The Hardware Challenge of Industrial Software Companies

Julian Counihan (LinkedIn) from Schematic Ventures, a VC firm that invests in ICT startups in industry, makes a good point in a post on Medium (“Musings on Industrial Software”) that some industrial software startups are following the wrong playbook—the one for the modern software industry in which hardware is almost irrelevant.

Consumer vs. Enterprise vs. Industrial Software

Screenshot from Microsoft .NET Framework’s website, the framework that enables C# developers to create cross-platform software programs.

Consumer Software

Take the consumer software market. Today, any startup team can build on an object-oriented programming language (say, C#) and use a cross-platform software development framework (say, .NET) to develop a software application that runs on web, desktop, mobile and wearable, host it in the cloud, and put it up for sale with a SaaS business model.

All it takes customers to begin using the app is a device and a credit card.

Enterprise Software

Now let’s move on to enterprise software. The startup can use the same programming languages and frameworks to develop its software application for the enterprise. It will also have to design a software architecture that supports multiple tenants, develop integration features with other software systems such as the ERP or CRM, and build an API that enables third-party developers to make new integrations.

To begin using the app, the enterprise will need to license, integrate, configure, train its employees, and have it maintained by the IT department or the outsourced IT services supplier.

Industrial Software

The situation with industrial software is more complex. An industrial organization is like an enterprise that also operates complex physical assets as part of its business. To develop its software for industrial use cases, the startup will also have to solve the challenges of industrial processes, assets, connectivity, and interoperability. The startup will have to plan for connecting physical assets to the Ethernet or Internet, integrating with their controllers/actuators or retrofitting them with sensors so as to collect data, providing appropriate controls to users for access control, asset control, data sources, and user interfaces, as well as exchanging data with existing software systems.

To begin using the app, the organization will have to install or adapt its ICT infrastructure, to purchase sensors, devices, and/or hardware, to configure and test them, to set up and integrate the software, to train its employees, and to hire an internal or external service supplier to keep the entire environment up and running.

If we were to plot that on a chart where x = Hardware Dependencies (how much hardware the customer needs to get the application running) and y = Interoperability Requirements (how many integrations/configurations are needed to be done before the application is up and running in a production environment), it would probably look like this:

From Products to Businesses to Ecosystems

We can explore the differences between building a consumer, an enterprise, and an industrial startup’s value chain through the following lens:

If you are in the consumer software market, you are building a product. Your efforts should therefore be focused on building a better product.

If you are in the enterprise software market, you are building a business. Your efforts should therefore be focused on a higher level, which is building a better business. You may need one or more partners to sell, integrate, and/or deploy your software solution.

If you are in the industrial software market, you are building an ecosystem. Your efforts should therefore be focused on an even higher level, which is building a better ecosystem. You will need one or more partners to supply the connectivity, infrastructure, hardware, integration, deployment, and/or maintenance of your software solution.

As Julian from Schematic Ventures points out, it is the industrial software startup’s responsibility to create an ecosystem of partners that enables their software solution to be functional. This creates new challenges (and, depending on how you look at it, new opportunities) for everyone in the value chain. Some early-stage questions to ponder on if you are building an industrial software startup:

  • What infrastructure [ports, cabling, switches/routers], connectivity [Ethernet, Wi-Fi, 3G/4G/5G], and/or hardware [sensors, devices, machines] is the customer expected to have before they are able to run our software?
  • What types of suppliers [sensor manufacturers, machine manufacturers, network operators, system integrators, service providers, resellers] does the customer have to work with to run our software?
  • Is every piece of this puzzle available, affordable, and maintainable in our target customer market? If not, are there any alternatives?
  • What is the decision, purchase, delivery, and implementation timeframe of each of these components? Where are the bottlenecks and issues in that process? Can we solve them for the customer in any way?
  • Can we (and how can we) partner with these companies and integrate their offering in a unified customer journey?

Where to read/watch more?

Innovation Manager at ICB, a software company. Curious about the technology of business and the business of technology.