so I’m going to talk about the Internet of Things and how that might how that might affect what you’re doing because I think it actually will and I think it will in a pretty near term and I think we want to help you figure out how it well but just you know you heard some of this on my bio I obviously in steeped in science and technology myself it’s been a whole career and it been very successful but turns out I was born and raised on a dairy farm in very rural Minnesota and you know probably would still be on that dairy farm milk in 60 cows twice a day if I had run into a couple teachers along the way teachers who made math and science interesting and and introduced me to computers and this was like you know circa 1980 and the Apple 2e was the you know computer of the day and you had to boot the dust and all that stuff and it was fascinating and I decided I want to be an engineer and really just based on that so really I think that you know somehow a couple of teachers entered my life you know I’m thinking of mr merkins and mr. Fiero and and I just went off in a different direction and Here I am today the CEO of a large technology company down the road I’m happy to be here today at Framingham State because you know I think this is a very inspirational place to be and and certainly a school that you know I already knew this but as I was reading through the brochure this morning you realize just how much pioneering has happened right here on this on this campus you know certainly not just Christa McAuliffe but what a great representation of the spirit of pioneering that that kind of lives right here in Framingham so this is a good theme for us to think about because at PTC we’ve tried to be a pioneer in education as well we’ve tried to figure out a way that we can play a role in shaping the engineers of the future now let me be clear we’re a publicly traded technology company we’re in business to make money so I’ll just be frank about that but what we’ve learned along the way is this concept that has been called shared value which is there’s certain investments you can make that provided a round-trip returned back to you and for our company to invest in the engineer of the future and maybe do that by preparing teachers to touch this engineer in the future what we’re doing is we’re creating a lot of goodwill we’re creating exposure to our company people understand who we are they get to touch our technology and see how fascinating it is and you know that’s a seed that takes a long time to produce fruit but in fact at some point it does produce fruit so we’re we’re sort of in business to make money but on the side we have this other program which a couple of my colleagues run John Stewart and Jordan Cox back in the corner these guys you know spend a particular Jordan it’s his full-time job at PTC is you know to engage with bodies like this and and figure out how together we can shape what’s happening in the world of stem so it’s very exciting and and I’m happy to be here now just in terms of what the company PTC does you know we’re down the road in Needham I think many of you bend the PTC at this point yeah you know thanks to the programs we have we’re a company with about a billion and a half dollars of revenue about 6000 employees around the world a market cap of about four and a half billion dollars and what we do is produce software and some consulting around that that helps companies change the way that they create operate and service products so many of you have seen our creo software creo of course is used to model an idea in a way that you could manufacture it right by creating a 3d model that accurately describes what’s in your brain you can now hand that to a factory and they can go produce it or you could hand it to a 3d printer and it could produce it right there in front of you right in front of your eyes so that’s the create part now we also have another business on the back end helping people service products because after we’ve helped companies create products we realize we understand the DNA of that product and that understanding how that product goes together and all the bits and pieces of it it’s pretty darn useful when it comes time to fix it or service it or or do preventative maintenance or whatnot so some years ago we also got in the business of helping companies to service their products so anyway that’s what we do now what happened is somewhere along the way you know we came across this phenomenon of the Internet of Things and probably everybody in their owns heard that in fact Internet

of Things is the most hyped technology in the world right now according to Gartner group having recently passed big data which has just recently passed cloud so right now you know you’re gonna leave this room today I think knowing more about the Internet of Things than any of your friends now so you’re gonna go back home and you’re gonna be the IOT expert so it turns out that if you think about the Internet of Things it’s things connected to the Internet now we’ve always had smartphones connect to the Internet and computers connect to the Internet I’m not actually talking about those kind of things that’s a given I’m talking about your refrigerator I’m talking about your car I’m talking about your house your swimming pool your pets you know yourself connected the Internet and so I like to tell people you know the Internet of Things is really more about the things than it is about the internet because the Internet isn’t actually changing that much we have the Internet we understand what it is it’s not undergoing a radical transformation what’s undergoing a radical transformation is the refrigerators and the swimming pools and the houses and the cars and the trucks and the pets and so forth we’re changing these things so that they can connect now why would you connect a thing to the Internet it’s worth this thing about that for a minute if you did a big study of people who are out there connecting things to the Internet and you said why why are you doing that the number one answer would be to get a feedback loop so I can service the thing better for example you don’t really have to change your oil every 5,000 miles you don’t really have to it’s just sometimes you need to change it at 5,000 sometimes you need to change at 7,000 sometimes you can change it at 15,000 but without a feedback loop to know for sure you better just change it at 5,000 so if you had a feedback loop for example the test the quality and viscosity and lubricating qualities of the oil in your car you actually would stop changing in at 5,000 and you change it when it needs to be changed and you’d save a lot of money you would waste less oil I mean just everybody be happier for it so the number one reason to connect something like your car to the Internet just so you can service it better the second reason would be so you can operate it better and operate it remotely in a lot of cases my swimming pools connected the Internet at home and that’s kind of nice because normally for example there’s a both a pool and a spa normally I don’t want the spa heated because it takes a lot of energy cost money and you know feels wasteful but Friday afternoon sitting in my office I turn this bond so that when I get home Friday after work we’re ready to go it’s 102 degrees everybody’s happy so anyway you could operate it remotely and then the third thing is you could just make it better if you had feedback loops from products you’d understand how are they used how do they work how don’t they work you know how do customers use them where are requirements right etc and you evolved the design very quickly because we’re used to making things that once they leave the factory we just never hear from them again no idea what’s going on therefore we can’t service them we can’t operate them and we can’t perfect them so anyway we concluded that this Internet of Things was going to be a very big deal for PTC because I can’t think of a better way to transform the way you create operate and service things then connect these things to the Internet to get feedback loops okay so as a result and you know you saw I have a long technical background you know I spent a lot of time thinking about this in fact it’s kind of been my main you know thought exercise over the last two years to try to understand what’s this all about how will it affect companies out there and thus how will it affect our company and so forth and I did a big research project with some of my colleagues and with Professor Michael Porter which was just recently published just in the last week or so as the cover story on Harvard Business Review it’s titled the internet of everything smart connected products will transform your business it’s worth getting a copy and reading it or you can read it on the HBR org website as well but you know the nice thing about Harvard Business Review is it’s not techno babble it’s written at a at a CEO cxo level written for business people but not assuming that they are technology people so it it tries to take a high-level approach to describing how this phenomenon the Internet of Things or what we prefer to call smart connected products is gonna change the world we like this term smart connected products because it’s more meaningful like you just say Internet of Things nobody really knows what you’re talking about if you say Internet of everything then they’re even more confused if you say

