Industrial Internet: The “Apple” Dream of Manufacturing Giants

　　On July 7, U.S.-based General Electric (GE) reached a cooperation agreement with China Telecom Group to integrate its industrial internet platform Predix—essentially an operating system for industrial equipment—into China Telecom’s comprehensive information services. As a result, the U.S. industrial internet will now enter China’s sectors of cloud storage, telemedicine applications, smart manufacturing, and cloud computing.

　　A few days later, the China Industrial Internet Association was established in New York—a significant breakthrough in international cooperation between Chinese and U.S. industrial and information-communication sectors, following the establishment of the China-Germany dialogue on Industry 4.0.

　　It is reported that GE has launched 12 industrial internet pilot projects in China and is currently promoting the implementation of more than 40 big data analytics applications. The industrial internet, often hailed as a hallmark of the third industrial wave, has begun to substantively participate in and influence the progress of the “Internet Plus” initiative in China’s industrial sector.

　　Before the large-scale introduction of the Industrial Internet into China’s industrial sector, it is essential to thoroughly examine how the Industrial Internet came about, what exactly it aims to achieve, why it was developed, and whether it might have any side effects.

　　Industrial Internet

　　Reinventing American Manufacturing

　　Following the 2008 financial crisis, the U.S. government’s most significant realization was the importance of the real economy in the nation’s economic landscape. Recognizing that industry is the single most critical component of national competitiveness, the U.S. government has successively introduced a series of national initiatives—such as the “Framework for Revitalizing American Manufacturing,” the “Advanced Manufacturing Partnership Program,” and the “National Strategic Plan for Advanced Manufacturing”—in order to implement a national strategy of “reindustrialization.”

　　In 2012, GE—the leading U.S. manufacturer—was the first to introduce the concept of the “Industrial Internet.” Relying on the interconnectedness among machines and devices as well as analytical software, this approach shifts away from the previous model that relied primarily on standalone intelligent devices. By combining high-performance equipment, low-cost sensors, the internet, and big data collection and analysis technologies, the Industrial Internet significantly boosts the efficiency of existing industries and fosters the creation of entirely new ones.

　　This idea has been around for a long time. As early as 2005, when GE’s aircraft-engine business was reorganized into GE Aviation, the company began shifting its business model. Originally, the company’s sole focus was on manufacturing aircraft engines. Now, by installing numerous sensors on aircraft to collect real-time data on various aircraft parameters and leveraging big-data analytics, GE provides airlines with a comprehensive suite of solutions covering operations and maintenance management, capability assurance, operational optimization, and financial planning. Additionally, GE offers a variety of other services, such as safety controls and flight-path forecasting. Gradually, GE has transformed itself into a full-fledged software company.

　　Take Alitalia as an example: GE has installed hundreds of sensors on each of their aircraft, enabling real-time collection of a wealth of data—including engine performance, temperature, and fuel consumption. After analyzing this massive dataset using GE’s software, the system precisely identifies optimal operating procedures. Just this one measure alone has enabled Alitalia to save $15 million in fuel costs annually across its 145 aircraft. Moreover, by leveraging this data, potential engine failures can be predicted well in advance, allowing for proactive maintenance and preventing flight delays, increased costs, and even more serious safety incidents caused by mechanical malfunctions.

　　It is precisely through the deep integration of IT technologies and equipment that GE has gradually transformed from a equipment manufacturer into a smart service provider. As a result, the company’s business model has shifted from solely selling equipment to becoming a supplier of integrated intelligent systems encompassing smart devices, intelligent analytics, and intelligent decision-making.

　　Experts generally believe that the value of the industrial internet will be reflected primarily in three aspects: First, it enhances the efficiency of equipment utilization, thereby reducing energy waste and contributing to a modest increase in GDP. Second, it improves the efficiency of system and equipment maintenance, shortening maintenance times and effectively boosting productivity. Finally, it optimizes and simplifies operations, freeing up more valuable human resources.

　　GE predicts that if the Industrial Internet can boost productivity by 1% to 1.5% annually, it will increase U.S. average incomes by 25% to 40% over the next 20 years. Moreover, if other regions of the world can achieve half of the productivity growth seen in the U.S., the Industrial Internet could add between 10 trillion and 15 trillion U.S. dollars to global GDP over the same period.

　　To this end, GE established an R&D center for the Industrial Internet in Silicon Valley in 2011, and its R&D team has now grown to over a thousand members. In 2013, GE announced that it would invest $1.5 billion over the next three years in developing the Industrial Internet. This April, GE announced that it would divest most of its financial businesses—worth $363 billion—in the next two years. The company plans that by 2018, 90% of GE’s profits will come from high-return industrial businesses, compared to 58% last year.

　　From this, we can see that the value of the industrial internet lies not only in helping original equipment manufacturers transition toward intelligent manufacturing systems and service providers, but also in potentially creating a new high-end real-economy model with profit margins even higher than those in the financial sector.

　　Open platform

　　Building an Intelligent Manufacturing “Apple” System

　　The United States is the birthplace of the internet, and from its very inception, the industrial internet has borne a distinct internet imprint—openness. Compared to the internet, the industrial internet not only needs to foster openness among ICT technologies such as telecommunications networks, data storage, and data transmission, but also must achieve openness and integration between manufacturing technology and IT technology.

