The Industrial Internet of Things (IIoT), as it states in a report by McRock Capital in “The Industrial Internet of Things #IIoTReport”, IIoT is, “connecting the physical world of sensors, devices and machines with the Internet and, by applying deep analytics through software, is turning massive data into powerful new insight and intelligence.” In other words, imagine the ability to control complex machinery and products with one device, communicating information in order for better quality control in manufacturing.
Although still a relatively small and unknown sub-category of ‘Internet of Things (IoT)’, “The Industrial IoT market size was worth $181.29 Billion in 2013 that is expected to reach $319.62 Billion at a CAGR of 8.15% from 2014 to 2020,” according to a research report published by MarketsAndMarkets.com.
I spoke with Varun Nagaraj, CEO of Sierra Monitor Corp. (OTCQB: SRMC) to discuss the Industrial Internet of Things (IIoT) market, and how Sierra Monitor is providing solutions to serve this growing market.
RK: Thank you for taking the time, Mr. Nagaraj. Let’s start with an overview of Sierra Monitor.
VN: Sierra Monitor has been a player in industrial sensing and automation for more than 30 years. Over the last few years, we have focused our company on the Industrial Internet of Things (IIoT) mega-trend. We have enhanced our Sentry IT Fire and Gas Solution to connect to other facility management systems and have made it cloud-ready. Our FieldServer protocol gateway products have continued to lead the pack as the IIoT theme has emerged. Our protocol gateways connect the products and devices used in building and industrial automation and control networks to each other, to other control networks, to emerging control management systems, to the Internet, and to the cloud. In essence, the FieldServer protocol gateway has emerged as the “on-ramp” for products that are looking to be “smart connected products” that connect to the IIoT.
RK: What does the concept “Internet of Things (IoT)” mean? What does ‘Industrial’ Internet of Things mean, and, how did the Company enter the ‘Industrial’ IOT space?
VN: The Internet of Things, or “IoT”, describes a world of “smart connected products” that communicate often autonomously with each other or with centralized software systems. The data transferred through this communication is often stored, analyzed and acted upon, often automatically, to take certain prescribed actions. These automated interactions that involve the smart connected products, the cloud, smart phone applications, and analytics have emerged with much fanfare in the consumer industry (some call it the Consumer Internet of Things, or CIoT), where you find smart watches or wristbands working hand-in-hand with your smartphone to monitor and enhance your fitness, or smart thermostats like Nest that detect patterns of occupancy and preference within a house, and send that data to the Nest cloud which then makes recommendations for automatic adjustments that are implemented back in the home by the thermostat. And of course, the home owner has the ability to connect to the Nest cloud and monitor and control the thermostats in the house or be notified if something anomalous happens.
The Industrial Internet of Things (or IIoT) is a subset of the IoT just as the CIoT is a subset of the IoT. Per many analysts, by 2025, the IIoT will be far larger and more economically significant than the CIoT, even though most of the public attention is on the CIoT today. In the IIoT, the smart connected devices are not fitness wristbands, garage door openers, or personal thermostats. The products that make up the IIoT that connect to each other, to larger systems, and to the cloud are “behind the scenes” industrial or commercial products like boilers, chillers, HVAC systems, fire alarm panels, generator sets, access control systems, fire and gas safety systems, elevators, conveyor belts, jet bridges at airports, and so on. The typical goals of putting such integrated systems together are to greatly improve energy efficiency, occupant comfort and safety, and organizational productivity.
Some also find it convenient to think about the IIoT as the convergence of Operational Technology (OT) and Information Technology (IT).
The company was in the IIoT space before it was called IIoT. Sierra Monitor has a long track record in automation, instrumentation, and control networks. These are the precursors to the IIoT. What is new is the incorporation of new sensing technologies, the ubiquity or pervasiveness of connectivity (wired and wireless), the use of the cloud as a supervisory control point, the use of analytics to make decisions, and the delivery of information over smart phones and tablets. So in many ways, the IIoT is the reinvention of the existing controls industry. We don’t believe every incumbent will make the transition smoothly. However, by combining our history and appreciation for what was, and by leveraging our Silicon Valley presence to incorporate these new technology and business model infusions (the “what will be”), we believe that we can be a significant player in the IIoT.
RK: Sierra Monitor separates their product lines into two categories: Connect and Protect. Can you explain each of the Company’s product lines?