smart connected products it starts to become more tangible and again the things are smart connected products so we like this terminology better and we try to explain why in the article and so forth but anyway you know it’s very exciting it’s a very prestigious magazine and so in order to get you know our thoughts published on the front cover of it it means that this is important stuff and that’s why I’m happy to share with you today so in the next part of my presentation will tell you a little bit about some of the things that are in this article and and then our research showed so let me start by talking about smart connected products what are they so for thousands of years mankind has been making and selling things products and these things for thousands of years have been made out of stone and wood and you know then iron and then steel and other alloys like that and later a little bit of rubber and then some plastic and and whatnot but there were physical things you could hold in your hand and so for thousands of years we’ve had physical physical things created largely by Mechanical Engineers and somewhat by electrical engineers because electricity has been used for energy like in motors separate from using it for logic like in computers so I’m not talking about computers but I am including motors and electrical stimulated things in this discussion so just in the timeframe that I’ve been in the business world we’ve seen a transformation from physical products to smart products somewhere along the way somebody got the idea that we could put a computer in these things and we could put some software software could have sensors and maybe even a user interface and algorithms and so forth and then these products would become smart probably it started you know near as I can remember and things like NASA with space programs and so forth you know they were the first examples where we put computers and things that were spacecraft and launch vehicles and stuff like that but today it’s everywhere you know my coffee maker you turn it on I can say what time in the morning to turn on how strong to make the coffee how how hot to make the coffee how much coffee to put in the cup when to turn off you know all those kind of settings I can put in the coffee maker so in the first generation the coffee maker was a pot that you put on a fire and it boiled water that percolated through a through a canister of some sort in the second generation it’s a smart thing and you can interact with it what’s happened now is people are saying well if these things have computers in them by the way I typical automobile now has about 70 computers in it just think about that it’s like a data center driving down the road because there are 70 CPUs in a typical automobile more for very luxury automobiles you know fewer for for low cost automobiles but on average about 70 so people realized if you have something with computers in it why not give it an IP address and connect it to a network just like every other computer every traditional computer and that brings this concept of smart connected products there’s lots of ways to connect products to the Internet you could plug a cable into them that’s the obvious way but they’re not then so mobile you could use cell phone signals 3G 4G LTE type cell phone signals basically just embed a cell phone in them you could use Wi-Fi of course that’s pretty ubiquitous these days but but not reliable as you move around you know reliable as you move around in your house but not as you get on the road and drive from one place to another this Bluetooth you can connect to something close by with bluetooth and and there’s other new protocols like that and then there’s home automation protocols like ZigBee and stuff like that so lots of different ways you could connect something and depending upon the thing and how it’s used you’d pick the right one and then you connect to what we call a product cloud so there’s some cloud now cloud you know as you know really just means some big computer servers running somewhere not here just somewhere don’t worry we’re right that that to me is the definition cloud it’s just somewhere okay it could be a public cloud private cloud could be on it doesn’t matter just you know you’re talking to something up there so this is kind of the progression of products so I want to show you next what does the technology stack look like for a smart connected product because by the way this this stuffs all in this Harvard Business Review paper if you you know want to follow up and see n there’s quite a lot of Technology now in a product in fact you know I said for thousands of years we were talking about things that could be modeled in 3d and you’re done there’s nothing else to do that captures the whole thing and then somewhere along the way the products at the bottom went from being just physical things to being smart things and then we had to add electronics and software and tons of software for example I don’t know if you know this but when a new automobile

comes out there have been more engineers these days writing the software in that automobile then designing the steel and plastic and rubber parts it’s more software engineering already in an automobile than there is mechanical engineering so a smart connected product has those bottom I’m sorry a smart product has those bottom two boxes but when you connect it you get the communications box you get the product cloud at the top which includes a big data database where you’re gathering information from everybody swimming pool into a database of swimming pools or a database of coffee makers or or a database of you know cardiac pacemakers or what have you there’s then an application platform where you’re running programs that annele that data typically people are using analytics analytics sort of means ok there’s all this data but what’s it telling me and there’s two kinds of analytics you know at a simple level there’s sort of the traditional rule based analytics like if your engine temperature is greater than 200 degrees then there’s a problem okay if then type stuff and then there’s what’s called big data analytics and big data analytics you know this is another big buzz field on its own that really means looking for patterns and associations that tell you something even if you don’t understand why for example you might say this products got 15 sensors in it and every time these sensors start to sew a shirt a certain pattern two weeks later the engine fails I don’t know why but I see it happen time after time and from now on every time I see that pattern of sensor readings I’m gonna intervene and do some preventative work on the engine and that stops it from failing so to me that’s big data it’s like the magic of finding things in data that you can act on even when you don’t fully understand them and certainly things you never would have looked for you wouldn’t have looked for it because you didn’t know it existed you know you can’t you can’t answer a question that you’re incapable of asking basically but big data can help you find that and then there’s applications and in order to build these applications at the top we have to not only connect down to the product we have to connect all over the external information sources to other business systems and then we have to secure this whole thing on the left some people have said the Internet of Things is a hackers dream in fact there’s some comments about our HBR paper and one of the comments is you know kind of negative it says in the Internet of Things world not only will people break into your your bank account steal all your money but then