Industry clouds provide enterprises with opportunities to ‘rewire their value chain’ — and develop software revenue streams. The German automaker, in partnership with AWS and MHP, seeks to do just that.
Industry clouds are increasingly becoming go-to solutions for IT leaders seeking services tailored to their verticals.
For most enterprises, this involves deploying existing industry-specific offerings from SaaS providers or hypervisors. For the innovative few, co-creating custom industry solutions in conjunction with cloud providers can not only fulfill an internal need but also provide the opportunity to develop a new source of revenue from their IT IP.
German vehicle manufacturer Volkswagen is one enterprise going the co-creation route, building its own industry cloud for automobile manufacturing in concert with AWS and MHP, a Porsche-owned IT consultant.
Roughly 18 months into the project, VW recently began making available on its factory floor the first AWS microservices of what Frank Goeller, head of digital production at Volkswagen Group, refers to as a “digital production platform.” The solution was designed using AWS building blocks for internal use, but the components will also be made available to interested rivals.
“The main purpose is to develop powerful software for our internal processes to improve performance in production and logistics, namely to enhance factory efficiencies and supply chain management,” Goeller explains. “If BMW, or Ford, or Tesla would like to use our microservices in their manufacturing facilities, they could do that.”
Goeller has a core team of about 30 engineers devoted to this industry cloud but many others at the Wolfsburg, Germany-based company are part of the process, and Goeller is working in “close collaboration” with a team from AWS dedicated to the VW project based in Seattle.
VW’s primary goal for the project is to reduce the cost of manufacturing, accelerate time to market, tailor solutions for its unique manufacturing needs, increase safety, and scale the solution to all its factories globally. But as a spokesperson for VW told CIO.com, “The second goal is to open up new software business areas. We cannot disclose any revenue goals or details, but we can say that there are Tier-1 suppliers who are interested in our solutions.”
Banking on industry cloud
One such service VW has developed, Paint IT, is a cloud monitoring system that evaluates various aspects of an automobile’s paint coating criteria, such as layer thickness, color tone, and structure, which may be sold to interested parties.
A big plus for VW is the ability to mobilize an internally owed IT engineering company for the effort. MHP, a subsidiary of Porsche, of which VW is a majority stakeholder, also developed the application Call Rocker, which automates the replenishment of supplies in SAP logistics systems, according to a VW representative.
Call Rocker is in use today at VW and will be made available to other OEMs in the future “via the industry cloud marketplace,” the company reports.
Goeller is also heading up a separate digital initiative called Catena-X, which is a collaborative, open data ecosystem for the automotive industry.
AWS building blocks — from advanced analytics, to computer vision, to connectors to SAP — have been vital to the creation of VW’s industry cloud, and it’s all part of a strategy that recognizes the importance of AI and robotics in impacting quality control, accelerating time to market, and advancing smart factories that can learn from manufacturing errors and deploy fixes globally.
“We have learned from AWS a very important lesson: Eat your own dog food,” Goeller says. “New solutions using MHP are available to use internally and talking to external customers to offer those solutions externally is the initial idea.”
Industry clouds picking up steam
This is just one example of a large enterprise driving the expansion of industry clouds. VW, Tesla, and Salesforce, for example, are among the pack of vendors developing clouds specific to the automotive industry.
And the phenomenon is taking hold across nearly every vertical, with availability of industry-focused clouds from AWS, Microsoft, Google, and Oracle, as well as SaaS leaders Salesforce, SAP, ServiceNow, and Workday, targeting the financial, healthcare, life sciences, manufacturing, and design/engineering sectors, to name a few.
Industry cloud specialist Ashley Skyrme, senior managing director at Accenture, says IT leaders looking to capitalize on the trend must do so strategically, deciding whether they want to reinvent the company’s business model and extend the product line, build a solution on a cloud hypervisor’s or SaaS partner’s specific platform, or work with a vendor or systems integrator to create its cloud with a specific vertical focus.
For some enterprises, the road to industry cloud is an evolution from previously adopted solutions. A Microsoft shop, for instance, may find it easier to move to one of Microsoft’s wide range of industry-specific clouds. St. Luke’s Health Network, for example, opted to use Microsoft Cloud for Healthcare for its integration, given the nonprofit network’s existing use of several Microsoft products at its 300 locations in New Jersey and Pennsylvania.
For Autodesk customer Cube 3, the possibility of leveraging Forma, the CAD software maker’s first industry cloud, would enable it to simplify and customize its digital transformation specifically for its vertical needs.
“We pride ourselves on creative, intelligent designs that take our clients’ needs, budgets, and the environment into consideration,” says Cube 3 CIO Tony Fiorillo. “Solutions like Autodesk Construction Cloud and Forma are a huge value-add — giving us unprecedented access to data, which allows us to work smarter and go where our clients need us.”
As they evolve, industry clouds may become the de facto choice for many enterprises, analysts note. In one recent Gartner survey of enterprises in the US and Europe, almost 40% had begun to adopt industry cloud platforms, with another 15% in pilot mode. Gartner claims that by 2027, enterprises will employ industry clouds to “accelerate more than 50% of their critical business initiatives,” compared to fewer than 10% in 2021.
Going vertical
Still, enterprises that opt to build a more revolutionary industry cloud to reinvent or extend their core business model will benefit most from the model, Accenture’s Skyrme says.
“Industry cloud is about using the cloud to reinvent or disrupt industry business models and norms. It’s using the full power of cloud to differentiate — not just digitize,” she says, pointing to Volkswagen and Siam Commercial Bank as examples of enterprises that have taken the most aggressive approach.
Siam Commercial Bank’s industry cloud efforts have paved the way to expanding the 104-year-old bank’s business model “from a commercial bank to a leading fintech group in the region. It’s rewiring their value chain,” says Skyrme, who sees differentiation and driving growth as “the Holy Grail of industry cloud.”
“That’s when you’re starting to think about new products, new platforms, new experiences, your cloud-native strategy, or thinking about co-creating with [the cloud] hyperscaler as a partner and maybe even other people in your industry to create something new,” she says.
In Volkswagen’s case, partnering with AWS may very well drive new revenue streams as it reinvents core aspects of its business model. Goeller says that VW chose AWS for its automotive cloud but will work with all hypervisors as its multifaceted digital transformation evolves.
“There was definitely a beauty contest and in 2019 we saw AWS as the best selection for us,” says Goeller, who admits that co-creation has its challenges, one of the biggest of which has been melding the two quite different “mindsets” of an automobile manufacturer and a software company.
“The first challenge for us really was to bring the working cultures together,” he says. “AWS learned a lot from us, an older company, such as how to track your targets and measure your costs, and that was something they didn’t know in the beginning. And we learned to be much quicker and more agile.”
Other challenges remain, such as finding talent with an understanding of AI and advanced analytics. “We have to compete for that talent,” he notes.
To date, the two behemoths have made considerable progress in redesigning the automobile factories and expect to continue advancing the benefits as AI, computer vision, and robotics technologies advance.
“We have both learned a lot in the last three to four years and we have a plan for the next few years to understand what kinds of new solutions will be needed in out factories,” Goeller says.
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