VN: The FieldServer protocol gateways are our “connect” offering. Typical devices, products and systems in industrial and commercial facilities include lighting controllers, HVAC control, physical security systems, blinds/shade control, smart elevators and conveyor belts, etc. These systems have their own unique set of protocols – some of which are standard protocols (like BACnet, LonWorks, Modbus, etc.) and some of which are proprietary to the vendors. Our FieldServer protocol gateways are the world’s leading protocol translators, mapping these disparate protocols and enabling the creation of a unified management framework with the IT infrastructure. There is more to connecting devices than just providing translation. New capabilities in the FieldServer make it possible to implement distributed control strategies when field devices control to the cloud. A common mistake that people make when they think of cloud connectivity is making an assumption that all control happens in the cloud. But while driving a car, would you trust the cloud to make the braking decision for the cloud or would you want a local decision? Similarly, in the IIoT world, there will be a need to distribute control – making wise choices about what should be done in the cloud and what should be done at the field device level, ideally in the FieldServer gateway. The ability to implement distributed control will emerge as the most salient feature for protocol gateways.
The Sentry IT fire and gas detection system is our “protect” offering. We offer a range of sensor modules that can detect the presence of toxic and combustible gases along with flames. What makes our system special is that we bring this sensor data into a controller where algorithms make decisions on what actions to take – such as, should fans be started or doors opened, should safety marshals be notified, and so on. The “IIoT” part comes in because our systems can be seamlessly plugged into the larger OT or IT infrastructure, including cloud based remote access and analytics services. In essence, we have moved our own traditional automation, instrumentation and control system into this unified IT/OT world. Having our own sandlot to actually implement this IT/OT integration gives us real world credibility and experience that we bring to bear when we sell the FieldServer protocol gateways into other automation use cases (other than gas detection).
RK: Who are the Company’s client base? Can you describe an example of how the Company implements its FieldServer technology?
VN: Our FieldServer products have a different customer base than our Sentry IT products.
The FieldServer products are sold to Original Equipment Manufacturers (OEMs) who are transforming their traditional products (boilers, generator sets, etc.) into “smart connected products” that can fit into and interoperate as part of a larger IIoT system. Our FieldServer products are also purchased by system integrators who are tasked with integrating disparate products and systems in a commercial or industrial facility.
Our Sentry IT fire and gas products are sold to facility managers or safety managers who are responsible for protecting people and assets in facilities with a risk of hazardous gas leaks. These environments include alternative fuel vehicle (AFV) facilities, wastewater treatment facilities, oil and gas processing plants, and data centers, to name a few.
RK: How does the Company market its products?
VN: We use a multi-channel marketing approach, incorporating physical and online marketing techniques. We have an overarching belief that marketing should actually be informative, especially as the industry is undergoing such a large transformation. Therefore our physical marketing is centered on knowledge dissemination – with seminars, contributed articles in journals, and useful solution brochures. We take the same philosophy in the online world by focusing on clear and searchable content on our web site and on online stores with our partners, using social media not to clutter the airwaves, but to disseminate useful information, blogging about industry relevant topics, using email newsletters with useful content, and so on.
I would be remiss to not mention our superior customer and technical support. Our team is so good that they probably create as much good will and positive word of mouth as our formal marketing activities does!
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RK: Who does the Company compete with?
VN: We have different competitors by segment.
Our Sentry IT products compete with products from Honeywell, MSA, and TYCO. We match up to them on major certifications and quality, and try to beat them on differentiated features, especially around IIoT connectivity and lowest Total Cost of Ownership (TCO).
Our FieldServer gateways compete with the OEM’s home grown efforts because the OEMs go through a “build” versus “buy” decision when it comes to deciding how to incorporate the protocol conversion and IIoT on-ramp functions into their products. OEMs that do decide to “buy” this functionality choose between FieldServer and a set of relatively small private competitors. We compete by emphasizing our breadth of protocol options and our comprehensive support for IIoT transition.
However, one thing I’d like to make note is that the IIoT area is vast and is still in its early stages. The ideas are there, but there are still many moving parts that have yet to be defined and tested. This area is rich, and there are a lot of companies doing important and relevant things. But it requires a lot of dialogue within the community for us collectively to figure out what the right business models are and what technical challenges exist that we need to overcome. So in addition to viewing other companies as competitors, we must view each other as peers, too.