they’ll break into your toaster and burn your house down to hide the damage and I don’t know I mean I look at it and say of course we’ll have this problem but we have the problem today with computers and smart phones and I don’t think anybody here plans to stop using computers and smart phones we just have to keep fighting the battle against the bad guys and it’s a battle of you know tit for tat because they can getting smarter and so do we it just never ends very frustrating by the way probably the most frustrating thing in my professional career is all this bad guy hacking stuff I’m just so sick of it you know a whole bunch of us try to make life better for people and then a whole bunch of other people try to make it worse and unfortunately governments play a big role in that but anyway a lot of Technology now goes into a smart connected product so stem is more important than ever in fact you can’t just build a widget in your basement anymore and go sell it because that widget has to have all of this stuff now in order to be contemporary so I show you this a little bit because I want to show you how PTC’s technology fits on that and it’s not really important what the product names are and so forth but in fact we at PTC have technology for modeling mechanical things on the bottom and for developing the software then we have technology we’ve acquired in the last year or so from a local company exceeder for connecting that thing to the cloud then we have all the technology to build that cloud and to integrate external data sources and information systems and then to secure it all now I’m not trying to sell you all this but I’m just telling you those are building blocks we could use in our education program we could actually sit down with you and your students and help build this whole thing you know a one-off instance of it to just learn what our smart connected products all about I’ll come back to that sort of at the end of my presentation ok so the next thing that’s interesting is what can you do with smart connected products that you couldn’t do with smart products or even with dumb products and it turns out there’s an explosion of possibilities and in our research we characterize them into four levels so the first thing is monitor you can watch what’s going on the second thing is you can control if you can watch and then send commands back so it’s a bi-directional connection then you can control this thing and if you can both monitor and controller thing then you could add some algorithms to try to optimize what that thing does make it be

more efficient and then finally if you could monitor control and optimize you could think about letting this thing make some of its own decisions and act autonomously you know that classic simple example in the consumer world of an autonomous part product now becoming a smart connected product is the Roomba that can figure out how to vacuum your floor’s it’s figuring it out now you can connect to it you can tell it the hours of the day it’s allowed to run you know not while I’m sleeping but yes while I’m at work that type of stuff and and you can make it even better by adding you know monitoring and control so I’m gonna go one level deeper in these things because I think it’s interesting so by monitoring you know this is an example of a smart connected pacemaker in somebody’s chest first of all we can monitor the condition of the product that would be like the battery how much battery life is left in this pacemaker second we can monitor the environment of the product that’s different than the condition of the product that would be like what’s the body temperature what’s the blood pressure stuff like that then the third thing is we could monitor what the products doing which again is different than how healthy it is and the environment it’s in that would be in the in the case of a pacemaker you know how much electrical cardiac stimulation are we doing and on what frequency and so on and so forth and given all that we could then set some limits we could say if less than this or if more than that then please you know text me on my cell phone so I’m aware and this allows a doctor sitting in a doctor’s office to be notified that one of their patients is starting to you know indicate some cardiac anomalies and you know be aware of it perhaps log into that thing and change its setting or whatnot you know if appropriate to try to try to make sure we don’t have a cardiac arrest situation so that’s monitoring control this example by the way is a remote controlled doorbell video doorbell that you can go by you know various places when somebody rings the doorbell of course it shows in the house but it also shows on your smartphone so you could have a delivery man come to your door while you’re at work or at school in your case and when they ring the doorbell you get a text message and you could say okay go ahead and unlock it with an app on your on your phone there’s an app for that basically so my control we mean control what the products doing for example unlock the door is actually controlling the operation of the product but we can also control what it is we can personalize it back to that coffee maker you know personalize when it turns on turns off how hot how how strong etc we can kind of make it my coffee maker I think we’re gonna get to the point by the way on this personalization thing where this is just a personal guess of mine that automobiles are going to have a glass cockpit as opposed to gauges they’re just gonna have computer screens and you’re going to be able to customize this however you want you’re gonna be able to put whatever gauges you want wherever you want on this thing and then save it and then if you get in a different car load your settings and have that second car look like your settings this would be actually pretty important for car sharing which is becoming a pretty interesting business model because hard to share cars of every time you get in one it’s all different but if you could just save your settings get in one bluetooth upload your settings off your smart phone or something like that car reconfigures itself and looks like your car off you go so I think that’s interesting okay then optimization that means add these algorithms so for example it turns out that the right way to run a wind turbine is to constantly adjust the angle of the blades depending upon the wind speed and if there’s any pilots in the room you know the idea of constant speed versus constant pressure propellers and things like that so optimization would be for example be constantly changing the performance of that product always we’re turning the blades turning the blades turning the blades and it’s decisions made up in the cloud because we’re even optimizing the algorithms for how to turn the blades they keep getting better and better and better so we’re we’re really using the connectedness to do this but it would also be optimized the availability and uptime by optimizing the service and repair and service and repair is a big thing here I said that’s actually the number one reason to do this because I think you know in a human setting it’s a lot better to avoid a heart attack than to try to repair one just it’s a better strategy and it turns out it’s the same strategy with with the engine in your car it’s a lot better to change the oil frequently than to try to fix an engine that seized it’s just a lot better strategy so how can we be better yet well like I said with the engine we could monitor this thing and try to intervene proactively before it happens at just the right time not too soon don’t change the oil every 5,000 miles whether it’s needed or not