　　This is an R&D consortium spanning “two IT worlds.” In March 2014, GE joined forces across industries to partner with IT companies such as IBM, Cisco, Intel, and AT&T, establishing the Industrial Internet Consortium (IIC). The Industrial Internet Consortium adopts an open membership model and is committed to enabling data sharing among devices from different manufacturers. This involves not only Internet network protocols but also various parameter metrics related to data storage capacity, interconnectivity, and the status of connected versus non-connected devices within IT systems. The goal is to break down technological barriers by developing universal standards, leveraging the internet to revitalize traditional industrial processes, and further promoting the integration of the physical and digital worlds. “The initiative aims to accelerate the development, collection, and widespread adoption of interconnected machines and devices, foster intelligent analytics, and provide assistance to workers.” Today, the Industrial Internet Consortium has grown to include 167 member organizations.

　　This is an open system with ecological significance rather than merely industrial-chain significance. In October 2014, GE announced that its Industrial Internet platform, Predix—essentially an operating system for industrial equipment—was being opened up to companies worldwide, bringing the collaboration model between platform and application developers from the internet realm into the industrial sector. This ensures that users can rapidly develop customized industry-specific applications at scale. This kind of industrial ecosystem, highly reminiscent of Apple’s approach in the smartphone sector, will greatly accelerate the adoption and implementation of the Industrial Internet across various sub-sectors of manufacturing.

　　This is a standardized collaborative organization aimed at the global market. Currently, Chinese companies and institutions such as China Telecom, Haier, Huawei, the China Academy of Information and Communications Technology, and the Shenyang Institute of Automation of the Chinese Academy of Sciences have joined the IIC, and will share cutting-edge technologies and resources in sync with the global industrial internet industry.

　　We believe that the purpose behind the establishment of industrial internet alliances by companies such as GE is to leverage the United States’ advantages in information technology and, through deep integration with manufacturing, take the lead in setting technical and industry standards, thereby securing a dominant position in global competition. To date, the industrial internet has not yet become a national strategy for the United States—a stark contrast to Germany’s nationwide drive behind Industry 4.0. However, given that many U.S. companies within these alliances bear responsibility for the U.S. “reindustrialization” effort, and since one of their key technological pillars is the CPS cyber-physical system, many scholars now regard the industrial internet as an industrial strategy on par with Industry 4.0.

　　The collaboration with China Telecom can be seen as the first step in extending an olive branch from the industrial internet to Chinese enterprises. But hold on—what can China gain by participating in this new industrial initiative aimed at revitalizing American manufacturing?

　　Let’s turn our attention back to the first ecosystem of smart manufacturing—the smartphone platform. Nokia, which for 15 consecutive years held the top global market share during the feature-phone era and whose R&D investment once reached five times that of Apple, ultimately faltered in the very first battle of the smartphone ecosystem and finally collapsed in 2013, changing hands in the process. This is a poignant tale of the first manufacturing giant unable to adapt to the smart era. In this story, China clearly emerged as an observer, a learner, and a beneficiary. Soon after Apple, a new platform—Android—rose up with an even more open spirit. Through its collaboration with Apple, a large number of Chinese small- and medium-sized developers reaped billions of yuan in app revenue shares, nurturing a vast pool of software and hardware development teams that would later pave the way for today’s “Internet Plus” era. And thanks to its partnership with Android, combined with the relentless drive of Chinese mobile phone manufacturers, companies like Huawei, ZTE, Xiaomi, and Coolpad have truly broken into the global top tier of smartphone shipments.

　　The field of smart manufacturing is likely to see a competitive landscape reminiscent of that in the smartphone industry. Germany’s Industry 4.0 and the U.S. Industrial Internet are poised to become the two most important global platforms for smart manufacturing in the future. The author calls upon China’s industrial and information-communication sectors to pay close attention to the historic opportunities these developments present, to move toward each other in a spirit of cooperation, join forces to integrate global innovation resources, and accelerate the intelligent transformation of China’s industrial economy. By comparison, the China-Germany Industry 4.0 dialogue, being government-led, has proceeded at a rather slow pace and has yet to reach the stage where major enterprises from both sides actively join each other’s industry cooperation organizations, jointly promoting conceptual discussions and co-defining standard systems. In contrast, thanks to its focus on open, market-oriented collaboration among enterprises, the Chinese adaptation of the Industrial Internet has already “arrived late but ahead of schedule.”

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　　Through our examination of GE’s transformation toward smart manufacturing via the Industrial Internet, we’ve found that world-class manufacturing giants have already shifted from intelligence centered on individual devices to system-level intelligence. They’ve moved beyond mere automation and informatization to leverage the deep integration of ICT and equipment, thereby giving rise to a new array of industrial intelligence services—including device networking, data collection, big data analytics, and intelligent decision-making. Although GE has championed and established the Industrial Internet Consortium and was among the first to open its Predix platform, a major manufacturer with a relatively homogeneous production model—primarily focused on sectors such as aerospace, energy, and healthcare—is not necessarily poised to evolve into a unified industrial application platform controller akin to Apple. The fragmentation across various industrial sub-sectors and the complexity of manufacturing technologies will only make the competition for smart manufacturing platforms—and the broader geopolitical dynamics—increasingly intricate and unpredictable.

　　As U.S. manufacturing giants boldly abandon their once-lucrative financial sectors and wholeheartedly embrace the tide of smart manufacturing, the intelligent transformation undoubtedly represents a new wave of industrial change that will reshape the future landscape. Meanwhile, however, we observe that Chinese listed companies, having raised massive amounts of capital through numerous new concepts, are channeling the vast majority of these funds into real estate, finance—and especially the stock market. The stark contrast between these two trends is truly cause for concern! (Hu Hu, Zhu Duoxian)