert. In September 2016, KrebsOnSecurity.com was the target of an unprecedented cyber attack.

In the parlance of Red Bull–guzzling hackers, it was standard “distributed denial of service”: Throw so much junk data at a site that it cannot perform its intended service. It happens all of the time.

This attack was game changing because it probably wasn’t the work of a nefarious nation state. It was very likely ragtag hackers using an arsenal of IoT appliances. Like TV’s MacGyver, they banded together scads of routers, IP security cameras, and digital video recorders, used software to make them compliant, then pointed every last one of them at Krebs.

IoT security has been a pressure point among researchers for a while. In an effort to keep costs low and the learning curve lower for neophyte consumers, manufacturers have rushed connected things to the market. Many have generic firmware and, worse, default passwords.

Creepy hackers have easily commandeered everything from home security cameras to baby monitors. The jump to using connected devices as weaponry was just a matter of time.

As an investigative journalist, Brian Krebs is no stranger to attacks. He made it his business to ferret out malware and expose cyber criminals. His work is so well regarded that Akamai provided DDoS protection to his own site pro bono before the attacks last year made that too costly.

The site has since been embraced by Project Shield, an Alphabet service that protects journalists worldwide and their right to free speech.

Last year Krebs published a long blog post exposing the inner workings of a hacked, online booter service called vDOS. That service brazenly sold DDoS exploits to would be cyber extortionists on a subscription basis. For as little as $30 per month, customers got exploits capable of taking most sites down.

Krebs alleges the hacker-for-hire operation helped coordinate 150,000 exploits, yielded $600,000 in bitcoin for site administrators over a two-year period, and was responsible for the majority of DDoS shutdowns worldwide during that time.

Further investigation led him through thousands of paying clients, their targets, and the masterminds to two Israeli teens, Itay Huri and Yarden Bidani. The pair was later arrested by the FBI.

Taking down KrebsOnSecurity was just payback from miffed cyber criminals.

More worrisome is the scale of attacks now possible using security-challenged IoT devices. More than 620 gigabits per second was blasted at KrebsOnSecurity. For the sake of comparison, in 2013 a DDoS exploit shot 300 gigabits per second at Spamhaus, an international organization founded to track e‑mail spammers, and some said it threated the very Internet itself.

In a recent post Krebs said, “The idea that tools that used to be exclusively in the hands of nation states are now in the hands of individual actors, it’s kind of like the specter of a James Bond movie.”

In the Bond films, despite villain superpowers, the forces of good always win. Then again, there is usually just one villain, and they can’t rent superpowers for just $30 a month.

Building Through Example: Rockwell Automation

Rockwell Automation (ROK) is a strange story. It is the world’s largest company solely dedicated to industrial automation. And it has been in this business since 1901.

A decade ago, however, Rockwell was broken. The Milwaukee conglomerate had grown big and unwieldy. Its plants, scattered all over the globe, didn’t use the same information technology systems. They barely communicated.

In 2007, the company sold its Power Systems division to Baldor Electric Company for $1.8 billion. Company managers began to look inward. They wanted to practice what company sales representatives were preaching to the corporate world.

In 2008, the Rockwell introduced the Connected Enterprise, its plan to connect every facet of modern businesses. And the process began with its own sprawling operations.

At the time, the company had expanded to 20 global manufacturing facilities, with 22,500 employees and 400,000 stock keeping units (SKUs). Plant managers had been given wide authority. The result was many different manufacturing processes, enterprise resource planning systems, and chaos.

The goal was to bring everything under one umbrella. The overarching theme was connectedness.

The Connected Enterprise began by merging operational technology, like barcode readers, automated conveyors, scanners, and plant floor touchscreens, with the information technology systems. This required a full reworking of the corporate network, data analytics, and the disparate ERP systems.

In 2012, the company ditched its network structure in favor of EtherNet/IP, an open network infrastructure. A standardized enterprise resource planning system across all facilities followed. In 2013, the company rolled out Manufacturing Execution System, a set of processes that standardized workflows.

Backend, cloud-based software stitched everything together. By late 2013, Rockwell managers in Milwaukee could see live data at every plant. They could peruse quality reports and gauge productivity.

Every scanner, sensor, and barcode reader across the enterprise was connected to a signal live feed.

The results were stunning. It was a total restructuring of the supply chain. Inventory declined from 120 days to 79. Product quality increased 50 percent. On-time deliveries surged from the middle 80 percent range to 96 percent. Capital expenditures declined by 30 percent. And productivity increased 4–5 percent.

It’s a great story to tell clients. It’s the power of a comprehensive IoT strategy.

In 2018, there are plenty of corporate managers willing to listen. They understand that IoT implementation provides benefits beyond simple productivity.

Rockwell claims an 82 percent success rate with IoT clients, with faster time to market, greater worker safety, improved network security, and lower total cost of ownership. In a highly competitive market where every advantage is magnified, these factors are vital.

The story is resonating with customers. In 2017, sales were up 7.2 percent to 6.3 billion year over year. And the company continues to grow very strongly in China, the United States, Europe, the Middle East, and Africa. These are key markets for IoT technologies.

In a conference call with analysts January 2018, Blake Moret, chief executive officer, stressed that the next corporate priority was strategic acquisitions to build out the connected enterprise strategy. He also congratulated managers at the Rockwell plant in Twinsburg, Ohio. The facility was awarded in 2017 for its use of innovative technology by Plant Engineering magazine.