that’s a waste but change it just in time just before it gets to a point where it’s starting to become problematic and then also be very efficient in terms of if you have to go serviced something show up with everything you need and do it in one trip you know I sometimes share a little joke with people but I say if the oven in your kitchen doesn’t work it takes two trips to fix it to impairment trips first the repairman has to come and see what oven do you have and what’s wrong with it and then he says or she says I’ll be back because I got to go to order the parts and then they come back a week later with the right parts and they fix your oven and then they send you the bill and you realize that the cost of two trips to fix the oven is actually more than the value of the oven I’m serious about that and then you say well what am I gonna do you know I had to have it fixed but that’s just a very inefficient process it could be much better so I think that this Internet of Things is gonna allow us to do that and then the last thing is autonomy and there’s a couple of different kinds of autonomy here let me first say this this little fish-shaped robot is developed here in Boston by by a partner company and PTC is called Boston engineering what it’s designed to do is would be either like to to go retrieve something from the bottom of the ocean or perhaps to swim under the hull of a ship and inspect the hull of the ship and so forth but in that environment you know you’re always dealing with currents and waves and so forth so this thing is capable of finding a way to the destination without being told exactly where to go step by step by step keep adjusting for current adjust for obstacles we didn’t know we’re there and so forth so it’s an autonomous system so that’s autonomous operation we’re starting to see examples of autonomous Diagnostics a good example is many diesel engines today filters that trap particulate matter and when these filters fill up they need to be emptied and so now many of these engines have the ability to purge their own filter to basically dump all the bad stuff out of the filter start with a clean filter and go back to business as usual but they do that automatically with nobody being involved so the holy grail here would be able to act in coordination with other products and systems you know a whole some people use the term swarm of things working together but I’ll give you some examples in a second here of things working together somewhat autonomously okay so one of Professor Porter’s I didn’t say that much about professor Porter but probably everybody’s heard or probably most people heard of professor Michael Porter from Harvard he’s the most famous professor at Harvard he is the most senior professor let’s say at Harvard Business School he’s well known around the world you know he advises companies he advises countries of course he teaches students but he’s developed some pretty famous frameworks over the over the you know over his career his academic career so one is called Porter’s five forces and if you googled Porter’s five forces you’ll find like five million hits it’s you couldn’t get an MBA today without learning Porter’s five forces you know from any school so what this framework tries to do is to say how our industry is changing and you know the change is good or bad you know it’s the industry today good or bad industry to be in and is it getting better as it getting worse and so it looks at five different forces that are acting on the industry the force in the middle is how do you compete with each other do you compete with great differentiation and you try to say my products better than their product or in different than their product and it’s better because of this or do you compete based on price the products are the same buy the cheapest one competing based on price is very difficult market the beyond because the prices just keep going down and down and down so the best markets are ones where there’s plenty of room to different plenty of demand everybody gets you know the demand gets neatly sorted into different buckets everybody gets one or two of those buckets sells at high prices lots of profit and so forth so we think that the Internet of Things allows radical new ways to differentiate products just ideas you could never think of like think of when nest you’ve heard of the nest thermostat when nests comes into the thermostat world suddenly the definition of thermostats is completely different and all the old thermostats are obsolete and everybody’s off innovating brand new ideas for thermostats and and this is happening kind of all over they’re all over different markets so then if you look to the right that the second for us would be when you’re looking downstream toward your customers who has more power in the relationship between you and your customers if you have a commodity products then the customers have all the power on the other hand if you have monopolies or or highly differentiated products and you have a lot of power for

example historically Microsoft’s had a lot of power they’ve said hey Windows is the operating system of choice office is the office productivity suite of choice there aren’t good alternatives you kind of have to pay whatever I’m charging right on the other hand you know if you’re buying something that’s pure commodity there’s a lot of price negotiation and that you know makes the business less attractive to be in if you go to the left side you look upstream to your suppliers and you say who has the most power there oh let me first close out the Internet of Things changes the buyer relationship a lot because you finally know what your customers do with your products you know in a fine-grained way what they do you know if they use the product a lot don’t use the product how they use it you know if they not might need more product or an accessory to be added to the product or a replacement product you know you you have such information about products that you never had before a good example is a company like whirlpool makes appliances they don’t actually known today who their customers are because they ship those appliance to Home Depot or or Sears who puts a kenmore label on them or something like that and Home Depot and Sears sell those products to end consumers but they don’t go back and tell whirlpool who they sold up to so whirlpool says I have no idea my products are used but as soon as they become smart and connected and connect back to my a whirlpool cloud I know exactly who has them exactly how they use them I know how often they use the you know the hot cycle I know how often they use the extra dirty cycle you know I know that they do laundry on Thursday evenings and and not elsewhere during the week and so forth so it’s very interesting change in the relationship with customers actually the product becomes a sensor in the relationship with the customer it tells you about that relationship so it’s pretty exciting now if you backup the suppliers but sort of happening there is as all this new technology I talked about in that technology stack enters the picture most of that has to be purchased from somebody rather than developed internally and if you think about a company I’ll take an example of a customer of ours Cummins engine so Cummins engine makes big diesel engines that you’d see in over the road trucks or and big generators or something like that they’ve been making engines for more than a hundred years they know everything about blocks and crank shafts and connecting rods and pistons and you know if you want to talk mechanical stuff they can talk your ear off change the discussion for a moment to smart and connect it and they’re going to I don’t know what to say I we haven’t done that for 100 years we don’t know much about it we’re gonna have to go buy that technology from somebody that means that their suppliers are getting a lot more powerful because the most important stuff they’re now putting in their products they’re buying from somebody else and you’d like it if the most differentiating part of your product was something you produced because you control it but if you’re buying it from somebody and they also sell it to your competitors then you say hey I don’t want to pay that price and then they say well fine I’ll to sell it to your competitor and you say oh don’t do that you know that’ll be bad so let’s keep talking about the price then finally there’s a piece on the top called threat of substitute products and a piece on the bottom called barriers to entry let’s hit barriers to entry first barriers to entry in general are going up with smart connected products because like I said you can’t just make a widget in your basement and take it to market anymore you’re gonna have to figure out connectivity and all cloud stuff and security stuff and integration stuff I mean it’s just a the definition of a product became bigger and more complex now on the other hand products need to change and some incumbent producers of products will fail to get the message and they won’t change their products then there’s an opportunity for them to be leapfrogged and if they’re leapfrog you know that’s an entry point for an for a new entrant to come in align with the contemporary definition of products when the incumbent failed to do so and that’ll certainly happen in some industries threat of substitute products and services the the biggest thing there there’s a lot of detail I’m glossing over here just getting some high points but the biggest thing there is business model changes so I saw in the parking lot spaces for zip cars and if you’re familiar with that concept that’s a new business model for personal transportation the old model is you buy your car the new model is you just use one and pay for the use that’s because if you think about it cars are the second most expensive asset that consumers own house being the first car being a second but if you look at how much is that car utilized not much at all half hour drive to work in the morning half hour drive home parked 23 hours that day and so what if a car could be utilized 12 hours a day instead of one well the cost of owning cars would drop precipitously by the way the number of cars we need to manufacture in the world would drop precipitously till so what Zipcar and many other similar things

