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Billions – Can a $1B investment make a market ?

Writing in the Harvard Business Review last September, GE CEO Jeff Immelt, said that in 2016 alone he had invested over $6B into ‘Digital Industrial Transformation’ and spent an additional $3B in digitally focused acquisitions, the latest step in a transformational process designed to turn this classic conglomerate into a “125-year-old Startup”. His strategy was a simple one, replicate what Microsoft had done with Windows. Predix, GE’s Digital Platform was to be the operating system for the Internet of Things.

Fast forward 8 months and GE’s share price is down almost 50%, Immelt has moved on and the much-vaunted digital strategy is in freefall. And Predix? Well, Gartner released its long-awaitedIndustrial IoT Platform Magic Quadrant this month, the end result of an exhaustive 3-year process to map the IoT platform market and create a definitive list of the key players in the space.

GE was listed as a Notable Vendor, which is an impressive ranking but given that Davra, a 25 person “6-Year-Old Startup” got the same ranking with about 0.01% of that budget it is difficult to regard Immelt’s spree as money well spent.

So why is the Magic Quadrant important?

IoT is undoubtedly the biggest tech trend of its generation and has certainly generated more column inches than any other technology in the last 20 years, Gartner Analyst Eric Goodness even referred to this particular MQ as “the most important since Cloud Computing”. All the hype, however, has led to lots of marketing spin and positioning and depending on who you listen to there are now somewhere between 450 and 800 companies out there saying that they have viable IoT platforms. The reality is much different though and Gartner has just proven it. As a company who have come through the process and been listed very firmly in the ‘A-Team’ of platforms I can guarantee you that it was not an easy ride, Gartner knew exactly what they were looking for in a platform and their detailed investigative approach made sure that none of the pretenders got through. When the dust settled the recognized players were exactly who you would have expected, companies like PTC, Software AG, GE, Microsoft, Davra, SAP, and Oracle all made the list, exactly who anyone who knows the industry would have told you anyway. The big surprise, however, was the fact that not one company made it above the line, in Gartner’s view this is not an industry with anything close to a clear market leader.

Which takes me right back to my original question

Last month Rockwell (ROK – NYSE) invested $1B into PTC taking 8.5% of the company in return. This is a clear move to leverage PTC’s IoT division (Thingworx, Axeda and Kepware) to make Rockwell more relevant in an increasingly connected world. As we’ve learned from GE’s travails, however, throwing cash at a problem isn’t always the smartest move and the market seems to agree. Rockwell dropped $10 a share since the investment and the general industry and analyst feedback has been a resounding “WTF ???”.

On the flip side, PTC’s shares spiked suddenly as the ‘quick buck’ merchants moved in but then dropped back to a little above where it had stood a week before the announcement suggesting again that the market isn’t impressed.

So what does all this mean for the IoT industry?

Well, to be honest, the biggest news in IoT is that it’s still business as usual and the real platforms players are poised to do very well in 2019 and beyond. Gartner has very clearly stated who these real players are and other well-regarded analysts like Berg Insights are suggesting massive growth (CAGR 32%) and strong consolidation in the platform space over the next 5 years.

GE is continuing to struggle, this week offloading their Health and Power businesses and suffering the wrath of JP Morgan who advised their clients to offload these ‘significantly overvalued’ shares. PTC has a nice bank balance but should take the time to monitor that particular situation very closely before flashing their newfound cash.

As for Davra?

Well, Davra will just keep doing what we do, building the best platform, creating a strong scalable go-to-market with partners like Cisco, Dell, Intel and Amazon and connecting the world one data point at a time.