Big Is Better: SAP

Sprawling. That is the best way to describe SAP SE (SAP).

The German enterprise software and professional services company has 345,000 customers and 87,000 employees, and its developers build solutions for 25 industries.

The company has the scale and expertise to win the IoT revolution. Investors should bet it will.

The company began in 1972 when a group of talented engineers left IBM. They wanted to move beyond math problems. They wanted to build deep relationships with customers. They wanted to run open, scalable software. What came next was R/3, the first standard application for real-time data processing.

It started a revolution.

In the early years, SAP routinely grew annual revenues by 60 percent. The company’s software became a platform, allowing it to strengthen and grow inside enterprises. Engineers saw opportunities firsthand. When the Internet emerged in the 1990s, SAP was there to capitalize with new solutions. When e-commerce and social media followed, SAP augmented its platform further. And now the company is ready for next-generation IoT technologies.

Its SAP HANA is a big data platform that allows frictionless, fast analysis of data on any screen. From Adobe Systems (ABDE) to Mercedes Benz, leading companies choose the platform to rescue mission-critical insights swimming in a turbulent sea of data. Recent converts include Nvidia (NVDA) and China International Containers, one of the biggest makers of shipping containers in the world.

Speaking of containers, SAP is working with the shipping industry to build real-time solutions based on blockchain. Currently, international freight is a maze of middlemen. Bankers, insurers, carriers, freight-forwarders, and local authorities are all shifting paper between buyers and sellers. It is a mess.

SAP hopes to remedy this with a cloud-based solution that uses QR codes, two-factor authentication, and a distributed ledger system. Documents would be continuously updated and shared electronically. Bills of lading would be digitally signed by using mobile applications.

Plenty of companies are working on blockchain solutions. Very few have the scale and expertise to get inside enterprise boardrooms.

In 2018, SAP is getting into those boardrooms because corporate managers are anxious to use its software tools for IoT implementations. The power of HANA is its flexibility. SAP developers are using it to build real-time, next-generation IoT applications that are location aware and ready for machine-to-machine interaction.

The impressive sales growth is proof customers are voting with their wallets.

In 2017, SAP boasted $22 billion in sales. Despite its size, revenues were up 6 percent. Its cloud business is growing even faster. Luka Mucic, the CFO, told analysts in October that cloud licenses increased 15 percent year over year. Bookings were 19 percent better, and revenues jumped 27 percent.

But that is not the reason to buy SAP shares. The company is attractive because it is building a competitive advantage in IoT, a fast-growing industry vertical with tremendous long-term potential.

Connecting Things in the Cloud: Cloudera

Cloudera (CLDR) makes software that allows businesses to collect, store, and make sense of vast amounts of IoT data in real time.

The timing is right. Enterprises are on the edge of the IoT data deluge. They need firms like Cloudera to manage data and help drive insights.

The IoT is expected to connect up to 50 billion things to the Internet in a decade, says Amr Awadallah, Cloudera cofounder and chief technology officer. Sensors in smart cars, oil rigs, electric turbines, and everything in between will push a tenfold increase in the amount of data created over just the next four years.

Built on open-source Apache Hadoop, Cloudera’s platform is capable of collecting and storing data across many sources in varied formats. And its roots in Yahoo and Google research labs mean it runs lean and seamlessly on hardware that is very low cost.

It can be a winning combination.

Truck maker Navistar runs its OnCommand diagnostics platform atop Cloudera Enterprise. Using weather, traffic, real-time vehicle performance, historical warranty, and other data, Navistar is able to predict maintenance issues before they occur. Vehicle downtime has been reduced by 40 percent, and the company is now able to remotely monitor 250,000 trucks.

Collecting and analyzing so many data points, across such a large install base, was simply “not possible” in the past, said Terry Kline, chief information officer at Navistar.

Opower uses Cloudera Big Data analytics to power its consumer-facing dashboard. The Virginia-based company works with utilities companies to help educate consumers about reducing their power consumption to save money. The software has resulted in $500 million in savings and three fewer terawatts of energy use. That’s enough power to light up Salt Lake City and St. Louis for an entire year.

There are challenges. Founded in 2008, Cloudera was among the very first start-ups valued at more than $1 billion by the venture capital community. Accel Partners, Greylock Partners, Fidelity Investments, T. Rowe Price, and Intel all ponied up early funding in anticipation of a triumphant IPO. However, the company struggled with its business model. The IPO payday never came.

When you add in research and development, sales and marketing, and general administrative expenses, Cloudera is still losing money. The red ink was $187 million in fiscal 2017. That’s down slightly from $203 million in 2016.

Awadallah believes the coming avalanche of data is the opportunity. Cloudera products are ready to be deployed across healthcare, insurance, manufacturing, financial services, and government.

In June 2017, he told Dataquest the sole purpose of Cloudera is to help customers maximize what big data can do for them. If he can deliver, big data is also going to be profoundly positive for Cloudera shareholders.

In April 2018, Cloudera reported that fourth-quarter revenue increased 42 percent year over year. Subscription revenue surged 50 percent to $84.3 million. In the first quarter as a public company, Cloudera introduced six new products and completed a major acquisition.