starting up now are doing they’re saying you’d have to buy a car I’ve got a whole bunch of them they’re staged all over and because they’re connected I know where they are and whether or not they’re in use or available for you I can guide you to the closest car and you can just pay me a monthly fee for the right to drive a car and you don’t have to buy one and the monthly fee for the right to drive one is far less than the cost of ownership for buying and maintaining one of your own so that would be a different business model and you could see some industries suffering a lot like the car industry instead of producing I think we produce about 30 million cars a year right now maybe that would drop to ten because we just don’t need so many cars we’re using them much more efficiently so anyway lots of change to the industry that’s sort of the point here is that this Internet of Things phenomenon is gonna have big impacts on industries a second thing that’s happening is the very definition of industry is changing so let me take it through an example and I hope you can see this slide but on the left it says a simple product so I’m gonna use a real company here John Deere so John Deere has been making tractors for also I think 175 years if I remember correctly well they started making plows but you know they’ve been making agriculture equipment so for many years though they made simple tractors that weren’t smart they’re just mechanical things and then over time their products started to become smart they had a digital dashboard and engine control unit some stuff like that you know sensors to tell you if you’re running out of gas or if the oil pressures too high or the hydraulic pressures too low and stuff like that that’d be the second stage then it occurred to John Deere that there’s good reasons to connect those type of products the internet so you can remotely monitor and do all those things I talked about so then you get smart connected products at that point John Deere is still attractive company but then we go to this next idea which we would call a product system now I’m a farm boy so I know this example pretty well but basically at the bottom is this thing called a combine harvester so a combine harvester harvest grant from a field and it combines the function of reaping and threshing reaping means separating the head or the ear from the stock and threshing means separating the hulls and the cobs and the husks from the actual kernels of grain so they at the end you end up with kernels of grain that that’s what you make flour and stuff out of so in order to get kernels of grain you have to combine reaping and threshing and there’s big self-propelled machines to do that called combines big huge basically factories driving down a field processing processing processing so it turns out that these smart connected combines now are monitoring how many kernels came from this little patch of land and how many kernels came from this little patch of land and how many kernels came from this little patch and they’re sending that all to a database in the cloud because next spring the planting equipment wants to know that for a couple reasons so first the tractor hooks up to a tiller tillers basically means plow or cultivator or something like that and they want as they’re working the soil there frequently fertilizing it particular with nitrogen so they’re saying if yield was low then nitrogen application should be high in this little spot but in this next little spot yield was high so back off on the nitrogen because we’re just wasting nitrogen and so forth so they’re going through doing a smart planting scheme and then along comes the tractor pulling the planter putting the seeds in the ground the kernels again for next year’s crop and it’s doing the same thing it says I should use a different seed in this spot because I think it’s too dry and so I’m gonna use a drought resistant seed here and I’m gonna use a you know thinking like if you plant tomatoes I see there’s a garden out there there’s like a gazillion different types of Tomatoes you can plant you know if you’re worried about blight you plant these not those and you know you want slicing Tomatoes versus canning tomatoes and so forth so lots of different kinds of seeds in the planter can be making smart decisions for this spot versus that spot versus that spot and so forth so we call that a product system this is products working together now sharing data between them and it’s a real breakthrough for example in farming because you can now correlate your inputs in your outputs and you can reduce your inputs while maximizing your outputs and quite frankly that means productivity which means profit so it’s a good idea to do it now you go to the next level and somebody comes along and says yeah that’s a great planting and harvesting system but turns out farms do more than planting and harvesting they also might do fertilizing and they might do irrigation and they buy and sell things and maybe we could have a smart farm system where depending upon commodity prices we plant different seeds and then when the seeds are growing and we’re irrigating them if if the farmer irrigates we’re going to say well there’s sensors in the soil and

depending upon how much actual moistures they’re already we’re gonna apply more or less water to every little spot and by the way we’re gonna look at the weather forecast coming from you know Yahoo weather or us da or whatever and we’re gonna say if moisture is not critical and there’s an 80% chance of rain tomorrow then don’t irrigate at all and now we have a smart farm so it turns out John Deere has done all of this John Deere now went from selling tractors to now they’re selling sophisticated information systems for running smart farms so a company like John Deere has to stop and ask what business am I actually end though because somewhere along the way John Deere became a software company and a systems integrator now whether or not that strategy will ultimately work we’ll see sometimes it will sometimes it won’t because the farther away you get from building tractors the less sort of institutional knowledge you know how to do it for example Accenture might end up competing I’m sorry John Deere might end up competing with Accenture Accenture is a big IT systems integrator who looks computer systems together and Accenture looks at that thing on the right and says that’s just an IT project and I don’t need to build tractors in fact track there’s only 5% of it so the fact that I don’t build tractors doesn’t matter I can build software systems integrated software systems pretty well so John Deere might find the farther away they go the more they’re competing with people that are completely unlike them anyway very interesting phenomenon that’s happening smart homes you’ve probably seen this is happening in automobiles smart automobiles it’s just happening everywhere you turn very subtly and and slowly ok so here’s a fun example Nike just an example of that phenomenon you know historically Nike made shoes and clothes and sunglasses and then they started putting sensors in shoes and clothes and they started creating things like their what does Nike call it the fuel band yeah Fitbit feel band whatever but Nikes case I think it’s called the fuel band that’s the little thing you wear on your watch and then they decided you know we could connect the sensors from the shoes and clothes into the cloud along with the sensors from the field band and then the point is by the time they get to the right side Nike is like a health care company right there they’re actually