RK: Are there any complications with weather both during installation and once it’s installed? Using the Levi’s Stadium installation example, has the Company run into any complications as a result of bad, stormy weather?
VN: Our solutions are typically installed within facilities. However, severe weather impacts the construction industry as a whole, and can often delay the installation of systems like ours. Once installed, severe weather is a non-issue because many of our products are indoor. For those that are outdoors, we offer weather resistant enclosures and take other preventive measures to ensure constant upkeep during problematic weather conditions.
Our Levi’s Stadium installations are all indoors and are unaffected by weather patterns. It’s California after all!
RK: What are some growth drivers for the Company?
VN: As our investor presentation explains, we are looking for growth from two areas:
In the Fire and Gas space, where the market growth is sub 5%, we are looking to grow faster than the market by focusing on higher growth segments within the overall market – segments like alternative fuel vehicle transition, and wastewater treatment.
In the FieldServer protocol gateway side, the market growth is expected to be in the double digits, as outlined in the “Building IoT” graphic in our investor presentation. We are also looking to find the right software recurring revenue model to add on to our baseline product revenue.
RK: On July 27th, 2015, the Company announced financial results for the second quarter ended June 30, 2015 – what is the Company’s current financial condition?
VN: Over the last 4 quarters, since I joined the company, we’ve grown our Trailing Twelve Month (TTM) revenue, earnings, and cash every quarter. I encourage you to take a look at our investor presentation as it highlights those metrics clearly.
Balancing profitability and cash with making investments for growth is a challenge, but I am confident this management team can combine vision with discipline and make the right trade-off decisions.
RK: What is your background?
VN: I’m basically a tech and Silicon Valley guy, but with relevant experience in industrial automation and control, based on my last position as Senior Vice President and the General Manager of the Internet of Things Division at Echelon Corporation, which is the company that invented LonWorks, a leading industrial and automation control protocol.
Prior to that, my background was primarily in data networking, systems, software, and security – the kinds of things that I think are relevant to the industrial sector going forward. So, hopefully I’m bringing the right kind of mix technology-wise and background-wise to the party here. And personally, in addition to having been CEO for a startup earlier that we sold to a successful and well known company here in the Bay Area, I do have exposure and experience across all of the functions relevant to a company. But that said, I would say my personal expertise and passion is really around product strategy and technology in terms of figuring out how technology trends or new capabilities can be transformed into products and solutions that customers find useful. I think the company is at the right spot and the industry is in the right stage for me to apply those skills to deliver success for the company and success for our investors.
RK: What does the future hold for Sierra Monitor? Looking to make any acquisitions in the near future, or more focused on R&D?
VN: I cannot obviously give guidance over and beyond what we have publicly talked about, but I’d like to point out a few points to you and to investors who are looking at us. I’d like to talk about the overall market, the products and where they go, and what the big trends are.
Now, to be sure, the industrial segment is generally not the leading adopter of new technologies like big data, analytics, and so forth. And in fact such technologies are currently being adopted and pushed forward by more cutting-edge companies in the financial services sector or the consumer sectors. But the industrial sector is currently studying ways of using these cloud and big data-oriented technologies in their operations. And therefore, suppliers like us who provide equipment, and software, and products into this segment have an opportunity to actually be at the frontend or the cutting-edge of this particular trend, which is the adaptation and adoption of internet of things technologies by industrial customers.
So, you should expect to see us announcing capabilities and products over the next 6 months that demonstrate, and provide to our customers new technologies, but in a consumable fashion for the industrial sector. That’s something that as a technologist at heart, I’m pretty excited about. There are also specific verticals that I’m excited about. On the fire and gas protection side of our business, there is a big movement underway to convert large bus fleets, and vehicle fleets to natural gas. Fueling stations and maintenance stations have to deal with vehicles that use CNG or LNG and such environments need high quality gas detection systems. This is a great trend for us because we are the market leader in this growth segment.
If you look at the journals and the publications that cover this segment, you will see us mentioned often and well. Another growth segment is waste water treatment. After years of underinvestment in the space, there is an increasing amount of spending going in by the municipalities to upgrade old facilities for purifying water. And as we know, water or the lack of water and the need to recycle water and purify water are going to be dominant themes around the world for decades to come.
So, these are some of the individual sectors or segments that I’m interested in, in addition to the overall broad theme of how IoT technologies can be deployed in our marketplace.
For more information about Sierra Monitor Corp., go to: www.SierraMonitor.com
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