The Internet of Things is redefining business processes and models. Hans Jörg Stotz, head of IoT Strategy and Innovation at SAP, explains how SAP could become the market leader for the Internet of Things.

Q. SAP will invest €2 billion in the Internet of Things (IoT) in the next five years. Why?

A. The transforming qualities of IoT related to business models and process is so important that it will be one of the biggest growth factors for companies in the coming years. Countless studies and different figures predicting its impact on the economy and market growth back up the expectations we set up together with BCG. We believe that the IoT market will grow to a value of several hundred billion within just a few years. From an economic point of view, there is no question. We must invest greatly in this market.

Which areas will profit most form the IoT in the coming years?

I think we will see the greatest impact in Manufacturing and Logistics. Being able to pinpoint the location, condition, and characteristics of any product, machine, and means of transport at any given point in time will radically change business processes. There will be a “digital twin” to every physical product, which replicates the life cycle of the actual product in digital form and constantly updates the product status, allowing us to draw conclusions on its usage in real time. This is very important for quality assurance, as defects can be detected much earlier than they are now. This also allows developers to rectify reoccurring defects and manufacturers to simplify and accelerate their processes.

Predictive maintenance has already become so common that it is considered the norm in today’s manufacturing scenarios. In the future, sytems will be able to “learn” without human input through machine learning. The accumulated information is transferred to an asset management system that collects the lifecycle data of the machines and devices in a network. These developments will change business models to the core. Today, customers already pay according to how many flight hours an engine runs (“Power by the hour”) and companies produce customized products (“Manufacturing as a Service”). They offer services in place of machines. In Logistics, keeping track of the products (“Track & Trace) is rapidly gaining importance, while RFID chips are used more and more in production, factory, and transportation. The transportation chain is also becoming more transparent.

Autonomous systems such as robotics are taking over new tasks and interacting directly with business systems in storage, logistics, and production. The IoT and autonomous systems can relieve and support the human task force significantly.

SAP recently acquired two companies specialized in the IoT: Fedem and Plat.One. What will their role be?

Fedem is a Norwegian company that specializes in the maintenance of equipment in regions that are hard to access, such as wind parks in the Arctic and oil platforms, among others. Fedem uses a “digital twin” – the digital replica of a phiysical product – to simulate the device’s wear. It replicates the conditions of the object in real time and recognizes when one of its parts will be worn off and must be replaced before it affects the performance. SAP has many customers in the oil and gas industry, therefore we can apply Fedem’s approach to all oil pipelines. Breakdowns in this kind of environment would greatly affect the production process and have great financial repercussions.

Plat.One is an IoT startup with roots in Italy and California that expands our IoT application offerings. The acquisition is particularly interesting for us because Plat.One is very involved in EDGE processings and recognizes that data analysis is not only a process for central systems such as the cloud, but begins in the devices themselves. In addition, Plat.One brings many interfaces and protocols to SAP that help integrate diverse components and machines in Operations Technology (OT). Existing applications of Plat.One are being brought onto SAP HANA Cloud Platform to avoid the necessity for different toolboxes.

What is SAP’s IoT portfolio?

Our philosophy is that the value of the Internet of Things lies in the “integration of things” into business models. That’s why we believe that our customers are most interested in solutions for business problems and prefer standard solutions wherever possible. SAP most likely has the broadest IoT application portfolio in the entire market for this. These soltuions are created on our IoT platform and developed through the IoT Application Services (reusable microservices) on the SAP HANA Cloud Platform. The platform also allows customers and partners to develop their own applications and enhance existing ones. SAP Predictive Maintenance & Service is probably number one among the most well-established IoT standard products.

We’ve also observed an increased interest in the SAP Asset Intelligence Network, which is in essence the “Facebook of Things.” It is a business network that helps companies that produce, use, or maintain equipment and its parts cooperate by sharing data and forming an asset. There is an immense advantage in optimizing the use and maintainance of equipments and their parts through a network economy of sorts, where people can share insights into such assets. Another important area is Track & Trace in transport management. Product movement must become more transparent, to a point where the company always knows exactly where their transportation vehicles and containers are at any given moment.

There is a lot of competition over IoT platforms. What is the distinguishing factor of the SAP IoT Platform based on SAP HANA Cloud Platform?

If you ask analysts or consultors, they will tell you that about 300 to 500 IoT platforms exist today. And no wonder; every components manufacturer, every Smart Products and Services provider is facing the challenges of acquiring an IoT infrastructure. The end user, however, is more interested in how to bring the countless user interfaces and approaches together in one place. That is why we at SAP strive to integrate new IoT processes into existing business processes, regardless of which hardware or assets are being used. Some customers might only work together with a single components provider and use the IoT platform provided by them. Everyone else will need a variety of different, incompatible platforms. This is a great disadvantage.

SAP’s approach is different: If an SAP landscape is already in use, the customer can bring the IoT applications together through SAP as well, because the SAP HANA Cloud Platform is our joint platform, the doorway to ERP, even for IoT applications. It offers a great variety of IoT business services, which can be used as a basis for developing your own solution and enhacend to meet your particular needs. Furthermore, this does not exclude the cloud-to-cloud integration of other platforms. Bosch, for example, aggregates and stores data from its equipment in a cloud. Then SAP accesses the data through SAP Vehicle Insights, a solution developed on the SAP HANA Cloud Platform, and analyzes the telemetry data of a fleet of lift trucks, among other things.

Name the three developments that are most interesting for the Internet of Things.

1. Asset Intelligence Network: Connecting beyond the own company can make it possible to analyze equipment and its parts in greater detail and offer them as part of Manufacturing as a Service, depending on the use. This can greatly impact how we distribute finances, where we implement assets, and the way we evaluate the lifecycles of machines and their parts.

2. Autonomous systems in Production and Logistics: Decentralized systems such as autonomous robots, drones, and sattelite vehicles in storage are optimized locally. Central systems are only accessed sporadically for planning and controlling. A new architecture connecting central controlling systems, ERP, and system users could result in largely autonomous systems.

3. Digital twin: A product’s entire lifecycle is becoming more and more transparent. This makes it possible to simulate the operation of a machine more accurately. Also, companies will be able to pinpoint the exact location of any product in real time. This helps accelerate the value chains when new orders are placed and allows companies to scale up at the click of a button.

I am convinced that these three developments will transform the structures of entire industries in the future.