helping people maintain physical fitness it’s not really about shoes and clothes anymore so this is a real-world example along with John Deere of you know how the world is changing out there so the second framework that’s very famous from professor Porter is the value chain framework so probably everybody in the room has heard the term value chain you’ve probably used the term value chain certainly in business or use it all the time sort of means the the sequence of how things pass from one person or department to the next and what value to the ad and so forth if professor Porter professor Porter invented the term value chain and if and if we had that all pay him a penny every time we use the term value chain for the last 30 years he’d be you know off the charts rich man I think he’s doing fine irregardless but you know it’s just such a common thing to think about these days so we looked at okay if that’s the value chain for a firm how is that value chain changed by smart connected products and I just want to cherry pick a few things so if we start with the horizontal piece called technology development well the whole concept of developing a product if you think back that technology stack is very very different and not only do you need a lot more technology but you need different skills and you need different concepts for example if tractors are like computers then we should be able to upgrade them one year later two years later three years later so we should start thinking about tractors more like computers running software that can be upgraded later will it design them with that idea in mind you know your automobile we ought to be able to upgrade it multiple times and it keeps getting better and bugs keep going away the longer you own it if we look at after sales service we should just go back to the drawing board and how service is done because now that we have feedback loops we could do it so much better you know back to the oven example or if we if we pick marketing and sales we know everything about the customer now and so we can use that to inform the way that we do marketing and sales but if I jump up to one last one which is human resource management this is actually where where you guys come in here which is the demand for people that understand this type of technology is just now going off the charts because it’s not just software company that want to hire great software developers and technologists and so forth it’s john deere it’s nike it’s everybody so the demand for people that understand that technology stack or pieces of it is just

gonna be off the charts in the next you know decade or two it’s already high but what I’m saying is the demand is about to just explode there’s already high demand and these people are expensive and hard to get and they get five job offers but it’s about to explode because iRobot wants them John Deere wants them you know I notice the company that makes elevators that go up and down an escalator they want them everybody’s gonna want them and so I think there’s a real opportunity here or a real need for the STEM communities start producing a lot more of these people and to produce people that kind of understand this big picture that I’m talking about ok so just to wrap up this piece about our research so don’t run out of time we we boiled it down to 10 big questions that companies ought to think about not the stick Euler them quickly so the first question is what capabilities should you produce in your product how should your products change and and this is a thing companies have to be careful about because it turns out customers won’t pay for everything it’s a explosion of new possibilities but people won’t pay for them all I’ll give you an example there’s a water heater company called AO Smith and they make water heaters that you’d have in the basement of your of your home and they make water heaters that would be in like let’s see on this campus it turns out that they can sense now when a water heaters gonna fail and they could notify you hey your water heater is starting to approach a point of failure and that would be nice to know the problem is in a consumer setting water heaters on average fail once every 12 years so what will you be what will you be willing to pay to be told 12 years for now through an email that your water heaters approaching a failure answers nothing because you probably won’t even live in the house 12 years from now the email address probably won’t even work 12 years from now you just say forget it that’s not worth anything to me now if you’re the fizzy Department who runs this campus it’s worth knowing if the water heaters aren’t gonna work because we can’t serve lunch that day so I’ll pay for that even if it’s 12 years away that day will come and there will be a physical department here monitoring that water heater and by god I want to know if it’s going to fail so that we don’t have a disaster on the campus so that’s an example there the second thing is how much of the product should you put in the product and how much of the product should you put in the cloud and this is an interesting example using a local company here called Bo’s you know Bo’s has been selling these wave radio type things forever and they’ve just undergone a radical change because the the traditional one in the top had basically a music source which was a CD player a amplifier a speaker and user interface and you can see the user interface is a little cryptic just a bunch of buttons you got a push and you know if you ever tried to set the alarm on one of those things in the hotel room he was exasperated so now in the new generation of these things the device has six big buttons and four little ones and a smartphone app so there is no CD it’s streaming music from the cloud so the actual music source has moved from physical up into the cloud the user interface runs on a smartphone or on your computer or your tablet and all you do on the computer or the tablet of the smartphone is you pre-programmed what those six buttons do so that it’s like in the old cars or what still in cars but remember when you had the buttons you push to go to your favorite radio station so now you can say like when I push this button go to Pandora and play my favorite streaming music channel and when I push this button I want you to go pick that French radio station on a Paris that I used to listen to when I lived in Europe and I want you to play that and so forth so you’re just kind of like saying what the button should do and then there’s a louder quieter and an on/off button so you know basically the the user interface is so much more elegant it’s way more powerful yet far simpler than it ever was before because the user interface has essentially migrated out of the product and up into the cloud it’s the old beeping blinking VCR problem you know 12 o’clock 12 o’clock 12 o’clock you know that years ago I mean these things are kind of obsolete now but years ago you buy the VCR you’d have a power out he’d blink 12 o’clock you’d set it get out to get out the manual and try to figure out the cryptic sequence to set it back to the right time and then the power to fail again and say just let it blink right and we’ve all seen that but but that’s changing because user interfaces are leaving products and migrating up into the cloud so when I want to set my coffeemaker settings I don’t want that cryptic little turning buttons and knobs and dials I just want to go to a smart phone simple use app tell my coffeemaker how to work then it works that way that’s an example okay the third question is should the company pursue an open or proprietary and closed approach this is an interesting question and what we really see is that most companies for controlling their own products are

pretty closed like Bose doesn’t want anybody elses software to be able to compose to control that boat speaker they want to make you make sure you buy both the software and the hardware elements of that system and therefore there’s no way to intercept the protocol between them and most people are doing that and then if they go to a product system like John Deere might make the connection between the combine and the planters and the tillers closed but you want this idea you got to buy it all from me not just the tractor but also the tiller the planter and the combine you have to buy from me if you want that great benefit Jim just told you about so we’re gonna keep that closed but sooner or later it becomes impractical to keep it closed and you have to make it open because your system will become part of an even bigger system if it’s open and if it can’t do that it’ll be rejected by the even bigger system so this is a key question by the way if you want to play with that with Internet of Things things that are really interesting this Philips here light bulb this is worth having in your classroom it cost about $100 to buy this pack of three light bulbs which you can buy from the Apple eyes I saw her I too in the store I guess it is and what it is is that each of those light bulbs is independently controlable you can say is it on or off which color and how bright for three lightbulbs so you’d say well who cares well it kind of turns out you can do pretty interesting things with that and they have an open interface to it so many people have now written programs that drive those light bulbs for example one program says associate your favorite three stock prices do it so when you walk in the room you know how your portfolio is doing that one’s green that one’s yellow that one’s red that’s kind of interesting or it could be depressing let’s Joe you could maybe find a way to interface it to the fitbit’s and fuel bins your kids are wearing you know are they active not active you know and just all kinds of crazy ideas can be done and it’s it’s pretty fun to play with I bought one of those sets myself okay the next question is what data to capture and analyze to make the products better and you know this is a bit the question of it costs money to capture data and then it cost money to transmit data and so be careful thinking more is better because more means it costs more the question is does it generate more value and then there’s some other points here too like if you look at that nest thing this is the nest thermostat the company Google bought for billions of dollars there’s also privacy issues here too which is how much does your customer wants you to collect like a lot of people have said I don’t really want Google to know what goes on in my home they already know every time I pull out my phone if it runs Android or I get on my computer and I search on Google they know all that now they also understand that the temperature habits of my house and you know when I’m apparently home and not home and all that kind of stuff I’m not sure I like that so anyway next question is how do you manage and protect access to the information you are collecting so these products collect all kinds of information and so the first question is who owns it is it your information as a consumer or is it the manufacturers information how many of you have seen a click-through agreement where you get to the point that says you must approve the terms and you start reading it and you go oh my god it’s just 20 pages of lawyer mumbo jumbo garbage that’s indecipherable anyway so you just say I approve right well you don’t actually know what you approve but in a lot of cases you just turned over everything that company now has basically unlimited rights not only to know what you’re doing but to sell it to other people so we think there needs to be some new standards in this area around this it’s it’s an important scary point also there’s a big vulnerability for companies that collect this data if you think about what happened at Target last Christmas right or more recently at Home Depot you know people hacked into target’s data systems stole credit card information and so forth and lots of people’s credit cards were compromised and so we’re all angry at Target but targets a victim target didn’t do anything a bad guy did something to target and we’re angry at Target because they didn’t protect themselves well enough from the bad guys but you know that’s blaming the victim we’re just second-level victims right but anyway companies if they’re going to accept this data they didn’t have an obligation to protect it and it’s hard to protect it because the hackers and the bad guys are so sophisticated and they’re evolving even faster than the rest of us okay the next question is should the company sell information that gathers like I said you know Google may very well be selling information about how

your heating home habits you know to other people and and when you use that Fitbit and it knows where you are and and when you’re in that area and so forth you know suddenly you’re gonna start getting coupons from the local Starbucks saying hey you’re in the neighborhood want to swing by and you’re gonna say how do you know I’m in the neighborhood well turns out that I subscribe to a service from you know the company that makes the Fitbit and for a little bit of money they tell me everybody who’s in the neighborhood here that I can reach out to so you know kind of an interesting question there then then the next question for companies is how broad do you go with this because it’s so tempting to just say wow look what I could do you know I could go from tractors to smart farms and there’s just a natural logical progression of that gets me there whirlpool says I can go from appliances to smart homes Nike says I can go from shoes to healthcare management there’s just a progression that gets me there and you know we think it’s a very interesting opportunity and somewhat of a dangerous threat that one out runs their supply lines and ends up in trouble with a big expensive strategy that won’t work next question is should one try to create all this technology or should you buy it from somebody so John Deere was very early all of their equipment is connected all if not connected they develop vast amounts of technology themselves the good news is they own it all the bad news is they now have to compete with the Mongolian horde of software companies who are all trying to do this better than them and I don’t know if they actually can over a period of years keep up because they won’t be able to invest the kind of money that others are investing on the other hand out he joined a consortium of companies who want to make automobiles android-based so they’re basically saying you know your car is just a big tablet with wheels and it runs apps and you know we’re just rather than try to develop all this stuff ourselves we’re just going to buy Android from Google big ecosystem of people will supply other technologies and off we go next question is should one think about changing its you know or disintermediating some of its service or selling partners so think about it automobiles are sold through dealerships dealerships are big and expensive you know when you listen to her chambers and who’s the other guy down on Route one Ernie Boch jr. yeah I mean these are wealthy wealthy wealthy guys right and they don’t make cars they just sell them and service them and they make a lot of money selling and servicing them well it turns out that if your products are connected then you actually have what I call digital proximity to your customer which might replace the need for physical proximity because the dealers were designed to put you close to the customer you know it turns out Ford doesn’t or let’s take Lexus because I have a Lexus I bought from herb chambers Lexus doesn’t produce cars in Boston so there’s no Lexus factory anywhere nearby so Herb Chambers Don Andrew one sells Lexus’s for the the toyota company that makes the Lexus brand and gets a big cut of money for it but Lexus could now say well let’s take a real example tests on so Tesla is this new electric car and everybody thinks of an electric car you should think of it as a connected car because it’s the most connected car out there and in fact it’s one of the most connected products out there a good example is there was a accident the Tesla’s have a very safe driving record right now very very safe one of them though in the last year or so was in a small accident and it ended up going over a curb and as it did it scraped against a piece of steel that ripped open the battery and the battery sparked or something like that the car started on fire now the driver got out you know but the car burned up and all the guys in Detroit were saying thank God you know these things are dangerous still so Tesla said no they’re not we have a fix for it we’re just going to send a software patch out to all the cars to tell the suspensions to raise them up by 3 inches and so instantly the whole fleet of Tesla’s have 3 inches of extra clearance which reduces the statistical odds of that happening again you know dramatically so problem fixed Detroit let’s see you do that right pretty pretty interesting so Tesla has no dealers if you want to buy a Tesla you go to the mall in Natick and you go to one of their little stores there’s couple models sitting in there and if you like it you place an order and one shows up and when it’s time to service it they come to your house and you don’t have to call them because they know they know when it’s time to service it so they’ll call you and say they’ll say hey I want to do some work on your battery because there’s a problem developing and I notice that you’re typically not driving in the afternoons so can I swing by tomorrow afternoon and

you know fix your battery pretty interesting Tesla has the highest customer satisfaction right now in the automotive industry without dealers and they’ve been sued every which way from Sunday by the dealers association to say you have to have dealers and they’re at their attitude is this the United States of America I don’t have to have dealers the only place they’ve lost the lawsuit is in Michigan but but here and here in in Massachusetts in fact they don’t have dealers and then last question I think this is last question is should the company change his business model you know should you think about not selling bicycles but providing a bicycle sharing service that’s a different very different business model it may be a better business model I’ll give you some examples though from other places in the world of heating ventilating and air conditioning this is the heating and air conditioning stuff you put in houses of buildings lots of equipment there that’s complex and needs to be serviced and so forth some companies have said you don’t have to buy it anymore like for this campus they could come and say you don’t have to buy the equipment you just pay me to keep your buildings comfortable because after all that’s why you have that equipment and I could manage this whole thing a lot better if you just get out of the way so I’ll keep the equipment it’s my equipment I’ll service it the way I want to service it you just pay me for the end result which is your buildings are comfortable and you know what if I fail to make them comfortable you want to pay me as much but you know you’re basically paying for the utility of the product not for the product that’s what these hub way bicycles in Boston are all about you’re paying for transportation not for the right to own a piece of steel and rubber and it turns out for a lot of people they only want to transportation in the first place so it’s a it’s a better business model okay so just kind of moving to wrap up here and I’m sorry I’m actually running a little long so people have talked about how big this phenomenon is if you look at the green circle that represents the number of people on earth in 2010 there were five billion 2020 it is projected to be seven billion people in 2035 nine billion if you look at the number of devices connected to in 2010 one in five people had a computer or a smartphone connecting the Internet this is Cisco data cisco is projecting that by 2020 every person on average will have about seven devices their computer tablet smartphone car refrigerator what-have-you and by 2035 a trillion devices so we look at it and say yeah don’t forget there’s also gonna have to be an explosion in applications developed to make all this stuff work because those trillion devices are gonna need a whole lot of applications to make them tick as well so bottom line is you know this is a big change what I’ve tried to convince you you know and what the what the Harvard Business Review article tries to convince corporate executives is the world’s going through a radical change and I think in change lies opportunity if I think about the things in my career that have made me successful it’s seeing a point of flux in trying to understand what will the world be like on the other side and going there and creating something for that world and then finding out you’re the only one that has it so we think that there will be like I said millions of new apps lots of new technology new business models and new businesses created and so forth and we think that you know the challenge / obstinate e is education because we need to produce a whole lot of people that understand this new world in order for this new world to happen and of course that’s why we’re here with you guys so just a closing thought there’s a program we’re pulling together at PTC which would be a classroom experience to make your own smart connected product almost from scratch to just learn the idea of one the whole stack though and so John and Jordan have this program pioneered it’s not quite full-scale production but it’s in limited production right now but the idea is you’d have your student envision a smart connected product so something simple because we’re trying to get the plumbing idea down not that not the final product and you could then model the mechanical bits of this thing in our Creole software and print them out on a 3d printer and it might just be an enclosure or something like that you know wouldn’t have to be a mechanism but it could be that’s just more complicated then you could attach sensors to that thing and it turns out there’s a of IOT starter kits out there some as low as $20 which give you a set of sensors and these sensors could be glued on or taped on or whatever you know and he’s have done to this thing you printed and then you could connect them to a simple computer you may be aware of this thing called the Raspberry Pi there’s a few other alternatives but a Raspberry

Pi is a credit card size computer that costs about $35 and it has the capability to read all these sensors connect to Wi-Fi and supply information back and forth so I’m up to about $55 now plus the cost of the printing medium I guess in the 3d printer then you could connect that thing that smart connectable thing to what we call our device cloud that’s this database in the sky so we would allow students to connect into our database in the sky they could then use our software to connect to their thing see it’s their monitor what it’s doing and so forth and then down to step 8 start to write their own applications like I don’t want to just know where it is and what the sensor readings are I want to ask you know kind of more traditional questions like back to that pacemaker what’s the battery what’s the blood pressure what’s the body temperature what’s the cardiac stimulation rate how can I monitor control optimize and autonomy that if if appropriate and again you know the idea is try to get you to the point where you’ve actually developed a simple smartphone app that through a cloud develop controls monitors and controls a simple smart connected product that you also created and then from there you understand the big picture you could go anywhere with it now we’re excited about this we think it’s practical it’s been pioneered by a college intern basically for us this summer and we’re in the process of productizing it so we’ve watched the college intern go through this whole process figuring it out for the first time we’re trying to just simplify it and package it and so forth but one of the things we’re very excited about is that we think that Massachusetts in general and you know Boston in particular can be the hub for Internet of Things phenomenon in the world because we PTC have a big lead here there’s another company in town called means a pretty substantial player you know Harvard’s now taking a position with this research work we’ve done and there’s a conversation going on of could some of us in industry and some of us in academia try to create like you know an IOT center of some sort that would become renowned and really make Boston in Massachusetts the hub of where people want to be if you’re trying to create the smart connected things that do all those you know wonderful possibilities I’ve been talking about so I think something’s gonna happen at that level and I think you know perhaps including all of you and that might be interesting you know that you’re feeding talent into that you know people coming out of high schools and so forth already seeing I’ve done all that stuff you know I I can make my own smart connected product now I just have to decide which of society’s problems am I gonna go solve with it right now I exactly know how to do it I just need to know precisely what I’m gonna do but but the concepts completely understood so okay so I think I’m Way over time here I shouldn’t for benefit of your agenda wrap up and I apologize for running over but thank you very much for this opportunity